Morrisons struck a blow for transparency when it posted full-year figures last week and opted to provide “enhanced disclosure” of commercial income.
The decision was a result of a changed “industry context” – ie, the fact that the issue blew up at Tesco and plunged the top grocer into a damaging accounting scandal.
Morrisons maintained that commercial income is not consistently defined, but explained its own methodology.
Although it said “there is generally little or no subjectivity or judgement” involved in calculating marketing contributions and volume-based rebates from suppliers, it chose to disclose the figures.
The total last year was £425m, made up of £291m from marketing and advertising funding and £134m from volume-based rebates.
That prompts a couple of observations.
First, in the great scheme of things the numbers look relatively small.
Altogether they amount to 3.2% of the value of stock expensed - 2.2% from the marketing and advertising contribution and 1% from volume-based rebates.
However that overall £425m is greater than the entire reported underlying pre-tax profit of £345m.
That is a stark illustration of the extent to which such supplier contributions can – as was the case at Tesco - affect top-line retail performance.
So while there is absolutely nothing wrong with these sorts of arrangements, which suppliers benefit from when properly run, their contribution illustrates exactly why they should be openly and properly accounted for.
Morrisons has set a good example which its peers should follow.