Take note of the important signal of problems in store on the front of today’s FT. Reckitt Benckiser, the consumer goods manufacturer, has broken ranks to express its outrage that Tesco (the UK supermarket group) is extending the time it takes to settle invoices from 30 to 60 days. Reckitt’s CEO says:
The question is [if] in the long term they drive the smaller suppliers out of business, that is the key question and it might happen … I don’t think it is reasonable – no, it is not. There is absolutely no logic to that. They turn over the inventory [in] much less [time] than 60 days, so why should they have 60 day payment terms?
For a supplier to go public with a criticism like this is very unusual, as the FT notes. Yet Reckitt’s certainly not the only company that’s worried – I’ve heard other food groups express private fears that a serious crunch will build up in the food supply chain over the next two months.
Senior policymakers in the UK, the US and elsewhere are already underscoring their concerns about small businesses in the credit crunch, and making noises about pressuring the financial sector to do more for them.
On the same basis, they need to focus hard on the supermarket sector – which through its sheer market power risks causing serious damage to supply chains we all depend on. There are important questions here of shared responsibility for shared resilience in conditions of severe stress. Governments should not be shy of reminding supermarkets of that fact.
