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| PROCEEDINGS OF THE COMMITTEE (Continued)
3:1 Current Purchasing & Sourcing Policy
3:2 Purchasing & Sourcing Policy: The Potato Market
Blight problems experienced in the NI market necessitated the supply of ROI produce during 1999. Local sourcing is the preferred option which is only over-ridden when suitable supply is not available.
4:1 Consumer Marketing
5:1 Industry Initiatives with Local Producers
6:1 An Approach to Developing
Market Opportunities
Sheila Gilroy-Collins, Marketing
Managing Appendix F COMMITTEE FOR AGRICULTURE AND RURAL
DEVELOPMENT 12 January 2000 Procurement Policy I refer to Dr Ian Paisley’s letter of 21st December addressed to my colleague Brian McColl. I am replying on behalf of Safeway. I will deal with each of your concerns in turn: 1. It is difficult for us as retailers to comment on the prices which potato growers receive from the packers they supply. As you are no doubt aware, the supply chain for potatoes and other types of produce has three stages. The grower supplies the packer, who packs and transports the product to the retailer’s distribution centre (in our case our depot at Larne). The retailer then delivers to his own stores. The price we charge our customers, therefore, is driven by the price we have to pay the packers who supply us. 2. We do not have commercial relations with individual growers. However, what happens in the market place inevitably works its way back up the supply chain:
3. I cannot really comment on your point about the manufacture of crisps as GOA do not supply us with this product. 4. As far as our potatoes are concerned, the country of origin is always made clear on the bag as well as the variety. I hope this information answers the concerns you have raised, but if there is anything further you need, please let me know. Yours sincerely Kevin Hawkins Appendix G COMMITTEE FOR AGRICULTURE AND RURAL
DEVELOPMENT 9 February 2000 1. Introduction 1.1 Sainsbury’s Supermarkets Ltd (Sainsbury’s) is the largest subsidiary of J Sainsbury plc which also operates Savacentre hypermarkets, Homebase home and garden centres and Sainsbury’s Bank in the UK plus Shaw’s supermarkets in the US and Edge in Egypt. 1.2 Sainsbury’s sources products from over 2,000 suppliers who provide some 12,000 food lines and 9,000 non-food lines. Each week around nine million customers shop in over 400 Sainsbury’s supermarkets throughout the UK. Last year, Sainsbury’s sold over £11.5 billion worth of food in the UK. £6 billion worth of this was food from the UK. 1.3 Today Sainsbury’s has 100 suppliers in Northern Ireland, supplying fresh produce and product in stores to the Province and the rest of the United Kingdom. Sainsbury’s has committed to doubling the value of its existing business sourced from Northern Ireland to between £150 and £200 million over the next few years and the value is now £120 million. Around 150,000 customers shop in the stores each week. 1.4 Sainsbury’s potato supplier in the Province is Glens of Antrim based in Cushendall, Country Antrim. Glens employ 35 people and supply potatoes to all Sainsbury’s stores in the Province. The business is worth £1 million per annum. 1.5 On 20 June 1995 Sainsbury’s announced its intention to invest in Northern Ireland with an initial tranche of 7 stores costing £100 million and providing 2,200 full and part time jobs. Sixteen per cent of the first 1,000 jobs were from the long term unemployed. 1.6 There are five Sainsbury’s supermarkets and petrol filling stations: Ballymena (December 1996), Forestside, South Belfast (March 1997), Coleraine (December 1997), Craigavon (March 1998) and Newry (September 1998). Sainsbury’s in Armagh (December 1998) does not have a petrol filling station. Sainsbury’s in Strand Road, Londonderry opened on 25 January this year providing around 350 jobs (this store does not have a petrol station). There are seven Homebase stores in the Province as well. 1.7 Sainsbury’s currently awaits planning determination on a number of other applications including a flagship store Sprucefield, Lisburn and Newtownabbey. Further opportunities are being appraised to provide an ultimate portfolio in Northern Ireland of some 12-14 supermarkets. 1.8 This document outlines our Sainsbury’s policy on sourcing Northern Ireland produce; margins and pricing policy and our buying policy using a number of case studies including potatoes. 2. Sainsbury’s policy on sourcing Northern Ireland produce 2.1 Background Sainsbury’s is committed to UK agriculture, working with farmers to ensure high-quality, value for money food is available to consumers. Like all supermarkets we do not buy direct from farmers, we buy meat from processors and fruit, vegetables and salads from packers and pre-packers. 2.1.1 Prior to Sainsbury’s announcement in June 1995 of its development plans for seven stores across Northern Ireland, the Company sourced £80 million worth of produce a year from Northern Ireland from 17 local suppliers. Sainsbury’s has committed to doubling the value of its existing business sourced from Northern Ireland to between £150 and £200 million over the next few years and the value is now £120 million. 2.1.2 Today Sainsbury’s has 100 suppliers in Northern Ireland, supplying fresh produce and product in stores to the Province and the rest of the United Kingdom. This is an example of the importance which the Company places on sourcing quality and will continue to work closely with the Industrial Development Board (IDB) and other agencies to increase the number of suppliers. No company is too small to supply Sainsbury’s. No fee is required from companies in order to become a Sainsbury’s supplier, and no penalty clauses are imposed in our supply contracts. The vast majority of our suppliers are free to trade with competitors. Legal disputes are rare. 2.1.3 It makes sound commercial sense to maximise local purchases for supply to our outlets in the Province, particularly on produce where there are both cost and freshness benefits in not having to transport goods several hundred miles from the mainland. Although there is strong demand in the Province for local products, we share the view of the General Consumer Council that consumers in the Province will buy local products only if they represent good value for money and good quality. Regarding the transportation of food, we estimate that we eliminated at least 1.6 million km last year, cut fuel consumption by 597,000 litres and cut CO2 emissions by 1,530 tonnes. Our suppliers also reduced food mileage by 480,000km. 2.2 ‘Meet the Buyer’ conferences To increase the supplying opportunities available to local producers, Sainsbury’s has been proactive in sourcing product from Northern Ireland including three ‘Meet the Buyer’ sourcing conferences. The first was held in Belfast in 1995 and smaller events were held in Londonderry in April 1996 and in Newry in May 1998. Potential suppliers met Sainsbury’s buyers on a one-to-one basis to talk about supplying opportunities. 2.2.1 In November 1999, we, along with the Londonderry Chamber of Commerce, ran a seminar to highlight supplying opportunities with Sainsbury’s both in Northern Ireland and throughout the UK for smaller companies in the area. 2.3 ‘Partners in Produce’ scheme Three Northern Ireland companies – Glens of Antrim Potatoes (Cushendall, County Antrim), Sparky Pac (Comber, County Down) and Hughes Mushrooms (Dungannon, County Tyrone) became the first Northern Ireland ‘Partners in Produce’ when Sainsbury’s launched its Partnership in Produce initiative in Northern Ireland in November 1997. 2.3.1 Partners benefit by the partnership providing them with a planned market for their produce and the security of a financially sound trading relationship so that growing and packing can be planned against clear sales programmes and with the back-up of Sainsbury’s technological and research expertise. 2.3.2 Jobs have been created as a result of Sainsbury’s supplying opportunities in Northern Ireland. The major share turnover of Dungannon Meats, for example is with Sainsbury’s and as a result of this sustained level of business, Dungannon Meats now employs over 620 people and is one of the largest employers in the South Tyrone area. 2.3.3 We believe that the support we give to products through in-store promotion and our Partnership schemes is an effective way of helping the agricultural sector. If any supplier finds that his business is being diminished because of an initiative we are taking with other products in that same category, then we would work with him to try to develop his product range so that he had other means of increasing his income by, for example, spreading the product to more stores. It is of no benefit to Sainsbury’s to see one of our suppliers in financial difficulty. We want them to succeed as much as they do. We need suppliers who are investing for the future, investing in better quality and investing in new varieties to improve choice and quality and who ensure that welfare and health and safety issues are dealt with. Last Autumn, Dungannon Meats, announced a new scheme to use bull calves for beef products to help tackle the current crisis in the sector. 2.3.4 We have looked at the possibility of supporting farmers’ markets but we came up against a number of problems such as planning constraints restricting the use of our car parks for anything other than car parking. 2.4 Sainsbury’s support at the Balmoral Show In 1999 Sainsbury’s participated for the fourth year at Northern Ireland’s premier agricultural show – the Balmoral Show. The theme of Sainsbury’s stand was ‘supporting local growers and suppliers’, a reaffirmation of the Company’s commitment to Northern Ireland growers and suppliers and local sourcing in general. 2.4.1 At a reception for suppliers held at the stand, the Sainsbury’s Outstanding Supplier Achievement Awards for local suppliers were inaugurated. The awards are for local suppliers who achieve exceptional business growth with the supermarket. The Awards illustrate both Sainsbury’s and the award winners consistent commitment to quality last year. Dungannon Meats won the large company category and Glens of Antrim Potatoes won the small company award. Their combined growth in business with Sainsbury’s was 350 per cent. Glens of Antrim employ 35 people and supply potatoes to all Sainsbury’s stores in the Province. The business is worth £1 million per annum. 2.5 Supplier Development Programme If there are suppliers and sources in Northern Ireland who are able to provide a product that is as good as one that we are already sourcing from the mainland or elsewhere then it makes sense in terms of freshness and delivery costs to develop that source. In February 1998 Sainsbury’s launched a major Supplier Development Programme to assist Northern Ireland food companies in the development of their business with Sainsbury’s. The programme, delivered by Leavercliff Associates, has given 27 local food companies a unique opportunity to understand how to work with and develop their business with Sainsbury’s. 2.5.1 The programme took the form of a series of seminars covering areas such as understanding the UK market and identifying and exploiting product opportunities. Companies were supported by a number of one-to-one sessions, which looked at logistics, financial analysis and technical requirements. This programme is now complete and has resulted in these suppliers growing their business with Sainsbury’s by around £12 million. 2.5.2 As a result of the Supplier Development Programme, Hughes Mushrooms of Dungannon is set to triple its business with Sainsbury’s and is on target to supply mushrooms to the value of almost £5.5 million to Sainsbury’s stores throughout the Province and across the rest of the UK. 2.5.3 The second Sainsbury’s Development Programme was launched in March 1999 and involved 10 additional local Sainsbury’s suppliers. Annual turnover by November 1999 had increased by 35 per cent for the suppliers involved. Forecast turnover for the next 12 months is predicted to be around 130 per cent. 2.6 Northern Ireland Suppliers: wider opportunities A number of Northern Ireland companies who have become suppliers to Sainsbury’s since the company began trading in Northern Ireland have subsequently become suppliers to Sainsbury’s on the mainland. These include Tayto Crisps, Farm Fed Chickens, Irwin’s bread, Morrows Pate and Hughes Mushrooms. Size is not a barrier to supplying the mainland market. 2.6.1 The company has sourced products from Dungannon Meats, Cuan Oysters and Denny’s for around 20 years prior to developing stores in Northern Ireland. Farm Fed Chickens from Coleraine, Sainsbury’s only source of corn fed chicken, has almost doubled its business with Sainsbury’s since 1997 and recently won an additional contract expected to be worth £5 million annually with Sainsbury’s to supply its premium range of corn fed chicken to the company’s top 70 stores. Hughes Mushrooms will triple its business with Sainsbury’s over the next 18 months to around £4.7 million a year. 2.7 Labelling policy We are committed to supporting the local farming industry and have been labelling meat, fruit and vegetables as home-produced for many years. Therefore produce from Northern Ireland is marked ‘Product of Northern Ireland’. By the middle of this year we will have labelling of origin on the remaining fresh meat products which include ready meals, sandwiches and delicatessen products. 2.7.1 We are looking to extend regionality across the UK and ‘Products from Northern Ireland’ will be incorporated into this policy. Any future labelling will be as simple as possible for ease of recognition and designed with the customer in mind 3. Sainsbury’s Margins and Pricing Policy 3.1 Our primary aim is to deliver the very best competitive offer to our customers. In accordance with our view that the Province is part of a single national market we operate the same pricing policy in the Province as we do on the mainland, that is a national pricing policy with a few tweaks to reflect specific local trading conditions such as in the potato (see table 1), milk and bakery industries for example details of which are below. It is a popular misconception that retailers are making large profits at the expense of farmers. 3.1.1 The IGD announced recently the results of a survey into consumers attitudes to food prices and profits. It found that consumers had exaggerated views about profit levels. Consumers thought an average of 36 pence in every pound spent in food shops went in profit to retailers and 26 pence to manufacturers – the actual figures are 6.5p and 8.5p. [i.e. manufacturers profits are proportionately higher.] 3.1.2 The IGD research showed that there is little understanding of how industry makes or uses profits and there is an exaggerated view of how large profits are. 3.2 Farmgate and retail pricing A large proportion of the cost which arises between the farm gate and the retail shop include the costs of sale and transport, processing, packing, distribution and retailing costs. Retailing costs include the cost of promotion, staff, depot and the cold chain. Processor costs have risen significantly due to additional food safety and hygiene requirements. These costs have been passed onto the retailer. We are looking ways in which these costs can be reduced without any detrimental impact on the safety and integrity of the food we sell. 3.2.1 It has been suggested that retailers put the price paid at the farmgate as well as the retail price on goods. The only price we pay is the one to our suppliers for packed produce and produce ready for retail sale. We are not involved in the price our suppliers pay to farmers. It would be far too complicated to have different labelling. If consumers are to understand what they are being presented with, then each added cost after the farmgate, be it added by the packer, abattoir, processor or retailer, would have to be explained. It is in our interests to have profitable farmers. 3.2.2 Potato example TABLE 1: List of commodities supplied by Northern Ireland supplier, Glens of Antrim Potatoes to stores in Northern Ireland all year compared to average prices of mainland suppliers.
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