Walmart-owned UK retailer Asda is viewed by many as the pioneer of the modern direct sourcing model. Ever since the US giant bought out supplier International Produce Ltd (IPL) in October 2009, Asda has acquired a level of control over its supply chain that has made it a unique proposition in the UK grocery market, allowing it to strip out cost and retain its position as the lowest-price supermarket. Already sourcing a wide range of fruit through IPL in Leeds, the chain is taking its direct-sourcing capabilities to the next level this month with the announcement of a raft of new developments to expand its offer.
In May, the supermarket purchased a dried fruit and nut facility which is already packing own-brand lines for Asda and will have achieved 100 per cent supply on five core lines by the end of September. With three growth phases earmarked between now and January 2012, the site will be backed by investment in new packing facilities and 'enhancements to improve the customer offer'. In a further development, the retailer’s houseplants and flowers business will be moved to the direct-sourcing model, with a new site based near Peterborough employing over 150 staff and packing flowers and plants for all Asda depots. In-country teams have already been recruited to buy from source and a supply chain established to bring goods to the new facility, which is expected to be operational by October.
Asda's in-house fresh produce sourcing arm is also undertaking a feasibility study around prepared fresh fruit and vegetable lines. It is understood to be considering building a dedicated UK facility to manage that convenience offer. Insiders say IPL is regarded within Walmart as an ideal sourcing model that can be adopted around the world, with the subsidiary having taught the US parent much about innovative purchasing practices. At the Global Table Grape Congress, held in Cape Town in July, IPL's South Africa manager Mike Newton confirmed the long-suspected rumour that Massmart, a South African retailer bought by Walmart in May, will stock fresh produce across all stores in the country over the coming months. That move will be orchestrated by IPL.
What's more, the sourcing model for which IPL blazed a trail in fresh produce is already being rolled out to other food groups, with the division last year trialling direct buying of lines such as Italian and Greek cheese, Belgian paté and pasta. Managing director Nick Scrase has spoken passionately of the benefits of cutting out the middleman and taking more control over the supply chain, claiming that the quality of fruit in Asda is better than ever and shopper complaints have steadily reduced since ipl took full control.
Taking the margin that would have been given to the importer enables IPL to pay growers more and, crucially, ensure Asda remains the most price-competitive retailer on the British high street, according to Scrase. The supermarket is a firm believer in the direct model and, judging by this month’s developments, is stepping up such initiatives on a global scale as well.
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