The market power of supermarkets (including discounters, hypermarkets) vis-á-vis manufacturers has grown stronger in parallel with their increased market share in food and non-food retailing. In both developed and emerging markets consumers tend towards more convenience, time saving, quality and luxury. This gradual shift in market power from A-brand producers to ‘A-brand’ retailers led to lower prices for producers, longer payment terms and an increase in the importance of Private Labels (brand names owned by the supermarkets) at the expense of ‘A-brands’ manufacturers are hence forced to step up marketing expenditure, to the detriment of profits. This was further exacerbated by the venue of the large discounters, causing the ‘Supermarket Wars’ in the last decade.
The effects of increased supermarket power on backward linkages and procurement systems are:
1. Increased centralization of procurement;
2. Growing use of specialized/dedicated wholesalers;
3. Adoption of contracts with preferred suppliers (also via dedicated wholesalers);
4. Rise of private quality and safety standards.