A bread battle
When Musgrave refused a price increase from one of its biggest suppliers, Cuisine de France, in January, the bakery company surprised everyone by ending the relationship and thus beginning weeks of speculation about how it would all end. Fionnuala Carolan reports
Print14 February 2013
The last month has seen a major dispute in the Irish grocery sector between Musgrave and Cuisine de France. The popular bakery products have been visibly missing from many SuperValu and Centra stores around the country since Monday 28 January. This was as a result of proposed cost increases by Cuisine de France, which were rejected by the retailer. Musgrave is now sourcing its bakery offering from a number of Irish and European bakeries, including Stafford’s in Wexford.
The dispute arose when Cuisine tried to put through a price rise in January in addition to a very recent increase in October which is alleged to have accounted for a double digit increase in total. It has been said that the company was seeking the increases due to a rise in commodity prices such as flour and grain. While Musgrave agreed to the original increase in October, it was not to be swayed on any further increase in the new year. This created a stalemate and resulted in the end of a very lucrative relationship for both companies.
Cuisine was rumoured to be paying millions in rebates to have its products on Musgrave’s central distribution account but Musgrave disputes the figure, saying that it is "hugely inflated". As is customary, suppliers pay the larger retailers rebates to maintain the business and contribute to a centralised marketing fund. This can contribute to higher prices because the supplier needs to recoup this lump sum in some form.
Returning to its roots
On 10 January Cuisine de France contacted all Centra and SuperValu retailers by letter to let them know that its business relationship with Musgrave would end on 28 January.
The letter which was sent to the ShelfLife office began with, "Dear Retailer, we are returning to our roots"…..
The bakery company said it was moving to "a direct relationship with both SuperValu and Centra retailers" and the company was offering retailers "a range of new benefits" in order to secure their custom. Some of these benefits included price reductions, a new direct rebate structure, an in-store investment programme including equipment, training and marketing campaigns and new products from the company’s global product range.
A spokesperson from Cuisine de France told ShelfLife that it was viewing this break from Musgrave, one of its biggest customers, as an opportunity to grow in a different direction and bring the relationship back to basics by taking out that extra layer. The extra layer presumably relates to the rebates they were paying the company.
Cuisine de France was actually founded in 1989 and became part of IAWS Group plc in 1997. This enabled Cuisine de France to expand its operation internationally. The company then became part of the Swiss-based Aryzta Group in 2008 when IAWS merged with Hiestand Holding AG and it is thought that the call to end its relationship with Musgrave came from its European headquarters.
Cuisine de France’s successful brand portfolios include Cuisine de France, Pierre’s, Cuisine de France At Home, Carroll Cuisine, as well as international brands like Delice de France, La Brea Bakery and Heistand.
Retailers caught in the middle
Musgrave was confident from the outset that its retailers would remain loyal, partly because they were part of the group and also because the retailers have a duty to buy 95% of their stock through Musgrave. Considering that a bakery offering can account for up to 12% of a retailer’s business, many couldn’t afford to buy all their products outside the system. Retailers who spoke to ShelfLife in the immediate aftermath of the news said they felt torn as they wanted to be loyal to their group but feared that Musgrave would not source new suppliers fast enough to meet demand. Retailers have a long and solid relationship with Cuisine and trust the product, so were dubious as to whether Musgrave could fill the gap before the 28 January deadline.
Sales and logistics
When the parties failed to agree on a pricing strategy, Cuisine de France prepared to sell directly to the retailers. However within two weeks, Musgrave had managed to source all bar three lines of product and initial reports suggested that retailers were very happy with the new offering and claimed that they were maintaining their margins or even bettering them with the new arrangements.
According to Musgrave, the company has now taken back control of the bakery section and had few problems finding replacement products at short notice. Musgrave’s central distribution network involves the largest logistics operations in the grocery industry. From Musgrave’s perspective, Cuisine is the main loser in this dispute as it has lost 800 retail partners, said to be more than a quarter of its Irish business.
Musgrave has also said that many of its shops are due to create scratch bakeries in-store within the next couple of years so the need for the delivery of bakery products will reduce significantly.
Loyalty to Cuisine de France
While retailers are certainly loyal to Musgrave, they also feel a loyalty to Cuisine de France, a company they have dealt with for around 20 years. Aside from the strong track record of delivery and supply, the Cuisine de France reps would have built strong relationships with many retailers and these retailers do not want to turn their backs on them now. For this reason many have kept their accounts open with Cuisine and signed new direct debits. A source from Cuisine de France has said that the "majority of retailers have signed up with them" and they are "very happy with the numbers". While many may well have signed up, the retailers that ShelfLife has spoken to seem to indicate that this is a precautionary measure and they will still be receiving their main bakery offering through Musgrave central distribution. Many retailers will also be reluctant to leave themselves open in case the new supply arrangements through Musgrave don’t work out well in the long run. While initial reports of the new product offering was positive, it will be interesting to see whether this changes when retailers begin the ordering and reordering process. That will be the real test for Musgrave and where Cuisine is likely to pick up extra business.
How will it all end?
While the initial fears from the retailers were that they were caught in the middle of a row between their symbol group operator and one of their top suppliers, they now realise that they have two strong bakery options available to them, both eager to gain their business. This puts the retailer in the optimum position because it means that they can now source the best product at the best price.
With the new Musgrave offering, retailers told ShelfLife they are receiving 15-17% more margin and Cuisine de France has offered a range of new benefits as stated in its letter to retailers on 10 January. Many other suppliers will be watching how this unfolds very carefully and if Cuisine manages to hold on to a decent share of the business it would put the ‘rebate’ model under serious pressure in the future and indicate better terms for retailers and lower prices for consumers.
What the retailers are saying:
ShelfLife spoke to a number of retailers about their experiences of the whole debacle. Understandably no retailer wanted to go on the record.
"It was all managed very well and we were kept very informed. I’m happy that Musgrave didn’t accept the price increases as we are now getting better quality product and still maintaining our margin."
"Musgrave have filled the gap. You’re either part of a team or you’re not. We have a loyalty to them. I have opened up an account with Cuisine de France in case of shortages or for some certain products."
"The new Mon/Wed/Fri schedule is identical with the new arrangement."
"I’ve only heard of two retailers that didn’t order with Musgrave."
"I can’t see this dispute being worked out."
"We are in a good position as we are buying at 15/20% cheaper now."
"Musgrave has managed to source what we need and the new product is even better. We haven’t had too many teething problems with deliveries yet."
"We do a lot of our own bakery but there are certain lines we would still take from Cuisine de France."
"Retailers were put in an awkward position initially as we had been working with Cuisine de France for years and were happy with the arrangement but then no retailer is going to risk its business by turning its back on Musgrave."
"I’m very happy with the new arrangement. We have signed up with Cusine de France too in case we need them but we’ve had no issues and very few teething problems so far. We are getting deliveries everyday and the quality is good. The only products we weren’t receiving were the jam doughnut and the chicken fillet but I think they have it sourced now."
"Will they get back into bed with one another? I don’t think so. I actually think Cuisine de France’s model should be reconsidered. All the other retail groups will be watching what Musgrave is doing. It’s a fundamental mistake. It seems to me like this decision was taken in Europe."
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