Mark Jones writes for KamCity on the risks behind long-term supply deals

Mark Jones, partner and head of food and drink at Gordons, has written for KamCity on the risks that come with long-term supply agreements in the grocery sector.

Longer deals have become common after years of supply chain disruption, particularly in fresh produce, where availability can change quickly and competition for stock is intense.

Mark explains that they offer clear benefits on paper, allowing retailers to secure priority supply and giving suppliers the confidence to invest.

He warns, however, that they also carry risks for both sides. Falling volumes can push up fulfilment costs and erode supplier margins, while an agreed price rarely stays right as labour, energy, packaging and transport costs change.

Mark looks at cost-plus pricing and periodic price reviews as ways of keeping prices fair. He explains why contracts need a clear process for when the parties can’t agree.

He also points out that retailers designated under the Groceries Supply Code of Practice have specific obligations around de-listing and varying agreements, which can make exiting a deal harder than it looks.

He argues that retailers should look beyond the headline price and consider how well a supplier manages its own costs.

“None of this is an argument against long-term supply agreements,” Mark writes. Instead, he recommends stress-testing agreements before signing against scenarios ranging from lower volumes to a breakdown in negotiations.

“The real value of a long-term supply agreement is not simply the certainty it appears to offer,” he adds.

“It is whether the contract can withstand the uncertainty that inevitably follows.”

Read the full article in KamCity here.

Find out more about Gordons’ expertise in food and drink here.