Holland & Barrett accused of squeezing suppliers

Holland and Barrett is being accused of squeezing small businesses after it sent a letter to suppliers demanding contributions to its investment plan.

In a letter this month, seen by the BBC, the high street retailer says it wants a reduction of costs of at least 5% from all its suppliers.

It also wants suppliers to pay for £3m worth of security tags and CCTV.

The Forum of Private Business has described it as a "smash and grab raid" on the supply chain.

"I am surprised at the unwholesome attitude of Holland and Barrett," said Ian Cass, Managing Director of the FPB.

"Many of their suppliers are small firms who have helped the retailer increase their margins and have been unable to put up prices themselves over the last few years."

"Sometimes it is helpful to suppliers to offer discounts to retailers in return for product placement or increased marketing of their products, which is beneficial to both parties, but this needs to be agreed by both sides, not a unilateral decision as in this case."

Holland and Barrett is owned by the American private equity company, The Carlyle Group, and has 735 shops in the UK and Ireland. Last year its profits increased by 12% to £146m.

In its letter, the company said that it increased turnover thanks to a range of new initiatives and internal investment but that suppliers were not contributing proportionately to the growth of the business:

"Indeed, during a period when there has been little or no inflation, a general fall in food prices and fuel costs at their lowest for more than a decade, we have seen our margin eroded substantially by increased product costs," it said.

"We cannot allow this situation to continue and make our proposed investment. Therefore in addition to the cost price freeze referred to above, we now require a reduction in costs of at least 5% from all our suppliers. This will be entirely separate from the 12.5% retrospective discount introduced last June in respect of stock which we ship internationally."

" As a separate measure during 2016, we are also investing £3m in security tagging and high definition CCTV to address the issue of product theft - which is nearly 2% of sales. Our suppliers will have to cover the cost in the form of invoice adjustments and/or free stock."

The letter has been greeted with dismay and anger by one small supplier, who did not want to give his name for fear of losing his contract.

"This is yet another appalling example of how big business often treat suppliers and is very damaging to everyone, especially smaller businesses."

"This move by H&B is draconian and totally unethical. H&B are not in financial difficulty nor do they desperately need suppliers help financially."

"What they will gain is a 5% increase in profits and dividends for their shareholder for nothing. What they have done to their suppliers is abhorrent."

David Sables, founder of Sentinel Management Consultants, which helps advise suppliers, said it wasn't always easy for small businesses to react.

"I'm not completely surprised by this. It's reminiscent of the type of behaviour we used to see before the Grocery Code of Practice was introduced."

"It's difficult for the smaller suppliers to know how to react because there's a lot at stake. Quite often it's a negotiating tactic, but you have to know how to respond and deal with it," he said.

In a statement, Holland and Barrett said:

"We have made significant investments over recent years to drive the growth of the brand, including a major increase to both our UK and overseas store numbers and investments in both staff training and ecommerce technologies including click and collect.

"Naturally, suppliers benefit from the resultant increase in sales this growth brings, as well as customer and brand reach.

"This latest initiative is not the start of a negotiation process but a further part of this growth strategy which we are now in the process of communicating to our suppliers."

The Forum of Private Business said it would be writing to the company to make clear its concerns.

It has a hall of shame of other companies it has accused of mistreating suppliers.