No free lunch

It's a happy time for national merchants. Everything - growth, profits, power and influence - seems to be going their way. But, as with most things, when things could hardly get better the pendulum has already started to swing in the opposite direction.

Once upon a time the nationals were independent, small and local. They were unable to do much marketing. Their role was to service the demand for manufacturers' products, which manufacturers could not economically do. Local knowledge, customer and product knowledge, high stocks, credit and keen service made them indispensable. It was the job of large - relative to small local merchants - manufacturers to help with marketing, merchandising and creating demand. Manufacturers could afford to invest in marketing, market research, product development and innovation. The merchants' job was to satisfy demand. By and large they did it well. A few did it so well they grew into national chains that dwarf most suppliers. They became adept at exploiting their purchasing power, persuading manufacturers to do more and more for less and less. The process appears remorseless and, if you are a manufacturer, largely one-way. Some manufacturers have done better than others, but overall, value has migrated from suppliers to national merchants. Worse, for both manufacturers and merchants, more and more margin is paid out at national not local level. In effect it is a tax that improves merchants' profits, but does nothing to raise local performance. Even successful manufacturers worry about the imbalance of power and its consequences.

Small, local independents still need manufacturers to fulfil the requirements of their traditional role. But can a weakened manufacturing sector continue to provide it? The national chains have apparently outgrown the BMF. They appear also to have outgrown the assumptions that underpin the relationship between manufacturer and merchant. They have the scale, muscle and margins, although little appetite, for marketing, merchandising and developing local markets. But there is no free lunch in life. The law of unintended consequences reasserts itself when you least expect it.

If partnership is just another word for screwing money out of manufacturers, at some point it will be more attractive for manufacturers to go direct, or play a better game with different players.

New entrants and those who lose out in successive mergers are forced to find alternative routes to market. But once existing suppliers question - as many are doing - what they get out of the relationship, once they ask if the supply chain is working for them and their end users, they may tot up the costs including lost margin. If the economics no longer make sense, there may be no way back. Is that really what the nationals want?