Direct sourcing is key for IPL and ASDA
As well as being the biggest single importer of produce in the UK, Asda subsidiary International Procurement & Logistics (IPL) – the UK retail chain’s sourcing and procurement arm – is involved in exports. IPL Export, its export operation, supports the direct import strategies of Asda-owner Walmart as well as Sam’s Club, its retail warehouse chain. Dutch aubergines and Spanish olive oil for Canada, UK beer for the Japanese market and milk from Yorkshire for China are just some examples of IPL Export’s activities.
And upstreaming is another of the operations it carries out for Walmart. “We are building an IPL structure in Walmart and Sam’s Club,” said IPL technical team leader Bas Tramper, during the international conference on ‘Tomatoes, trends towards 2020’ held 13 to15 April 2016 in Antwerp.”In multiple locations there are IPL structures supplying and buying, like in the UK. We are working on the same basics as we do in the UK.” The activities covered span produce, meat and bakery facilities and structures are now also being created in Japan and Mexico.
IPL’s direct sourcing model
IPL applies a direct sourcing model where the lines are kept as short as possible. It operates many processing facilities in the UK and abroad, including for potatoes, bananas and meat. It is Asda’s sole supplier for various products, including fresh produce. Its sourcing method depends on how big a product is. A small line can be bought straight from a marketing organisation.
“But a product like tomatoes we buy as deep as possible to guarantee freshness, better quality and lower costs,” Tramper said. On the supply chain, IPL cuts out the exporter, transporter and packer, delivering the goods directly to Asda and bringing in expertise and leverage. “It brings a lot of added value.”
IPL has offices all over the globe to ensure the best sources in which value, quality and availability are important aspects. Tramper said a fall in complaints to Asda about fruit and vegetables illustrates the success of the direct sourcing model.
“This number is decreasing year after year,” he said. Indeed there was an impressive 65% reduction between 2009 and 2015. Conducted at Asda’s request by Cambridge university, there is also continuous assessment of the quality Asda delivers, relative to that of its competitors. Asda appears to be the best in the market overall and continues to improve its performance.
However, consumer perception is another story. Tramper explained that from a historic point of view, customers had the perception that the quality of Asda’s products was not top level. “It takes years and years to improve your image on that,” he said, stressing that quality improvement needs to occur on a daily basis and the continuous measurement of performance is key.
Tomatoes, the strategic category of the season
The assortment of tomatoes Asda offers is specific to the tastes of UK consumers, who generally perceive that a tomato should be both round and red. Another important factor to take into account is the low average income in the UK, explained Tramper. Asda focuses on the lower price segment and has a market share of around 17%. The tomato assortment is differentiated into three price categories: the extra special, a very nice tomato with attractive packaging, which is 15% of the total; the Asda brand, with 84% by far the largest and most important category; and the value pack, which accounts for just 1% of the units sold. The extra special tomatoes do not yet have a significant volume but sales are slowly rising, Tramper said.
Within this price differentiation there are different types of tomatoes of which the extra special varieties have the largest share with 35% of the units sold.
“There are about 21 SKUs and yes, we are reducing the number of SKUs,” he said. Within this segment there is overlap in varieties. Different types of tomatoes have been ruled out as a result. ”We have ruled out the cocktail tomatoes because there was no sales for that.”
Reducing more types will result in better choice for the customer as it is better not to make it “too difficult” for the customer, Tramper believes. Next are the loose round tomatoes (30%), cherry tomatoes (20%) and large tomatoes on the vine – where tasty varieties are also selected – accounting for 15% of the units sold.
Tramper expects the loose round tomato in a six pack to remain a very important category to Asda, since the volume is 30% of the units sold and it represents only 1 SKU. But the focus will be on how to improve the experience of the customer and with that stimulate repeat purchases. Where the extra special tomato is concerned, it is expected that over the next 4-5 years the assortment will take a different shape with less types. Tramper stresses that the optimisation of the tomato assortment should take place together with the breeders and will be an ongoing process.
Asda and IPL at a glance
Asda was formed when two separate companies, Associated Dairies and the Asquith brothers’ supermarket chain Queen’s, came together in 1965. Asda Stores Ltd was created, a supermarket committed to offering its customers ‘permanently low prices’. In 1999, Asda was acquired by Walmart Stores Inc., becoming part of the world’s biggest retailer.
Since then, Asda has become Britain’s second largest supermarket and its mission is to be nation’s most trusted retailer. Asda also holds a leading position in the UK clothing market with the George clothing brand and is increasingly making inroads into the UK’s general merchandise sector.
IPL was founded at Asda’s request and since 2009 has been a wholly owned subsidiary of Asda. IPL focuses on its role as Asda’s largest supplier. It also sources products for other Walmart markets. IPL operates various processing facilities in the UK and has multiple overseas offices.
- Total number of stores 616
- Includes: Supercentres 32, Superstores 332, Asda Living stores 34, Supermarkets 201, Standalone petrol stations 15
- Customers on an annual basis: Over 936 million
- Number of employees: 172,000
- Focus: Permanently low prices