Asda needs to follow Tesco’s example to keep in the GCA’s good books

Yesterday’s revelation that Asda had demanded millions from suppliers to finance its Project Renewal strategy – or face having their products stripped from its shelves – made for yet more X-rated viewing for the struggling Walmart giant.

In fact, the initial reaction upon reading Groceries Code Adjudicator Christine Tacon’s scathing report into a probe secretly dating back to March 2016, is just how lucky the retailer has been to avoid a full-blown investigation.

It was in February last year, before the Adjudicator began her trawl through the events leading up to yesterday’s condemning code clarification, that The Grocer first revealed suppliers were being asked for eye-watering payments. We reported how suppliers were asked to slash prices by up to 10% and invest huge sums in promotions funds. Meanwhile, Asda boss Andy Clarke, aided by external consultants Bain & Company, set about his summer SKU cull.

Yesterday’s report by Tacon shines light on the pressure that was put on suppliers, who in some cases were given 24 hours or even less to agree to such demands. And it has alarming parallels to the sort of behaviour that Tesco infamously found itself accused of in the Adjudicator’s first investigation two years ago.

So why has Asda escaped, and is the Adjudicator’s decision to hold back from the ultimate deterrent justified?

Tacon seems in little doubt that Project Renewal was in breach of paragraph three of the code, dealing with variation of supply agreements. And the evidence of “aggressive tactics” and threats levelled at suppliers will leave a very bad taste indeed, especially for smaller suppliers less equipped to stand up to such battlefield tactics.

Yet what is also clear is that under new broom Sean Clarke practices are changing for the better at Asda.

Tacon revealed how through internal inquiries, involving going through millions of emails, Asda had sought to root out such behaviour.

As well as repaying lump sums to an unspecified number of suppliers, Asda has given new training to all its buyers on the principles of the code. Rather than using it to screw suppliers, Asda is overhauling its previous dubious behaviour on Drop and Drive and has set up a new supplier helpline.

A recent survey by the British Brands Group showed Asda had made a step-change towards greater transparency on its code compliance, even if its behaviour still needs to improve.

Most fundamentally, the new Clarke at the helm has recognised that Asda cannot abuse its supplier relationships as the basis for a financial recovery. Again, there is a huge parallel here with the root and branch overhaul carried out by Dave Lewis at Tesco.

Asda now has to prove it can change its perception among suppliers in the same way Tesco did. But while there will no doubt be many suppliers disappointed at the Adjudicator’s decision to hold back from the nuclear option, the long-term benefits could be worth it if the sort of behaviour seen in Project Renewal is rooted out for good.