Chapter 3: Living with power imbalance in the food supply chain – Delivering Performance in Food Supply Chains


Living with power imbalance in the food supply chain

M. Hingley,     Harper Adams University College, UK

A. Lindgreen,     University of Hull, UK


In the context of vertical agri-food industry business-to-business relationships in the United Kingdom, the majority of control lies with large multiple retailers. Predominant in agri-food channels is a reduced supplier sourcing model; category management and network supply coordination, through super middlemen, also are widely applied. Power-imbalanced business relationships appear to be important for understanding business exchanges and power should be a central consideration in business relationships. However, imbalance in power is no specific barrier to parties entering collaborative relationships or to their success. The acceptance of power imbalances is a key step to successful relationship building in agri-food channels and though collaborative chain activity may be beneficial, suppliers should recognise that such activity still means operating with imbalances in power and rewards.

Key words

business relationships


UK food supply

3.1 Introduction

This chapter examines the nature of power in a business-to-business vertical supply chain context by studying the UK agri-food supply channel and its particular and vital interface with multiple food retailing organisations. Such an investigation is of particular interest because of the large-scale upheaval suffered in recent years in the UK agri-food industry and subsequent initiatives to address the ensuing difficulties, notably at the primary end of the food production system. The analysis of fresh food suppliers and retailers employs material from qualitative in-depth interviews with key proponents that clarify issues related to business relationships and power. The resultant discussion considers these issues of power and business relationships and their impact on evolving food industry structures (i.e. category management and preferred supplier arrangements in a network centred on super middlemen). Conclusions and recommendations pertain to the appropriateness of a relationship approach and theories of power for the development and operation of agri-food channels.

3.2 Role of power

Any understanding of the nature of business exchanges in vertical chains must address the nature of power and its influence on relationship formation. Power as a construct in business-to-business relationships has received irregular and contrasting treatment from analysts, including those who view the concept of power as alien to the effective workings of exchange relationships and determine success through principles of cooperation and trust. According to this view, power negates cooperation (Bretherton and Carswell, 2002; Doney and Cannon, 1997; Pole and Haskell, 2002). Furthermore, Gummesson (1999) considers a power imbalance to be detrimental to sustaining a business relationship and Naudé and Buttle (2000) express the common view that power has a negative influence which is not able to help build relationship quality. In their comparative study of power in UK and Australian business-to-business retail relationships, Dapiran and Hogarth-Scott (2003) note that other writers, including Kumar (1996) and Kumar et al. (1998), view power as the antithesis of trust and only in a negative light.

Yet a negative view of the role of power is by no means universal. A contrasting viewpoint (Blois, 1998; Campbell, 1997; Kalafatis, 2000; Svensson, 2001) emphasises that not all relationships result in mutual benefit; not all relationships are based on joint trust, nor do they need to be, and trust alone cannot be a sole source of dependence. For example, Earp et al. (1999) warn that viewing relationships as if they must involve commitment and trust means ignoring the rich diversity of business exchanges that not only exist but are appropriate in different contexts.

Perhaps, in researchers’ enthusiasm for the ideal business exchange conditions, they have overlooked the role of power or dealt with it solely as a side issue, so that it rarely gets discussed in supply chains except to deny its importance (Williamson, 1995). Some authors argue power should be at the centre of any study of buyer–seller relationships (e.g. Cox et al., 2003) and recent texts have revisited seminal works with this perspective. French and Raven (1959), for example, explore power and influence in organisational buying situations; Berthon et al. (2003), Farrell and Schroder (1999), Collins and Burt (2003) and Dapiran and Hogarth-Scott (2003) all cite this early source. So in the context of exploration of both human interaction and business relationships, power is seen as an ever-present influence, but this does not necessarily mean that it always has negative consequences.

Another significant contribution to this debate comes from the study of transaction cost economics or transaction cost analysis. Williamson’s (1975, 1995) work receives multiple citations in studies of power (Loader, 1997), especially his treatment of surplus value (i.e. the supplier’s cost of production versus the buyer’s utility function) and how the share of surplus value is divided between parties (Cox et al., 2003). Williamson (1975) contends that each partner is motivated by its self-interest to retain as much of this share as possible for itself (Cox, 1999); therefore, a situation of power must be the ideal position. Furthermore, in buyer–seller relationships, there must be continual manoeuvring for power superiority to secure a greater share of the surplus value created through the possession and/or control of resources (Berthon et al., 2003; Stern and El-Ansary, 1996).

Kumar (1996) adds that the vast majority of manufacturer–retailer relationships are imbalanced and suggests a more extreme view, namely, that channel imbalance means relationships are inherently unstable and those that exist are in danger of becoming ‘fiefdoms’ that tie suppliers to powerful, dominant partners (Blois, 1997). Johnsen and Ford (2002) also cite the dangers of such asymmetrical relationships, claiming that the power of the dominant party disadvantages the weaker party, and Kumar et al. (1998) warn that powerful channel members can enforce punitive capabilities and actions that inflict negative consequences. Kumar (2005) deftly summarises existing definitions of power as dependence, punitive capability, non-coercive influence strategies and punitive actions; the last feature constitutes the antithesis of trust in relationships.

Yet power has no real regard to whether exchange relationships are balanced or unbalanced (i.e. symmetrical or asymmetrical). Therefore, it is not safe to assume that the natural state of exchange relationships should be one of symmetry and equilibrium, or even fairness. Rather, organisations may actively seek to unbalance their symmetrical relationships to gain a greater share of the benefits (Feldman, 1998). Narayandras and Rangan (2004), in their studies of pairs of relationships, suggest that asymmetric exchanges can thrive, which leads to ongoing trusting/committed relationships. Both outcomes are perfectly possible, depending on the context of the exchange partners, as well as the shifting interplay of power between buyers and sellers. Thus, relationship participants may experience buyer dominance, interdependence, independence, or supplier dominance (Cox, 2001). The degrees of power in different exchange circumstances may change or fluctuate, even within an ongoing relationship. A business organisation’s response to the influence of power therefore must be appropriate to the particular and changing circumstances it faces (Cox, 2004). Ultimately, an imbalance of power should be regarded as a ‘normal’ phenomenon (Batt, 2004). Most organisations are calculating in their dealings with more or less powerful organisations, such that parties may accept imbalance in the pursuit of their business objectives (Geyskins et al., 1996; Newman et al., 2004).

In relation to fairness, relationships are seldom fair in the division of power or reward, nor are all parties equally committed to a relationship (Gummesson, 1996; Kumar, 1996). Fearne et al. (2004) consider issues surrounding fairness and justice in agri-food supply chains, gathering empirical data from supplier and retailer organisations. This information helps identify the applications of power imbalances and relational conflict. However, regardless of a desire to be fair, such partnership arrangements ultimately tend to offer the most benefit to the more powerful business partner (Christopher and Jüttner, 2000). It is not surprising that benefits are, or seem to be, unevenly shared, but this unfair distribution does not mean that power-imbalanced relationships are not workable or enduring. Davies (1996) offers a compromise as a means of living with power imbalance: admit that one channel member is normally in charge, so that channel members who wish to cooperate in order to attain mutual advantages must focus on the joint satisfaction of common objectives, regardless of the inevitable imbalance. Therefore, most business relationships exist in a state of what Bengtsson and Kock (2003) call ‘co-opetition’, in which competition and cooperation exist at the same time (Hingley et al., 2006a).

3.3 Relationship approach and power issues in agri-food channel relationships

The scant and mostly negative treatment of the context of power in business relationships, as well as the predominance of investigations into ‘positive’ relationship factors (i.e. trust, commitment, cooperation and mutuality), leaves a gap in business relationship literature in relation to the role of power and the ability of organisations to manage power imbalances. Methods of building lasting, meaningful and workable relationships characterised by power imbalances and power dependency, remain highly pertinent to studies of agri-food industry supply chain relationships, in which power generally is skewed in favour of large retail buyers, whereas suppliers of (usually unbranded) products suffer power dependency.

Issues of power dependency, conflict, trust, commitment, cooperation and collaboration (Earp et al., 1999; Johnson et al., 1999) have been applied specifically to food supply chain and retailing industry contexts by, for example, Christopherson and Coath (2002), Hogg et al. (1996), Matanda et al. (2001), Siemieniuch et al. (1999), Egan (2000) and O’Keefe and Fearne (2002). In the United Kingdom, the agri-food industry has experienced concentration in most parts of the supply chain through backward vertical integration, initiated by powerful multiple retail buyers (Collins and Burt, 1999; Galizzi and Venturini, 1996; Howe, 1998; Robson and Rawnsley, 2001). As a result, the shift in power within food marketing channels favours multiple retailers (Bourlakis, 2001; Fiddis, 1997), which represent the main gateways to consumers and the gate keepers between producers and consumers (Lang, 2003).

Hughes (1994) describes food marketing and supply channels as including senior partners, channel captains, or channel leaders (Shaw and Ennis, 2000); O’Keefe and Fearne (2002) describe these category leaders as large processors or retailer buyers (Strak and Morgan, 1998). Retailers search for fewer and larger suppliers that can work with them in partnerships (Fearne and Hughes, 2000; Hingley, 2001; White, 2000; Rademakers and McKnight, 1998), inducing a trend toward multiple retailers that develop exclusive relationships with fewer, favoured, single-source or dedicated partnerships. In turn, suppliers are locked or tied into the relationship (Grunert et al., 1997; Larson and Kulchitsky, 1998) in a type of vertical channel quasi-integration (Howe, 1998).

However, among those that advocate collaboration in the supply chain, a reduced source model may require consideration of the origins of partnering behaviour in a business context, as identified for the lean-thinking concept pioneered by Toyota in car manufacturing (Womack et al., 1990). Cox (1999) calls this approach an ‘operational innovation treadmill to oblivion’, because the reduced supply base benefits from preferred supplier status but remains forever engaged in the vicious cycle of efficiency gains and cost-led competition.

In the medium-term, oligopolistic benefits accrue to suppliers that survive the consolidation process, but buying organisations then use their power to apply leverage aggressively to these supply chain survivors as a means of maximising value for them. Exclusivity may provide initial gains for the suppliers, but the longer-term result of the consolidation–rationalisation cycle and recycles is a power play that perpetuates the process. The outcome is not a true partnership and all it would imply in terms of mutuality, but rather a state of exclusivity derived from cycles of supply base reductions. Even then, the natural state of a supply chain may not feature stability; instead, stability may be just an interim phase in the continued power battle for share of surplus value. Furthermore, when a preferred or even single-source supplier exists, that supplier is much more likely to bear the burden of asset-specific investment. As a result, channel consolidation may not produce security at all; conversely, it might increase dependence on the buyer (Feldman, 1998).

Genuine two-way interactive partnerships are not fully developed in the UK food industry (Robson and Rawnsley, 2001). Collins and Burt (1999) consider the risk in vertical supply chains to be asymmetric; the width and depth of a retailer’s business facilitates its survival if it loses a supplier, whereas the consequences for a supplier that loses a retailer can be much more serious. Further support for this view emerges from initiatives such as category management (CM), which may move more risk to the supplier and away from the retailer (Allen, 2001).

In CM approaches, a preferred supplier takes greater responsibility for the entire supply chain of a product category and aims to maximise sales and profitability through end-consumer orientation (Jarvis and Woolven, 1999). The Institute of Grocery Distribution (IGD) (2006a) for example, identifies and catalogues ongoing case illustrations of whole-chain benefits of consumer oriented CM in shared data, open communication channels and joint strategic planning. In CM, the retailer reduces the number of suppliers in order to guarantee consistency rather than relying on the varying qualities and specifications of different suppliers engaged in continual renegotiations of prices and terms. The CM process inevitably means devolved responsibilities, such that a preferred/nominated lead supplier becomes predominant for one or a group of products. The positive benefits of this for suppliers are greater engagement and devolved responsibility. The concept of channel ‘captaincy’ as identified in Fearne and Hughes (2000) highlights the positive benefits of ‘partnered’ marketing and mutual supply channel benefits despite overall imbalances in power. The implementation of modern business practices has helped improve efficiency in the UK fresh produce supply chain. This has allowed the chain to break out of the commodity trap and take the fresh produce category out of the commodity trading environment (Fearne and Hughes, 2000) by means of innovation and value creation (White, 2000). In fact both Hingley (2001) and White (2000) identify the positive empowerment of suppliers engaged in CM roles, such that there is actually some return of power and authority to channel captains who perform such an enhanced role in tandem with retailers.

By contrast, critics such as Dapiran and Hogarth-Scott (2003) contend that the development of CM has not necessarily increased cooperation in supply chains but that retailers instead may use it to reinforce their power and control. Duffy et al. (2003) similarly state that CM in food supply chains prompts retailers to prefer larger suppliers that dominate a specific product category. As Bevilacqua and Petroni (2002) argue, the larger buying organisations usually streamline the number of suppliers in order to gain a competitive advantage and, in the process, upset those that are excluded. In conclusion, there are divergent views concerning the role of power, with some seeing channel power as entirely negative and others who believe that devolved power can provide some kind of redress. But it is certain that the issue of power has, in the past, provoked some perhaps unwarranted negativity and clearly it is an issue that cannot be ignored and would benefit from being better understood. This certainly applies in a business and vertical channel context such as fresh food supply to multiple retailers.

3.4 Methodology

UK fresh food channels serve as the context for investigation because of their imbalanced business relationships, which function through the interface of powerful buyers and largely dependent suppliers. Fresh foods typically are unbranded in the UK and sector origin and growth relies mainly on the growth and channel predominance of supermarket chains. The empirical study therefore draws on qualitative and inductive in-depth interviews conducted across the dyadic interface between leading UK multiple food retailing organisations and fresh food supplier organisations. In-depth interviews were conducted with the seven leading multiple food retailing buying organisations and 15 fresh food supplier organisations in the UK. Given the concentrated nature of buying in the hands of so few large retailers, this gives a good and comprehensive view of buying policy. The interviews concerned primarily chains of supply, where suppliers were engaged in long-term vertical relationships, however, some suppliers dealt with more than one retailer customer; whereby, for example, they may have a predominant category leading relationship with one retailer and a subsidiary role with another for their produce. The retailer respondents are all senior managers (i.e. at least category manager level) and are responsible for all operational, as well as some wider strategic issues associated with a specific fresh food category.

The supplier businesses represent sub-sectors of the industry and provide supply from both domestic and global sources. All respondents were asked to express their perceptions about the nature, implementation and monitoring of business relationships, especially with regard to issues of power dependency and mutuality. For reasons of confidentiality, the identities of the case organisations remain anonymous.

Semi-structured personal interviews that allowed access to respondents’ thoughts, opinions, attitudes and motivational ideas were used. In total, 21 interviews, each of one hour in length were conducted using a standard and consistent interview schedule. Semi-structured questioning concerned issues in general about supply chain relationships, power and so forth, but also involved specific questioning about particular dyadic exchange with named suppliers or retailers. So, typically relationships were explored between a retailer and two of their principal suppliers. Since cases were selected for their ability to contribute new insights, as well as in the expectation that these insights would be replicated, both theoretical breadth and category saturation was obtained.

A sample of suppliers with the desired characteristics was first located. Suppliers were selected because they provided typical examples of organisations (Miles and Huberman, 1994; Patton, 2002), in this case being fresh food category leading supply chain members. All of the respondents are typical in that they are preferred suppliers for at least one of the multiple retailers in a specific fresh produce category. None of the suppliers exceed £100 m in turnover and in this too they are typical. Additionally, each supplier is a second or third tier supplier to one or more retailers.

Interview questions were standardised around a number of topics and questions were kept deliberately broad to allow interviewees as much freedom in their answers as possible. The findings are taken from the words of the respondents themselves, thereby aiding the aim of the research, whilst gaining much more information than would have been available from alternative research methods. All interviews were taped first to increase accuracy of data presentation and later transcribed to allow detailed analysis. Each case analysis involved writing up a summary of each individual case in order to identify important case level phenomena. Following this process, a coding scheme was developed to assist with the cross-case analysis that involved searches for cross-case patterns. The case studies and interpretive reports were returned to the respondents for their comments, a step that helped enhance the validity of the research method further. Guided by considerations raised in the literature, the following research issues are explored: the nature and application of power in fresh food supplier–retailer vertical channel relationships and the impact of management trends on supply base concentration and category management (CM).

3.5 Findings

Table 3.1 summarises the key issues and findings of this study of power in fresh food industry relationships, as derived from the in-depth interviews and illustrated by quotations from study respondents. This table is designed to be read in tandem with the following discussion.

Table 3.1

Findings from case interviews

Power is notably imbalanced in fresh food industry relationships in favour of retailer buying organisations. However, the evidence from this study does not indicate any instability derived from these power-imbalanced structures; rather the opposite is true. Many long-standing vertical supply chain relationships exist, though retailers certainly remain in control of mini-fiefdoms. Furthermore, retailers maintain the potential to exert punitive action on suppliers who fail to conform to their wishes. Some suppliers worry about the expression of retailer power, enabled by the power imbalances, and fear abuses of that power (see issue 1.1 in Table 3.1).

Powerful UK retail buying organisations use collaborative relationship-based concepts to obtain fresh food supplies. Specifically, chains have been shortened, supplier numbers are rationalised, and partner/category leadership arrangements apply to dedicated and exclusive suppliers. However, true partnership is difficult to achieve amongst unequal members of vertical supply chains, which require a lead partner. As a result, ideals of symmetrical mutuality and equal trust within a relationship are largely unattainable. Suppliers broadly accept the state of asymmetrical power imbalance and all that goes with it, as long as they attain a reasonable proportion of the relationship value and/or this method is preferable to exchange channel structures with inherently higher transaction costs (see issue 1.2 in Table 3.1).

Fresh food vertical (and other similar) food industry relationships between suppliers and retailers employ what have been described as relationship-building tools, such as CM and exclusive/preferred supplier arrangements. Evidence from this study, however, appears to indicate a degree of mutuality through the CM approach, which allows suppliers some inclusiveness and two-way exchange (e.g. of data). Although this study partially concurs that CM is a power tool used by retailers, it also can deliver rewards to preferred suppliers and may be a countervailing mechanism that works for the benefit of suppliers.

What suppliers would prefer, however, is a greater demonstration by retailers of the mutuality of the relationship. It is ironic, therefore, that some retailers state that preferred status suppliers do not realise the strength of their position and that retailers are indeed reliant on those suppliers. However, despite this finding, many fresh food suppliers are only short- to medium-term beneficiaries. Therefore, business-to-business exchanges in vertical fresh food channels have not reverted to transactional dealings and a reduced supply base model remains, such that key suppliers are more involved and regularly consulted in the business process. In addition, CM has brought to the fore the issue of power dependence, but the application of CM does not necessarily weaken the balance of mutuality in fresh food relationships (from the supplier perspective). Despite the imbalance, there have been some improvements in mutuality through CM in fresh food supply chain relationships, but again, retailers retain the ultimate say and may restrict or ration the free flow of exchange in key areas such as information. As a result, some suppliers believe that the imbalance in power, which favours the retailer, is counter productive in the longer term for an effective (mutual) working relationship, despite the efforts of suppliers to meet retailers’ considerable quality and service demands. Suppliers may appreciate the short- to medium-term benefits to be derived from exclusive supply, but they also feel vulnerable with regard to the longer term cycle and recycle effects of rationalisation (see issue 1.3 in Table 3.1).

Even if asymmetry and power imbalance are not barriers to the formation of close and workable relationships, suppliers do not necessarily want to see a greater demonstration of the mutuality of relationships by retailers, with more emphasis on collaboration and reciprocity; in the interim, suppliers will live with asymmetry and power imbalances. Alternative routes to market are constricted by the process of channel rationalisation and, for many suppliers, the reduced source model is preferable and desirable. Fresh food channel relationships thus can be described as workable examples of co-opetition. The notion devised in relationship literature – that power is always a negative and divisive influence that precludes relationships – is clearly flawed.

Power is ever present in business-to-business exchange. Because a relationship approach does not replace the friction and continual power play between business exchange partners, power plays and relationship development coexist. Trust and mutuality appear to some degree in fresh food relationships, but their expression is conditional and often at the behest of the retailer. However, the experience revealed in fresh food relationships suggests that the situation remains workable, in line with Earp et al.’s (1999) view that commitment- and trust-based relationships are not the only effective way to conduct business exchanges. Organisations, even those engaged in partnering activity, seek to gain the upper hand. The ongoing power play in vertical supply chain relationships endures in a state of flux, although that state is not always overt, which does not mean that effective exchange relationships cannot endure (see issue 1.4 in Table 3.1).

3.6 Network of relationships

The dyadic relationship between large multiple retailers and their preferred suppliers or super middlemen (Hingley, 2005) are the axis around which the modern agri-food supply chain (and wider network) revolves. Figure 3.1 illustrates the central dyadic interface and wider network sets of interactions, linked by two-way exchanges (i.e. products and communications). This identification of super middlemen as intermediaries and performers of wider tasks places the structure and debate in the context of network concepts. Relationships exist in a network context (Gummesson, 1996; Healy et al., 2001), as demonstrated by Håkansson and Snehota (1990) and Anderson et al. (1994) with their contention that individual organisations and dyadic relationships both are part of a network of interrelationships (Johnsen and Ford, 2002).

Fig. 3.1 Key network relationships in UK agri-food industry, featuring the central super middleman–retailer dyad and the extended triadic link with a primary producer.

Anderson et al. (1994) describe this type of corporate structure as the emergence of deconstructed firms, such that an organisation focuses on a sub-set of value-adding functions and relies on coordinated relationships within networks of other firms to provide the remainder of its offering. The application of a network approach creates further issues regarding the nature of competition in business exchange. Wilson (1996), for example, compares the concept of competition under neo-classical theories of the firm (i.e. organisation competes with organisation) with a new paradigm, in which competition pits channel against channel rather than firm against firm. Low (1997) concurs and believes that industrial networks reject the notion of pure competition with faceless, unconnected firms; instead, business transactions are conducted within the framework of enduring business relationships characterised by mutual cooperation and adaptation. Furthermore, Spekman et al. (1998) believe that only close collaborative links throughout the supply chain can return the benefits of cost reduction and revenue-enhancing behaviour.

A network approach to supply chain relationships is borne out in practice in the agri-food industry, in which economic and trading circumstances result in changes to organisational structures. Competition in the UK agrifood industry, for example, occurs between the supply network led by Tesco and that of J. Sainsbury versus that of Asda. Each employs a hub of supply centred on its own super middlemen. Profitability therefore relies on the competitive success of one network compared with another. The status of super middlemen represents the culmination of the process of supply base rationalisation, resulting in a progressive reduction in the number of suppliers with which the major multiple retailers deal. Retailers do not want to deal directly with primary producers; similarly, farmers prefer to avoid interactions with participants further downstream (i.e. prefer a main interface with super middlemen). In fresh food supply, retailers adopt a portfolio approach to supplier relationships and develop a mix of close, ongoing network relationships and more distant ones with transactional suppliers via super middlemen.

In this network context, the manifestation of supermarket power through supply base reduction and concentration is not necessarily bad for agri-food industry suppliers. With preferred supply status, the suppliers can avoid the continual and fierce horizontal competitiveness inherent in securing retailer business and super middlemen develop a more significant role at the supply hub. As a result, retailers may control the networks in which they exist, but the hands-off approach and reliance on a new breed of intermediaries means that such control does not have to be destructive. This approach builds a higher level of reliance on the retailer, which is to its advantage, but it also benefits the lead supplier through the provision of devolved services.

Retailers do not want to be agricultural producers, importers, or food processors but instead prefer to focus on the business of retailing and the add-on services provided by their strong brands; they contract out most other activities. In response, responsibilities have devolved in specific ways. Super middlemen handle the bulk of contacts with primary agri-food producers and thereby sit at the hub of the triadic links between the primary producer, middleman and retailer (see Fig. 3.1). They shoulder the burden of securing supply; if a crop fails or a key product is in short supply, it is no longer just the buyers’ problem to find an alternative source. Maintaining the continuity of supply also often falls on super middlemen, who may even procure from competitors to satisfy a supermarket’s needs. Thus, procurement decision-making is delegated by the retailer to the category lead supplier.

As the hub for both domestic and overseas products, super middlemen may or may not be primary producers, yet they consistently manage the flow and mix of supply. It may make perfect sense to procure home-grown products, but these principal intermediaries will incorporate and rely on overseas supply if necessary. The supervision of quality assurance similarly has devolved as a requirement for creative product development. In such a system, super middlemen may be involved in food manufacture for some supermarket private-label products, from the semi-processed to the fully prepared.

Yet super middlemen may not necessarily provide increased product profitability; category leaders actually may suffer a decline in their direct profit margins. However, in the broader context, they also enjoy reduced transactional costs and reduced overheads, derived from channel consolidation efficiencies. Profitability also should be understood from the perspective of network market share. Market share for each product category becomes a far more important determinant of success than individual product or corporate profitability. Studies of agri-food supplier–retailer relationships undertaken by Hingley (2001), Hingley and Lindgreen (2002), Hingley et al. (2006b), and White (2000) reveal that suppliers broadly accept states of asymmetrical power imbalance, assuming, as previously noted, that they receive a reasonable proportion of the relationship value or recognise this method as preferable to alternative routes to market.

The tolerance of suppliers to imbalances in financial returns and continual contractions of supply chain profit margins remains difficult to gauge. It is equally difficult to assess precisely the level of profitability that is acceptable to suppliers, especially in the context of fierce global competitiveness in the food industry, which results in progressively tighter margins. However, when suppliers engage in preferred relationships with multiple retailers, price setting becomes less relevant and they often give up the right to negotiate prices in return for exclusivity. Retailers therefore determine the price, but preferred suppliers earn the reward of market share gains and the ability to lead a wider network, which adds value. Suppliers’ profit margins thus are sacrificed to some degree for increased turnover, exclusivity and access to wider network arrangements, as well as the spin-off businesses associated with a retail customer (e.g. international markets). Some suppliers (i.e. producers of commodity and generic agrifood products) adopt the view that they will accept low prices and low margins when dealing with supermarkets, to the point that they become the ‘last man standing’ in a given sector or product category. In turn, they reap the rewards of enhanced market share and access to a retailer’s business. However, UK multiple retailers generally will not reduce the supply base in a specific category to a sole organisation, because then they could not play off suppliers against one another. Sole supply does exist, but generally only in a sub-category of a larger commodity group of products.

These exclusivity arrangements with retailers may not be as binding as they first appear and suppliers may develop qualified exclusivity arrangements. Super middlemen maintain predominant relationships with their retailer customers, but they also may engage in secondary relationships with complementary businesses, such as supplying a food service customer. This secondary arrangement enables the supplier to sell in alternative outlets without upsetting the exclusivity that its retail customer requires.

Retailers may prefer larger suppliers for reasons of continuity, economy and market knowledge, although small suppliers can provide flexibility and all-important retail market differentiation. This benefit emerges in the relationships between small and medium enterprises that engage in direct or indirect, through super middlemen, interfaces with powerful partners. If the inherent imbalance of these relationships were a problem, no organisations would enter into them and they would not endure. This scenario clearly is not accurate and smaller suppliers frequently enter into such relationships and tolerate power imbalances (Blundel and Hingley, 2001). Larger partners perceive benefits in dealing with smaller suppliers, who offer advantages because of, rather than despite, their size.

Most recently, channel leading retailers have revised the concept of the role of super middlemen by considering matters of cost consciousness and control. Despite the benefits of CM, its infrastructure features significant central control cost and overheads. Some questions pertain to whether CM has run its course; perhaps circumstances again favour a leaner and more direct sourcing philosophy, in which stripped-down suppliers can gain direct routes to multiple retailers. The context for this premise derives from ongoing price pressures in the channel management of what are essentially low value fresh food commodities. Such cost and price pressures may prompt retailers to develop slimmed down and more direct supply routes for many fresh products. In addition, supplier criticism and discussion of the more negative aspects of the approach has led retailers to reappraise the future of CM. Perhaps retailers no longer require such a close relationship with their suppliers, because the supplier quality and integrity issues and protocols that initiated this approach have been well established and could be addressed by freelance, outsourced agents.

Despite the predominance of channel and network systems, an alternative to the CM approach with a super middleman hub, proposed by Hingley (2008) and shown in Fig. 3.2, provides options for retailers to deal directly with suppliers, including preferential direct routes for new and innovative suppliers. The UK retail market, as in much of the industrialised world, is determined by fierce competition between fewer and bigger multiple retailer chains. Pressures on expected returns to shareholders mean an evertightening squeeze on suppliers, which may also mean that some products could be ‘value-added’ at the country of origin (e.g. where labour costs are cheaper), by-passing CM-type intermediaries.

Fig. 3.2 Key network relationships in UK agri-food industry, showing the direct supply alternative (dotted lines), by-passing the super middleman.

However, retailers will find it difficult to return to purely transaction-based direct supply in the fresh produce industry. First, retailers have down-sized and outsourced much of their operations and managing a large supply network requires more hands-on effort and more direct decision makers. Second, super middlemen provide a valuable service role that enables retailers to remain relatively remote. These intermediaries add value, ensure quality and consolidate products from many sources. Even if some activities, such as quality inspections, could be outsourced to freelance agents, the process would still require retailers to devote management time and attention. However, the temptation for retailers to cut costs by removing the intermediary infrastructure, which they perceive as costly, may be strong. In such circumstances, the products still must be imported, consolidated in the retailer’s home or host country, and delivered to the store. The market for fresh food and its complex network of interrelationships entails a costly process and stripping it down to a basic transactional exchange can work only for the simplest commodities. For most products, a high service level is still necessary, especially in this age of corporate accountability and product traceability. Therefore, retailers would be unwise to sacrifice the value-adding input of their partner suppliers, which often have accumulated years of experience in dealing with supply chain problems that could not be easily solved at arm’s length.

3.7 Conclusions

Literature on business relationships, distilled from diverse antecedents, combines the common ingredients of profitable ongoing interactions, collaborative value creation and the underpinning themes of trust, commitment and mutuality. However, it also undervalues the significance of power in the formation and operation of business relationships. For example, agri-food industry relationships are power dependent, but in contrast to some views, these relationships can exist and thrive despite power imbalances.

Although power is notably imbalanced in agri-food relationships, in favour of the retailer buying organisations, a state of instability is not a guaranteed result, rather, many long-standing vertical supply chain relationships exist (Hingley, 2001). Despite recent rhetoric, these exchanges cannot be considered (by suppliers at least) to be partnerships. Retailers remain in control of mini-fiefdoms, as envisaged in Blois (1997) and, as Kumar (1996) suggests, the potential remains for punitive action by retailers if suppliers do not accede to their wishes. The situation is not fair and it may not even be just, but that does not mean the system is not workable or even beneficial for agri-food suppliers. Some suppliers may worry about the expression of retailer power allowed by the imbalance, as identified by Fearne et al. (2004) and Duffy et al. (2003), as well as the potential for abuses of power. However, asymmetry and unfairness do not mean that organisations are unwilling to enter into and continue relationships with major multiple retail chains, which remain the largest and most consistent market outlet for UK agri-food.

Furthermore, as UK retailers apply collaborative, relationship-based constructs to agri-food supply, chains have shortened, supplier numbers have been rationalised and partner/category leadership arrangements have begun using dedicated, exclusive super middlemen. This process benefits the remaining category suppliers (at least in the medium-term) by providing them with more business and greater access to retailer customers. However, true partnerships are difficult to achieve in vertical supply chains, which demand a lead partner. Therefore, the relational ideals of symmetrical mutuality and equal trust are largely unattainable.

Mutuality also cannot be achieved through the CM approach, unless some inclusiveness and two-way exchange is established. However, business-to-business exchanges in agri-food channels have not reverted to transactional dealings. Despite retailers’ renewed interest in direct sourcing, a reduced source model persists in which key suppliers are more involved and regularly consulted. Asymmetry and power imbalance do not bar the formation of close and workable relationships, although suppliers still would prefer a greater demonstration of the mutuality of relationships by retailers, with more emphasis on collaboration (Fearne et al., 2004; Hingley, 2005). In the interim, they accept asymmetry and power imbalances, contrary to the view purported by some literature that implies asymmetrical exchange is not functional and only has a negative influence.

Ironically, some retailers surveyed in studies of agri-food supplier–buyer exchanges state that their preferred status suppliers do not realise the strength of their own position (Hingley, 2005; White, 2000). For suppliers, the danger lies in the short- to medium-term gains (largely as a result of consolidation), which may create a treadmill effect once those gains have been absorbed. To avoid such an outcome, suppliers, even those important and pivotal super middlemen, must stay ahead of the game and anticipate future retailer service requirements, which enable them to become essentially invaluable to their key customers.

The notion that power is always a negative and divisive influence that precludes relationship forming is clearly flawed. Power is ever present in business-to-business exchanges, even if a relationship approach exists. Trust and mutuality characterise agri-food relationships, but their expression is conditional and often at the behest of the retailer, which implies that methods other than commitment- and trust-based relationships provide effective ways of conducting business exchanges. Organisations, even those engaged in partnering activity, commonly seek to gain the upper hand, so ongoing power plays in vertical supply chain relationships create a state of flux (Cox et al., 2001; Howe, 1998; Ogbonna and Wilkinson, 1996), which does not mean that effective exchange relationships cannot endure.

The abuse of power certainly is a destructive force, but the exercise of power in asymmetric relationships (whether punitive action or functional conflict) is more typical than perpetual cooperation or power symmetry. Although all organisations hope to gain advantages and thus disrupt symmetry, striving for self-interest does not preclude cooperative actions and cooperative and competitive business strategies can coexist. Weaker parties exhibit a degree of tolerance to imbalances of power, which means that such relationships are not necessarily unstable or short in duration (Blundel and Hingley, 2001; Narayandras and Rangan, 2004). A key element appears to be the existence of channel captains. Asymmetry is no barrier to entry, especially if suppliers have something a buyer wants or believe they may profit from the situation, despite the power imbalance.

Only by admitting the presence of channel leadership and acknowledging where power lies can suppliers move forward and strive for what is important – market survival and an acceptable level of organisational profit. Thus, they must accept power imbalances and the inherent nature of inequity and unfairness in supply chains. To this end, Davies (1996) provides a compelling argument: rather than fruitlessly fighting against imbalance, it may be more rewarding to concede control. This first step may enable agrifood suppliers to benefit from the efficiencies of a truly integrated (but retailer-controlled) network.

In the agri-food channel context, expressions of power by retailers also confirm the first three features described by Kumar (1996): dependence, punitive capability and non-coercive influence strategies. However, trust appears to exist by degree and its expression may progress or recede according to circumstances. Such shifts do not necessarily depend on the absence or presence of the types of power outlined previously.

A final point pertains to when a dominated party might decide that its domination has become unacceptable. For Kumar (2005), punitive action provides the line in the sand. Although this chapter identifies weaker partners’ tolerance to displays of power dominance and asymmetry of trust and their acceptance of the inequity of outputs, further studies should investigate the boundaries of this tolerance from a stakeholder perspective, including the identification of the specific circumstances that might create disincentives to forming relationships or force their dissolution. For example, just how much income loss will a weaker party tolerate to retain an important customer’s business? This question remains unanswered in empirical work, largely because such studies require an investigation of failed business relationships, which participants are notoriously reticent to discuss. However, suppliers will continue to trade off retailer power play and their resultant outcome imbalances for the prospect of business continuity, increased market share and acceptable profitability.

3.8 Future trends

The overall trend in the UK is for retail-driven vertical food chains, most notably in areas where retailers are very strong (fresh, perishable and retailer-branded sectors). The food industry is being dominated by a few large retail corporations on a national level, with some even operating on a European or global scale. In the UK the takeover of one of the largest food retailers (Safeway by Wm. Morrison) has resulted in four major supermarket chains (Tesco, Sainsbury, Wal-Mart Asda and Morrisons) accounting for three-quarters of retail grocery sales (IGD, 2006b). Tesco takes a third of the value of UK grocery sales alone. This concentration has put further pressure on fresh produce suppliers who have been channelled down the CM route. That is not to say that CM is not beneficial for suppliers, as IGD (2006a) and others highlight the mutual success of the approach. However, is this phenomenon peculiar to the highly centralised arena of UK food retailing? Certainly the UK has some specific features concerning the nature of fresh foods, for example, there is a low level of supplier branding within these sectors in the UK and a correspondingly strong retailer own label heritage (Hingley, 2001).

Given that there is much that is similar in the European food industry, there are comparable levels of retailer concentration in most industrialised western European nations (Bourlakis, 2001), resulting in similar rationalisation and supplier arrangements across Europe. Notably, both IGD (2006a) and ECR Europe (2008) talk of European-wide initiatives identifying consumer benefits of supply chain collaboration; however, such initiatives do not tend to dwell on the power implications. In the UK, the national and trade media continues to monitor power-based issues in supply chains, The Guardian in Anon (2008), for example, provides a historical timeline of power-based contention in food supply in the UK and there are regular accounts of the negative consequences of the result of power inequity on supply channels (Grant Thornton, 2007). Despite this, other nations look at the UK as being ahead in the mechanics and operations of supply chain relationships including issues of category management and power.

There is evidence of application of these issues in other global regions, for example, Parker and Byrom (2009) chart power issues concerning supplier–retailer relationships in an Australian context, as does Dunne (2008). The latter example is published in a recent special edition of British Food Journal (‘Relationships, networks and interactions in food and agriculture business-to-business marketing and purchasing’ – see below) which includes papers from authors who consider issues of supplier–retailer relationships, trust, power and much more from a New Zealand fresh produce perspective (Clements et al., 2008), as well as contributions from Danish, Finnish, Brazilian and Chinese contexts. As the march of food industry globalisation continues, these issues of retail driven supplier concentration, power and supplier chain relationships will follow in new countries and contexts. However, different countries have different interpretations of the issues, which may be culture bound. A good illustration of this is the guanxi relationship approach, based on personal connections and allegiances, particular to Chinese culture and this is ideally explained and put into context of Western learning by Lu et al., (2008) and is again to be found in the British Food Journal special edition identified above and referenced below.

3.9 Sources of further information and advice

British Food Journal (2008) special edition, Guest editors: Dr. Adam Lindgreen, Dr. Martin Hingley and Dr. Jacques Trienekins, ‘Relationships, networks and interactions in food and agriculture business-to-business marketing and purchasing’, vol. 110 (4/5), Emerald Group Publishing.

Industrial Marketing Management, 2005, 34 (8), includes the paper cited here by Hingley (2005) but also three further papers, by eminent Professors Blois, Kumar and Naude, respectively, who debate the power issues raised in the paper. The special treatment is concluded by a further response by Hingley.

Useful web site links:

English Farming and Food Partnerships:

Institute of Grocery Distribution:

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