Wholesale change for Asda?

Asda is dipping its toe deeper into the rich waters of British wholesale. And it could soon be making some very big waves indeed. As growth becomes ever harder to come by for the big four supermarkets, the foodservice industry is becoming more and more appetising.

Asda’s new direction went virtually unnoticed by the trade, however. Asda Business - a website pitching fresh, frozen and ambient food, household items and office supplies to nurseries, care homes and offices - has been running for two years. But a senior source at one of the UK’s biggest wholesalers says his company only became aware of it when Asda began targeting its care home customers this summer.

The marketing push was followed up in October with the launch of a corporate trade card giving 56 days of interest-free credit. Since then the website has been relaunched with the aim of making it easier for customers to navigate the more than 700 lines on sale. The signs seem to suggest the soft launch is hardening up. So who has the most to fear from this new direction for the world’s biggest retailer?

There’s nothing new in the supermarkets making life difficult for wholesalers. Even Booker heads to Tesco to stock up on certain lines when it cannot beat the retailer on price, the wholesaler’s CEO Charles Wilson told The Grocer earlier this year. Indie retailers are doing the same. An exclusive survey for The Grocer in April revealed that one in three indies have stocked up with supermarket goods.

But it’s the foodservice sector that Asda has its sights set on now.

“This is certainly a reminder that life is going to get harder,” says one senior source at a leading national foodservice supplier, noting that Asda has been very specific about its clientèle, aiming for nursing homes, nurseries and offices, which tend to be smaller businesses.

“They are generally attracting the lower-hanging fruit so it will be the cash & carries that are going to be hit by this.”
The benefits of such a strategy are clear. One wholesaler estimates that 70% of the food budgets of smaller six to seven-bed nursing homes are spent in the supermarkets, so offering a delivered service combined with trade credit could clearly help Asda win share here.

These smaller targets are just the beginning say some, suggesting that larger catering operations and the hospitality sector could soon be in the retailer’s sights.

“They’ve certainly started to go in that direction,” says Kishor Patel, a board member of Nisa Holdings.

“But the multiples are not going to find it so easy entering catering wholesale because it is so specialised. People are not buying just on price - they are buying on quality, availability and service as well.”

Asda would need to address a range of issues if it were to pursue a bigger slice of foodservice in earnest. Not least would be branding, says our foodservice wholesale source. “I don’t think big hotels will think it looks great having an Asda van coming up the drive,” she says.

That’s not all. Retail brands have little value in hospitality. It does little for the cachet of a restaurant or hotel to be serving the same product people eat at home and most foodservice suppliers have their own specialist catering lines, which in some cases are cheaper than the supermarkets’ own-label offerings.

“The online-only format is a limitation too, as it’s about passive buying rather than active selling,” says James Bielby, CEO of the Federation of Wholesale Distributors. “Small retailers look to their distribution partners for support, merchandising advice, sales statistics and flexibility, as well as personal relationships, and the challenge for Asda will be to match the value of wholesalers’ service.”

Flexibility is key for those serving smaller businesses, and some question whether a player of Asda’s scale would be able to deliver this.

“Nursing homes might want a kilo of mince, one-and-a-half kilos of mince or half a kilo of mince - we can give them one price per kilo and we can give them whatever quantity they want,” says Allan Currie, finance director of Edinburgh-based Campbell Brothers, which supplies contract caterers and nursing homes across Scotland.

Currie also questions the length of Asda’s reach: “When you are north of Inverness and the nearest Asda is 60 miles away it is less of a threat. For us it wouldn’t be any more of a threat than a major player - a Brakes or a 3663 - moving in. But there will be many businesses in the major towns and cities that are going to be particularly concerned about this. If Asda puts some money behind it I am sure it will start taking market share.”

Asda certainly has deep pockets. Some even suggest that M&A in catering wholesale is not out of the question. “Wholesalers could well be on the multiples’ shopping lists,” says Patel. “These businesses have hundreds of thousands of clients on their databases so it is not out of the question that the multiples could be looking to buy at some point in the future.”

An Asda spokeswoman wouldn’t be drawn on its plans for the sector but did say: “It makes sense that savvy small businesses want to make the most of our everyday low prices and like any of our valued customers, we’re keen to support them.”
The thought is sending shivers up many wholesalers’ spines. Their eyes, meanwhile, will increasingly be on Asda.