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Asda price cuts could lead to supplier pressure

Asda suppliers could face pressure as the retailer plans to slash £100 million off products in a bid to compete with discounters. Jez Fredenburgh reports. 

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Asda Issa brothers, Zuber (left) and Mohsin. Credit: EG Group
Asda Issa brothers, Zuber (left) and Mohsin. Credit: EG Group
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Asda price cuts could lead to supplier pressure

The retailer said its ‘investment in discounts’ was part of a ‘category transformation’ programme, which it had been planning for 12 months.

 

While this has started in new lockdown favourite categories, baking and desserts, it will expand to other categories in the coming months and lead to a reduction in the number of products (and therefore possibly suppliers) stocked.

 

Industry sources speaking to Farmers Guardian warned the retailer might be looking for a ‘quick and dirty’ approach to cutting prices, rather than spending time negotiating prices.


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Such an approach could result in the retailer not getting sufficient price reductions and not having enough time to serve ‘reasonable notice’ to suppliers it no longer wanted to work with.

 

Not giving reasonable notice could result in a breach of the Groceries Supply Code of Practice (GSCOP) and/or put suppliers under additional pressure.

 

Generally, retailer ‘investments in discounts’ could mean a variety of strategies, said sources who asked not to be named, and it would be impossible to know currently whether suppliers or Asda would end up paying for price reductions.

 

Under GSCOP, retailers are able to pass the cost of discounts to suppliers by asking them to help meet sales objectives, but they cannot threaten to delist a supplier if they do not lower agreed prices.

 

 

Difficult

 

 

 

However, power dynamics can make it difficult for suppliers to resit lowering prices.

 

Mark White, the Groceries Code Adjudicator, said: “GSCOP does not prevent genuine commercial discussions taking place.

 

“But it is clear about the way in which retailers must treat their direct suppliers during contractual negotiations, including conducting trading relationships in good faith and without duress.

 

“If suppliers feel this is not happening in practice, they should contact me or use the reporting platform [tellthegca.co.uk] to let me know confidentially.”

 

Asda is expected to be bought by billionaires, the Issa brothers, but with huge debt.

 

This, combined, with discounter competition, a tough time for consumers and significant retailer costs of managing Covid-19, could contribute to further pressure on suppliers.

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