Asda stirs up food with cost-cutting

Asda is likely to pile price pressure on rivals following a decision by parent Wal-Mart to cut buying costs on globally-sourced food products by 15 per cent. Food accounts for 65 per cent of Asda's business.

No timescale was set, but the target was recently revealed to analysts visiting Wal-Mart's headquarters in Bentonville.

The push to improve food buying terms follows Wal-Mart's successful reduction of the costs of globally-sourced non-food items by 15 per cent in the UK and 9 per cent across the company.

SchroderSalomonSmith-Barney food retail analyst Dave McCarthy, who visited Wal-Mart in Arkansas, said that approximately 20 per cent of Wal-Mart's produce could be globally-sourced.

Wal-Mart, the biggest company in the world, has established 21 offices around the world for global procurement of general merchandise and is to create similar teams for food.

An Asda spokesman confirmed: 'It's about creating a global infrastructure for commodities such as coffee, sugar and salt, which in turn enables us to reduce prices (in stores) and frees up cash to invest in locally-sourced products as well.'

Robert W Baird analyst Paul Smiddy said: 'It's clear that Asda is driving all food prices down, even without significantly tapping into Wal-Mart's buying power. This move should concern everyone else (in UK food retail).'

Asda is growing fast, and is tipped to take the number two grocery position at Christmas.