Asda presses ahead with factory gate pricing

Supermarket chain Asda is rolling out factory gate pricing (FGP), but unlike its arch rival Tesco it claims not to be putting its suppliers under pressure to participate if they don't want to.

As well as improving the accuracy of product deliveries to its regional distribution centres, FGP offers smaller manufacturers outlet opportunities that might otherwise not be available to them, says Asda.

"We've been working for some time on finding ways to make it possible to offer FGP to suppliers who wish to take part," says an Asda spokeswoman. "Where FGP offers an upside -- in terms of cost and efficiency -- to the supplier and they want to take part we can work to switch them on; if suppliers are reticent about it then we wouldn't pressurise them to change -- it's entirely voluntary."

The retailer began introducing FGP in September 2003 and now has 54 chilled and 20 frozen suppliers signed up. But it stresses "there are no volume targets"

Asda claims FGP's introduction enables it to deal more effectively with smaller suppliers. It cites the example of small Lake District supplier Plumgarth's Farm Shop which is now benefiting from nationwide sales thanks to the grouping of deliveries with a selection of other smaller suppliers on a retail park on the outskirts of Kendal.

"Clearly delivering together rather than separately makes more sense in terms of costs and takes a lot of the hassle out of dealing with a big retailer," says Asda.

Asda transport development manager Simon Pearson, who is responsible for the FGP initiative, has formed a number of strategic relationships with third-party hauliers. Around 10 are participating in the programme, including NFT Distribution (a subsidiary of Northern Foods), Reed Boardall Transport and Pall-Ex. "These [transport providers] can offer us a much lower cost and more efficient way of collecting product than many of our suppliers -- particularly the smaller ones -- are able to do," claims Asda.

It adds that the main benefit accrued by pooling collections is that those from smaller manufacturers that might, for example, only supply one pallet into a depot each week compared with 28 for a normal delivery can be done far more cost-effectively.