By Martinne Geller
LONDON (Reuters) - Changes in British shopping habits have forced suppliers of goods such as ice cream and soap to adapt, strengthening their hand in negotiations with supermarkets battling for lost sales.
Consumers are turning away from the four major chains to save money at discounters or treat themselves at upmarket shops, reducing suppliers' dependence on any one customer.
More accurate forecasting and faster manufacturing also means they can offer alternatives to straight discounts, such as exclusive products or packages.
"There are many things that lead toward the same conclusion: consumer packaged goods manufacturers being in less of a corner during negotiations," said Fabio Vacirca, managing director of Accenture's consumer goods practice.
The big four -- Tesco (L:TSCO), Asda (N:WMT), Sainsbury (L:SBRY) and Morrisons (L:MRW) -- still control 73 percent of UK grocery turnover but discounters such as Aldi [ALDIEI.UL] and Lidl [LIDUK.UL], e-commerce sites like Ocado (L:OCDO) and higher-end stores like Marks and Spencer (L:MKS) and Waitrose [JLPLC.UL] are gaining ground.
SMALLER PACKS
Unilever (L:ULVR) says it keeps margins with discounters, which account for over a billion euros of turnover, in line with its overall business by supplying packs that can sell for 1 pound such as a smaller Cornetto ice cream or larger value packs such as Surf detergent for 90 washes.
"Rather than see them as the enemy, it's part of our business," said Unilever Chief Financial Officer Jean-Marc Huet recently.
PZ Cussons (L:PZC), maker of Imperial Leather body wash, gets about half of its UK sales from the big four, down from 90 percent five years ago, as it expanded to stores such as Poundland (L:PLND).
"You have to be very nimble," said CFO Brandon Leigh. "That's suiting us."
"We can put a new request in to our manufacturing team this week and the product can come out next week," he said, thanks to a factory that runs so close to real-time it only holds four hours' worth of raw materials.
Imperial Leather's "classic" range has fewer moisturisers than its "signature" range so can be sold at a discount price without undermining pricing at the major chains.
"The pack sold in Lidl isn't the same pack that's sold in Tesco," said Will Hayllar, co-leader of OC&C Strategy Consultants' consumer goods team.
Tiering may become more common, especially in retailers' own labels, if more major chains match prices of the discounters, as Morrisons has effectively done.
"They won't match a box of Kellogg's Corn Flakes with an Aldi price," said Investec analyst Nicola Mallard. "Maybe with their own label they might do, but it can't ever just go across the piece that we have everything selling at a discount price."
Premier Foods (L:PFD) avoids brand dilution by selling Bisto gravy and Ambrosia rice pudding at major grocers and Paxo gravy and Bird's rice pudding at discounters.
"We've got the flexibility to use our support brands ... to offer bespoke products to discounters," said Premier's corporate affairs director, Richard Johnson.
ALL EYES ON TESCO
Tesco, the market leader, is known for pushing suppliers but has seen its negotiating power crimped by shrinking market share. Analysts say Tesco, facing an accounting scandal, could put through another round of price cuts that would make a pressurized situation even worse.
"We might have a reputation somewhere of being a little too aggressive and maybe not recognising that we're not growing the way that we did," said Tesco's new boss Dave Lewis recently.
Tesco can fund discounts itself, but analysts expect it to lean on suppliers. But they "can now be a lot more scientific about whether they will or will not comply," said Ken Harris of Cadent Consulting Group in Chicago, due to advances in data-tracking and technology that detail the financial implications of promotions.
Fear of being taken off shelves has ensured the compliance of small- and medium-sized companies, especially private or family-run firms that supply retailers' own brands with staples such as fresh produce. Many already run near record-low margins.
"Some are rabbits in headlights still," said Duncan Swift, head of Moore Stephens' food advisory group. "But the more informed ones with knowledge and confidence are being brave enough to say 'we can't go beyond this point'."
Pushing too hard for discounts could also turn savvy shoppers off, especially after last year's horse meat scandal.
"You can always get a cheaper deal but that cheaper deal often involves lower quality," said Investec's Mallard. "No one's going to buy a 69 p box of 25 burgers any more because they're going to question what's in them."
(Additional reporting by Neil Maidment; editing by Anna Willard)