Asda turns price screw

ASDA, the supermarket group headed by Archie Norman, is demanding price cuts from suppliers to pass on to its customers, in an attempt to strengthen its market position.

It has written to selected suppliers demanding that they turn promotional deals into permanent price reductions.

'We will be looking to net down promotional bonuses and fees to reduce our cost prices,' it writes in a letter dated

1 March, 1994. 'In turn we will pass this on to our customers as lower prices all year round, thus eliminating the need for short- term levels of activity.'

Asda is also expected to make job cuts at head office, reducing the staff from 1,200 to below 1,000 over three years. Last week J Sainsbury announced that 650 head office jobs were to go.

In the letter the Leeds- based company states its intention to operate permanent prices 'below those prevailing in the marketplace'. Customers resented 'yo-yo pricing', the letter added.

Analysts are taking this as evidence that there is no resurgence in food price inflation around the corner, despite a recent rise in milk prices.

Tony MacNeary, a NatWest Securities analyst, said: 'People have got the impression that food inflation is going to take off, but this is a major food retailer that is going to survive and is going to get a very strong place in the market.'

Suppliers were reluctant to comment, but one told NatWest: 'They'll never get away with it.' Nevertheless, Mr MacNeary argues, weaker suppliers may feel forced to comply, and knock-on effects will follow as other supermarkets demand similar terms.

Asda refused to comment, but the letter is in line with the strategy introduced by Mr Norman of offering better value to its relatively poor customers, who are based in the urban North of England.

The company has a policy of reducing promotional discounts, which it believes lead to distrust of its pricing.

It has about 300 promotional discounts a month now, compared with about 1,000 a few years ago.

The pressure on supermarkets from increased competition and customer price awareness was evident in Sainsbury's announcement of redundancies.

The group told analysts that this move, which is expected to cost up to pounds 20m, would save pounds 15m a year. Sainsbury said it was part of a wider reorganisation designed to save pounds 50m a year from March 1995.

Earlier this year, Tesco made 800 redundant, blaming fierce competition.

According to a leading firm of chartered surveyors, a number of Tesco's supermarket development sites are on the market. Tesco would not comment, but it said in January it was cutting its store-opening programme, building smaller and cheaper stores, and taking pounds 153m charges on writing down land and buildings.