Tesco faces supplier revolt over prices

LONDON - Tesco, Britain's biggest supermarket, is facing a revolt by food suppliers over its efforts to push down prices in its battle against rivals such as Asda and discount retailers Aldi and Lidl.

The Sunday Times said that the supermarket has contacted many of its large suppliers to ask them for cash contributions or lower prices so that it can pass price cuts on to shoppers.

However, one of the supermarket's biggest suppliers told the paper that it was in talks with several other suppliers to formulate a strategy to resist Tesco's demands.

Tesco argued that suppliers can afford price cuts because commodity prices for key items such as milk powder are coming down.

But the suppliers insisted that Tesco is being selective and that key ingredients in products such as sandwiches, ready meals and pizzas, including chicken, tuna and tomato, cost more than they did a year ago.

A source told the paper: "We're making it clear to Tesco that the broader picture is one of continued inflation on many commodities, not just the isolated examples they have been quoting.

"Everyone wants to see consumers benefiting in this environment, but the hard reality is that the days of really cheap food are over.

"While some commodities are down from historic highs, the prices in the market for many ingredients are still up on last year."

Suppliers also argue that rising energy and packaging costs and the weak pound are exacerbating the problems they face.

They claim that Tesco is taking an aggressive stance by saying it will only pay a certain price for products, while Tesco countered that it is negotiating the best deals with suppliers on behalf of consumers.

A spokeswoman for Tesco, quoted in The Sunday Times, said: "A year ago we worked to help suppliers when commodity prices were going up -- now they are coming down, it has to be a two-way thing."

Tesco has also been accused of demanding increased trading terms from wine and champagne suppliers to keep alcohol prices down in the build-up to Christmas.

The Daily Telegraph on Saturday said that one unnamed supplier had been given just days to decide to agree to the new terms. Another claimed that the terms included an immediate price cut of the amount it will pay for products, a request for doubling of funds for promotional activity and a ban on price rises for the next year.

Tesco has also recently extended its credit terms with suppliers, from 30 to 60 days, meaning they will have to wait two months before getting paid, rather than one.

Tesco has said that its customers are facing tougher times ahead and that they are "looking at us to help".

But the supermarket chain is also facing increasing competition from rivals, and in particular discount stores Aldi and Lidl.

The threat has led to Tesco launching cheaper products and even adopting the slogan: "Britain's biggest discounter".

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