Tesco CEO admits that era of cheap food is over – and that suppliers need longer contracts

The growing middle classes in China and India will mean an end to cheap food in the UK, according to Tesco’s chief executive, Philip Clarke.

Clarke: We have to put in more than we take out of society

In an interview with The Guardian over the weekend, the boss of retail giant Tesco, Philip Clarke, admitted that food price rises were inevitable due to the rising global demand for food. “There was a time when we could go to South Africa to buy fruit and be the only retailer there. Not any more,” he said in an interview with Jay Rayner, a vocal antagonist to the supermarket chain.

Clarke had agreed to speak with Rayner after repeated public clashes which have seen the food and restaurant critic criticize the business over its efforts to both curb food waste and encourage customers to eat more healthily.

It’s been a tough year for Tesco, which turns over almost £75bn worldwide every year. The horsemeat scandal in January and February – which involved four of Tesco’s popular products – saw a slump in sales. And it damaged the brand. As Clarke admits: “It became clear that people thoughts Tesco was big and Tesco was bad.”

Good news for suppliers

What the Rayner interview reveals is a chief executive in “soul-baring mode”, as the interviewer puts it; a recognition that the company has “got to put in more [to society] because people think that all we do is take out”.

Crucially, he refers to a renewed relationship with the company’s food suppliers. Recognising its responsibility as a custodian of the food supply chain, accounting as it does for 30% of the retail trade, it is a notion Clarke has already pondered during a speech to the NFU earlier this year – a new “spirit of collaboration”, as he called it.

We need to produce more food at home and make more and better deals with producers

Of course, one of the reasons beef products were manufactured with cheap protein fillers was because some overstretched suppliers were dealing with demanding contract conditions in the only way they knew how. In the absence of a long-term commitment from their customer, they focused on a tactical fix to protect their small profit margins and keep themselves competitive enough to successfully win the next, short-term contract extension.

Clarke’s response includes a call to “produce more food at home” and a need to “make more and better deals with producers”. That means longer contracts which would allow farmers to invest properly – to ensure their farms and factories are running well and that the desire to cut corners is rightly curbed.

It’s great news for suppliers, many of whom will reap the benefits.

But what few people realize, Jay Rayner included, is that Tesco has been acting in the long-term interests of its suppliers for the last few years.

Through the Tesco Knowledge Hub, hosted and facilitated on the 2degrees platform, Tesco has been encouraging food and non-food producers and manufacturers to share their operational know-how of sustainable efficiencies. This means identifying the range of inputs (not just ingredients) which drive costs, and doing something about them. This includes the escalating costs of energy, increasingly climate-hit water supplies and packaging.

In response, over the last 12 months, Tesco suppliers have shared a host of practices – both high-tech and back-to-basics, such as: an egg producer cutting one million lorry miles – and the associated fuel costs – through route optimisation software; a pasty-maker which cut the food wasted, per tonne of product made, from 11% to 5% by standardising the pastry used across multiple products; and a packaging company’s initiative to install new technology alongside existing trawls to enable fishing operations to collect plastic waste at sea for cleaning and recycling into new bottles.

And the company will also be using the Knowledge Hub to provide procurement support to suppliers on green technologies to share information and expertise.