OPINION: The logic of the P&H and Costcutter alliance

Rumours of a tie-up between Palmer & Harvey and Costcutter had been circulating in the industry for more than a year and the logic of the alliance is explained in a short marketing booklet.

Together they have set up a not-for-profit Buyco to negotiate the best possible terms. The duo are promising existing customers even better prices than ever before.

Will this happen? There is a good chance if the new retail arm can organise its disciplines and demonstrate that it is creating new purchase opportunities for suppliers. What independent retailers have to be realistic about is that Tesco has a six per cent margin advantage because it controls around a third of the market. Simply lumping all their invoices together does not create the value, working collaboratively to meet shopper needs does.

P&H has handed over all its symbol group convenience operations to Costcutter as part of this deal. Thus its Mace and SuperShop members will be managed by the team at Costcutter. P&H will retain its own promotional deals for casual and other customers.

What does P&H get out of this? It gets a 2,500 outlet retail estate with some great shops and a good reputation. This should guarantee volumes for its strong delivered wholesale offer. The benefit for Costcutter is that its wholesale supplier under the new arrangement will no longer compete with it in the symbol group arena. On paper this reads like a very good fit.

The IGD forecasts that more than £5 billion of extra sales is available to independent retailers as shoppers look for better value locally. This deal is about making sure that Costcutter and P&H take a big share of that growth. As such it throws down a challenge to their rival symbol group and wholesale operators and to every non-affiliated retailer.

The partners will be open to your feedback at the Pro-retail show in Telford