ASDA asks suppliers to fund battle with discounters

Asda is asking suppliers for discounts and cash contributions worth millions of pounds so it can fight back against the rise of discounters Aldi and Lidl by slashing prices for shoppers.

The supermarket, which is expected to reveal a sixth consecutive quarter of declining sales on Thursday after a tough Christmas, is calling in suppliers for individual discussions about ways to cut prices by as much as 10%, according to trade journal the Grocer.

Template agreements handed to suppliers also ask for other payments – “incremental investment” – to cover the costs of promotions and other initiatives, such as new product development.

One industry source told the Guardian that suppliers had been asked for “significant amounts of money”. He added: “Individual suppliers are being asked for millions of pounds and asked what they want in return.”

Asda has become the UK’s worst-performing supermarket in the face of heavy competition on price from the fast-growing discounter chains Aldi and Lidl. They have undercut the Walmart-owned chain, which made its name as the cheapest of the traditional supermarkets. Competition from rivals Morrisons and Tesco has also stepped up as they have trimmed prices and improved service under new management teams.

Asda said it was “working collaboratively with suppliers” to ensure it had the right ranges, quality and prices for its shoppers.

The supermarket has pledged to ensure its prices are only 5% higher than the likes of Aldi and Lidl within the next few years, compared with 10% at present. Asda has said it will invest more than £1bn in lowering prices.

Prices could be lowered by changing to cheaper packaging, recipes or ingredients sourcing rather than by hitting suppliers’ profits, Asda said.

The range of products offered in some categories could also be slashed by as much as 25% as the grocer aims to push up volumes on the narrower range of items so that it can get better deals from suppliers in return for improved efficiency. On average, Asda has said it will trim ranges by a tenth.

Andrew Moore, Asda’s chief merchandising officer, said: “Value is an important part of it. You can see what’s happening with the discounters and other competitors. We have got to make sure our customers are getting the best value we can give them.

“This isn’t Asda coming in with a big bat and trying to make suppliers hit a particular price point. We are talking to big suppliers about what we know customers want in terms of range, assortment and quality and working with them to provide that.”

The retailer called in the consultancy firm Bain & Company in the autumn to help it adapt its ranges to fit the latest consumer trends.

Moore said Asda was working closely with Christine Tacon, the groceries code adjudicator, to ensure its negotiations met regulatory requirements.

Tacon has launched an industry-wide consultation examining payments made by suppliers in order to participate when supermarkets review products stocked in a particular category.

The inquiry was launched after Tacon found that Tesco had asked for such payments as well as investment – sometimes amounting to hundreds of thousands of pounds – from suppliers to help underpin profits in a particular category.

Tacon said: “There were a range of practices that I am concerned could amount to an indirect requirement for payment [related to positioning of products on shelves], contravening the code.”

Source : Sarah Butler – The Guardian
www.theguardian.com/business/2016/feb/17/asda-suppliers-discounts-aldi-lidl-supermarkets