Asda and Tesco Push Suppliers for Lower Prices
By Bernice Hurst, Contributing
Some of the ways in which
retailers keep prices down for customers are relatively harmless, as Asda’s
finance director, Judith McKenna, explained in the Financial Times. "Retailers,"
she said, "have an arsenal of weapons they can draw upon to try to cut
prices, including painless measures such as avoiding empty lorry trips and
Other methods are less
painless and squeeze the supply chain as tightly as possible to "help" customers
by offering them "value." Those customers, anxious to spend as
little as possible, don’t always have the inclination to wonder how the
store can afford to be so generous. But someone, somewhere, may indeed
Among the methods used
are extending payment terms, cutting the amount of inventory held to improve
working capital and driving down the amount paid.
One of the friendlier,
and more successful, negotiations Asda used was with a pizza supplier who
simplified a recipe to achieve a rock bottom price. High volumes resulted
in massive sales with both retailer and manufacturer enjoying profits while
customers enjoyed bargains. In that instance, everyone was happy. But one
manufacturer, who asked the newspaper not to name him, said, "There
is pressure to push the costs back down…and the pain is felt right down
the supply chain when the retailer tries to cut its costs."
Tesco proudly announced
savings of £540 million in its last fiscal year, partly because of pressure
on suppliers, especially renegotiating prices and payment terms. Needless
to say, this is not particularly popular with manufacturers and farmers
who are pressured into accepting retrospective changes.
Asda’s approach has been
to re-introduce e-auctions, where suppliers bid blind. Low bids may then
be used as a starting point for negotiations. The Financial Times reports
Asda’s claim to only use the method on certain commodity products, but
also said, "some suppliers are disgruntled" because "technology
and psychology are used to concentrate all the information [about what
suppliers can offer] on one side…and get lower prices." In commodity
markets with an abundance of similar product, suppliers don’t always have
room to maneuver. As one food analyst explained, the U.K.’s market is one
of the most consolidated in the world, giving the four big supermarkets "a
lot of power."
In what ways are retailers in the U.S. exerting pressure on suppliers
to moderate prices? Do you, for example, expect to see greater use of
reverse auctions to help retailers get goods at the lowest possible
commentary] Website Planet
Retail also reported (May 5) that Tesco has been trying to reduce
agreed construction fees by 40 percent, on the basis that "lower land
and material costs mean contractors can build for less." In response, the
Association for Consultancy and Engineering (ACE) has apparently "been
inundated by complaints from its members in the construction industry."