Walmart's British subsidiary, ASDA, has entered a European strategic purchase alliance, EMD. It is part of an aggressive strategy, aimed to offer lower prices through structurally lower costs. Suppliers will have to do their part in achieving that.
Even lower prices
With this move, ASDA will add 31 billion euro in purchase power to the EMD purchase alliance, which will now represent an 178 billion euro organization. The British Walmart subsidiary will join forces with, among others, German Kaufland (which belongs to the Schwarz Gruppe and is an affiliate chain to Lidl), French Casino and the Dutch purchase alliance Superunie.
"For all manufacturers operating in the field of Fast Moving Consumer Goods (FMCG) this partnership opens up new opportunities on both sides of the channel", EMD writes in a press release about ASDA's admittance. Clearly, the primary goal for such a purchase alliance is to get better prices for their purchases and will lead to suppliers having to offer even lower prices to all retailers connected to EMD.
ASDA's move to join EMD has everything to do with its strategy to continuously cut its costs and therefore lower its prices to consumers. It is the essence of the "roll back" strategy and the "productivity loop" that helped build Walmart's empire.
Disappointing numbers ahead
ASDA also suffers from the success German discounters have had in Great Britain and we will have to wait until next month, when Walmart will release the numbers, how the company has dealt with the competition over the past holiday period. Analysts and experts believe ASDA, just like many other retailers, will also post disappointing holiday turnover numbers. The first numbers of the major 4 British retailers (including ASDA, Tesco, Sainsbury's and Morrisons) should arrive later this week.
ASDA's turnover is also under pressure, even if it is the second largest retailer in Great Britain, trailing Tesco. It has had to deal with 5 turnover decreases in a row, as British customers' heads are increasingly turned by Aldi (Süd) and Lidl. Both discounters are also benchmarks for ASDA's pricing strategies. In the British press, CEO Andy Clarke says ASDA wants to be the cheapest of all major retailers, while price differences with Aldi and Lidl should be limited to 5 % at most.
According to Clarke, the company needs to undergo a radical change to lure the customers back, which is why he says a new structural series of price cuts will come in the near future. ASDA will invest 500 million pounds (664 million euro) to this end over the next few years, on top of the 1 billion pound set aside for price cuts. It announced those price cuts in November 2013, for the time period until 2018.
Over the past weekend, Clarke stated the company had already invested 600 million pounds of that billion pounds. One example is that it has decreased its product ranges to reduce the complexity and costs related to these product ranges, while it has undoubtedly already looked into lower purchase prices. All in all, the investment has not led to the desired result.
That is why ASDA has entered a European purchase alliance, in order to obtain better advantages thanks to the combined international power. Suppliers for ASDA and the other EMD members will have to get ready for another year filled with price discussions.