Asda’s direct approach leaves fresh produce industry talking

Can you explain how the IPL setup works?

It still works on the principle of taking out the middle men and taking that importer margin - the principle of aggregating demand. A number of supermarkets have three or four suppliers for the same item. We only have one, so we consolidate that volume and we make that volume work very well in terms of economy of scale in our packhouses. It’s also about controlling shipping and freight.

We are Maersk’s biggest customer out of South Africa, for instance, so that gives us some leverage. What we also have is country offices, in Spain, France, Italy, Chile, Costa Rica, South Africa, New Zealand. We are unique in that we actually have people on the ground working for our interests - very strong agronomists who understand farming and logistics.

We feel we are better connected to our growers than any other retailer. We also fulfil a role for Asda as category advisers, so there’s not a traditional buying team in Asda buying fruit because we do that for them. So they set a policy and requirements on retail pricing, quality, promotions etc and we conform to that.

Has your perspective changed having moved from Asda’s commercial director for fresh food to IPL?

My perspective is always that there is an awful lot of waste in supply chains, inbuilt inefficiencies where people try to take margin, try to do it through self-interest, and if you hold the principle as I do that there are only two people important in any supply chain - the consumer and the grower or manufacturer - and if you try to push value to either end of the supply chain, then you can have a good business model. And I passionately believe that.

You have to do it for the grower to ensure sustainability, a good return, varietal development, sustainability and the broader issues around a growing business. And you have to do it for a business like Asda, as clearly we are a price leader. You have to push value to either end and our model allows us to do that better than anybody else.

Will others follow the direct sourcing model?

There was an awful lot of noise about “it’ll fail”, “it’s rubbish”, and then over the course of the last five years we have found ourselves in a position where some of our competitors are looking either to replicate the model that we’ve been using or try to look at our people. Clearly Morrisons had a form of vertical integration for some time, they own their own packhouses and do a fantastic job. But I think what we have is slightly different.

There’s a purity and a transparency to our model. I think for the big supermarkets this sort of model will become the norm. I think we are seeing that sea change. All retailers will want to continue to understand their supply chains better and influence their supply chains more than they have done previously. They’ll want to do it through vehicles like IPL rather than importers. This is a trend we will see, not just in this country but around the world.

What would you say to importers who argue you can’t match their expertise and experience in the industry?

I would say with some confidence that the expertise I have in these country offices or out on the trading floor is comparable to anything in the industry. It might even be better.

Will you expand the IPL model?

If I look at fresh produce at the moment, yes we are doing all the fruit for Asda, and there are still some opportunities within fruit, but can we extend it to other commodity areas like salads, or flowers, or vegetables. And then we can extend it out to other imported products, which we’ve started doing in the last year, like Italian cheese, Greek cheese, Belgian paté and pasta.

We are starting to put things into place, but we’ve got a team of people working on [salads and flowers], we’re engaging with some of our incumbent suppliers and making sure we give them good notice of our intentions because clearly it can have a big impact for them. If it’s worked in fruit, why wouldn’t it work in other commodity areas? We’re pretty well connected with Wal-Mart, and they’re trying to do something similar in the rest of the world. The opportunity for Wal-Mart globally to tap into the infrastructure we’ve got set up is enormous.

How are your grower returns?

We aim to give a good return, we have some very long-standing relationships built on mutual trust and we can turn round to people with some certainty and say we will be here for years. Most importers are at the whim of a retailer, so the retailer might sack the importer one year and as a consequence that importer can’t give the order to the grower.

In terms of varietal development we can say “stick your trees in the ground, we understand it will be four years before there’s any marketable quantity of fruit, and we will be there.” It’s that understanding and dialogue that’s so important.

How does your model affect product quality?

It gives us better quality. Because we have people on the ground, we can pick out the best growers, the best parcels of land, the best fruit - we control the supply chain in terms of the freight and shipping - so we don’t have to be reliant on an importer or agent to tell us.

We don’t need to check how long the fruit’s been on the water. That has given us better quality, and because we are looking at value in the supply chain, we can invest to get better quality as well. There’s no doubt if we look at customer complaints - our customer satisfaction on fruit has consistently improved over the last four years. The quality of fruit in Asda is as good as anybody else in the high street.

How important is British provenance in Asda? In view of the fact Asda undertrades on many fruit categories, is it less important for Asda customers?

It’s no less important, and people sometimes confuse a price leader with thinking customers aren’t interested in provenance or quality. They are. If you look at the work we’ve done on berries, we’ve had an absolute sea change and had our best season on UK berries. One of the reasons is we are now using an IPL model to purchase that fruit.

We are starting to redress the point. I think we’ve neglected UK top fruit a little bit over the last five years, but last year we had the best year ever.

We were first to market on some varieties and we are doing a better job. So it is important, we do recognise the need and our responsibility to do a better job and we have done a better job. Will we do more? Yes we will. It’s about giving growers the confidence that we are going to buy their produce.