J Sainsbury plc – Annual report – 5 March 2022
8 Supplier arrangements
Supplier incentives, rebates and discounts, collectively known as ‘supplier arrangements’, represent a material deduction to cost of sales and directly affect the Group’s reported margin.
Income is recognised when earned by the Group when all obligations per the terms of the contract have been performed. Any supplier arrangements which are linked to inventory purchases are included within the cost of the related inventory, and therefore recognised within cost of sales once the inventory is sold. Unpaid amounts relating to supplier arrangements are recognised within trade and other receivables, unless there is a legal right of offset, in which case it is recognised within trade and other payables.
The types of supplier arrangements applicable to the Group are as follows:
- Discounts and supplier incentives – these represent the majority of all supplier arrangements and are linked to individual unit sales. The incentive is typically based on an agreed sum per item sold on promotion for a period and therefore is considered part of the purchase price of that product.
- Fixed amounts – these are agreed with suppliers primarily to support in-store activity including promotions, such as utilising specific space.
- Supplier rebates – these are typically agreed on an annual basis, aligned with the Group’s financial year. The rebate amount is linked to pre-agreed targets such as sales volumes.
- Marketing and advertising income – advertising income from suppliers through the Group’s subsidiary Nectar 360 Services LLP and online marketing and advertising campaigns within Argos.
Amounts recognised in the income statement during the year for fixed amounts, volume-based rebates and marketing and advertising income are shown below. Discounts and supplier incentives are not shown as they are deemed to be part of the cost price of inventory.
1 The prior year has been restated. There is no impact to any of the primary statements.
Of the above amounts, the following was outstanding and held on the balance sheet at the period-end: