Asda asks suppliers for discounts to help battle Aldi and Lidl

Asda has called on its suppliers to provide discounts and cash contributions amid the intense price war in the UK supermarket industry. Through these, the retailer expects to gain millions of pounds that will allow it to lower the prices of its products. This in turn is expected to improve its chances in battling discount retailers such as Aldi and Lidl.

The Leeds-headquartered company is having individual discussions with various suppliers on how prices could be slashed by as much as 10%, according to the Grocer, an industry trade journal. According to The Guardian, one industry source said: "Individual suppliers are being asked for millions of pounds and asked what they want in return."

Apart from discounts, the template agreements given to suppliers also ask for other forms of payments to the retailer. This includes "incremental investment", a payment to cover the charges incurred in promoting a supplier's product apart from other initiatives, such as new product development.

The company, which is expecting to unveil its sixth consecutive quarter of declining sales on 18 February after it had a tough Christmas, has become the worst UK supermarket in terms of financial performance. It faces competition on the price front from not only the fast-growing discount chains such as Aldi and Lidl but also Morrisons and Tesco, which too have trimmed prices and improved services in recent times under new management teams.

Asda recently stated that it will invest more than £1bn (€1.28bn, $1.43bn) to help lower its prices. It also promised to ensure that its prices, which are currently about 10% higher than Aldi and Lidl, will be only 5% higher in the next few years.

The retailer said that apart from making suppliers sacrifice their profits, Asda could also consider changing to cheaper packaging, recipes or ingredients sourcing in order to reduce the net prices of products being offered to end customers. Asda added that it could reduce the range of products offered by 10% in some categories so that it can stock up more of the narrower range. This will help in improved efficiency as a result of which it could expect to get better deals from suppliers.

Andrew Moore, Asda's chief merchandising officer, said: "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."