Leaked memo reveals how Asda sought to beat down suppliers

Supermarket advised buyers to play 'good cop/bad cop' to try to reduce the cost of produce

A leaked document has shed light on the tactics proposed by an Asda director to get better terms from the supermarket's suppliers.

The secret memo, issued in 2009 as a guide for the retailer's buyers, tells them they must "buy for less". In the introduction, commercial director, Phil Briggs, tells buyers to take advantage of the fact that "our suppliers are hungry for volume [growth]. It is the lifeblood of their business".

The 88-page guidance warns buyers that negotiations will not be easy, and they should use techniques such as "good cop/bad cop" in meetings. Asda can make available a "bank of experienced negotiators" the document says. "Non-delivery is not an option," buyers are warned, but reminded to "have fun!"

One Asda supplier, who went through the negotiating process last year and saw the document said he felt "disappointment" with Asda. "Obviously, you get used to having hard negotiations but this went beyond that and it didn't reflect the partnership approach that you want with retailers. It was all about how much you could screw out of us," he said.

The supplier, who did not want to be identified, said he could not afford to offer better terms to Asda, and was consequently penalised. "They carried out their threat of reducing shelf space for our products and we were seen as a non-supportive supplier," he said. "We have suffered because of it, but it was either that or lose money."

Buyers are also instructed to extract better terms from their suppliers by asking for money to cover areas such as marketing and waste. "Clearly, suppliers should be challenged to fund marketing costs," it says. It also tells buyers: "Suppliers should provide compensation for products that are marked down or thrown away because customers aren't buying them." In addition, suppliers should help fund capital expenditure: "We invest a huge amount of capital into new space each year and our suppliers can help pay for it."

The document lays out how to structure a meeting with a supplier. "Plan your introduction," it says. "Use this opportunity to take control and set the agenda. Open outrageously (include plenty of fat). The bigger the opening figure, the bigger the settlement figure." Buyers should have prepared "three concessions that cost Asda nothing but will assist their trading position. Only concede if you have to. Be tactful, but be firm. A threat is only a threat if it is followed through. Remember always that we are negotiating on behalf of our customers!"

Suppliers can be split into four groups, depending on their reaction to negotiations claims the document – they are "high performing, complacent, conflict and apathy." For those who fall into the "conflict" group, the document advises buyers to punish them. "They may not understand or buy into the Asda strategy. Consider reducing the level of business, at no cost to Asda if they don't collaborate," it says.

Asda issued the document to buyers last year and the strategies used by major supermarkets have come under greater scrutiny, with the introduction of the Grocery Suppliers Code of Practice this February.

While the code does not ban retailers from asking suppliers to cover costs such as marketing and waste, it does ban retailers "requiring" suppliers to do so under duress and making retrospective changes to supply agreements. The code also says any decision made to stop stocking a product must be done for genuine commercial reasons.

An arbitrator for the code is not expected to be in place until 2012. Until then, suppliers can complain directly to the retailer, but many are reluctant to do so because of the lack of anonymity.

Duncan Swift, the head of agri-food for global business advisory firm RSM Tenon, is an expert in retailer-supplier negotiations. "Retailers have been doing this for years," he said. "Unfortunately, they are standard tactics and I have seen it before."

An Asda spokeswoman said yesterday: "Do we drive a hard bargain with our big, multinational suppliers? Absolutely. However, while we may be firm, we are always fair.