While majority owned by Bakkavor, the concept behind International Produce (IPL) came from Asda out of “a desire to manage its fresh produce procurement differently”. On inception some three years ago, the Wakefield-based business brought together the importing activity of a number of businesses that had previously supplied Asda. Bakkavor suppliers English Village Salads (EVS) and Thames Fruit were the founders of IPL, which commenced supply of five key fruit lines: top fruit, grapes, citrus, stonefruit and melons to Asda.
But the company’s role fundamentally changed in September last year following the appointment of Asda’s director of produce Nick Scrase. As part of a radical examination of the fresh produce supplier’s interface, IPL took on the responsibilities of an in-house supermarket buying team, overseeing every aspect of retailing, from promotions, to range, merchandising and price for its fruit lines.
“We became responsible for all the activities that the buying team had previously been responsible for with our products,” explains International Produce general manager Kathryn Gray. “From our point of view that’s been a great success. It’s an unusual model, and it’s probably the first time that a retailer on this scale has done that.”
The scale is impressive. With a turnover of £220 million last year, IPL boasts some 700 colleagues across two sites - the Normanton depot which also houses the central colleagues and a depot at Spade Lane, Kent - and a number of colleagues at source. It has offices in Chile, France, Italy, South Africa and Spain, and additional colleagues in New Zealand, Brazil and Costa Rica.
Indeed, IPL’s success to date can be measured by looking at Asda’s growing market share. In the last quarter of 2006, the produce market grew by seven per cent, whereas Asda’s produce grew by 17 per cent, taking it from an 11.9 per cent share to 13 per cent. IPL’s share in the same period was even higher at 13.3 per cent.
“We have our hands on the controls for the first time,” Gray says. “All suppliers know that feeling of wishing they had more influence, and at International Produce, we now have responsibility for managing the range, the promotions, and the prices.”
Scrase says the approach is unique in the produce industry and is allowing more scope and visibility from field to fork. “It was [born from] a desire to get closer to our growers and to create shorter supply chains,” he says. “Asda can get far closer to its growers to control quality, to control volumes, to manage pricing more effectively. I guess the essence of what we are trying to do is to make the connection between the consumer in our shops and the grower, wherever the grower is in the world and to cut out as much stuff as is possible in the middle. International Produce is a way of doing that.”
As well as reconnecting with producers, the IPL model offers an alternative to straightforward competition between suppliers. It is designed to drive economies of scale, increase efficiency and ultimately give a greater margin back to producers and customers, Scrase explains. “The advantages that gives us is we’ve never been closer to our growers, so our sourcing, our procurement is probably more effective than it’s ever been.
“The analogy I use is it’s like having a big pile of sugar on the table, imagine this as the total benefit to be shared out, and you push it to either end of the supply chain. You push some to the growers because you know they need returns to have a sustainable business and you push the other bit to the customers because you want them to eat more fruit and vegetables and you want them to return to our 300 shops.”
But, as with all pioneering concepts, the experience has offered a steep learning curve for the team, according to Gray. “One of the fundamental changes was getting to grips with the retail aspect, she says. “We’ve had a massive eye opening really; we didn’t really understand what the retail bit was about. Becoming responsible for it means you have to then be responsible for it in terms of the targets you are set and the measures you have to achieve. Now, we have great visibility both up and down the supply chain because we can see up the chain to all the growers and we now understand the customer side of things and how the demand is moving.”
The sheer scale of the set up of IPL was also overwhelming at times, she reveals. Some 32 per cent of all Asda’s produce comes out of International Produce, and many of these are its key fresh produce lines. One weekend, the IPL team took on Asda’s whole top-fruit category, which has an annual turnover of £90 million, in an almost overnight transition.
Some pockets of the industry were less than supportive, Gray recalls: “The whole industry was watching this project with interest and there’s an awful lot of people who felt Asda was being too ambitious and that it would fail. However, all of the colleagues who make up IPL, and our suppliers around the world made it succeed. I would like to personally thank all of our colleagues and suppliers, throughout the world for their contribution to what we have achieved, Thank you!”
Scrase agrees. “It’s like anything; we went through a really tough time in the first year. Kathryn runs one of the biggest, if not the biggest fruit importer in the UK. When you’re importing and managing that scale of business is an enormous task. That in the early days was very tough and we went through some teething problems.”
Getting used to its location in Normanton, Wakefield - as opposed to the traditional fresh produce capitals, such as Kent and Lincolnshire - also presented the IPL team a challenge. As well as persuading specialist traders to relocate to form the central buying team at the Normanton central office, it also had to recruit staff to man its depot in an area relatively unfamiliar to the fruit industry.
Now, the company has established Normanton as a fresh produce centre in its own right, Gray says. It allowed it to be close to Asda’s Leeds base, which has also offered a variety of practical benefits - for both parties. “I think the traditional buying-selling relationship has improved tremendously because historically, buyers sit on the trading floor and they don’t really know what the problems are with the vendors,” says Asda’s general manager of produce Rick Bourne. “But actually being close to a business like International Produce, I really understand the supply chain in a lot more detail and that affords a different kind of relationship.”
So close is the bond between Asda and IPL, the company has recently announced it is to incorporate the Asda name in its logo, a move virtually unheard of from a supplier.
“This business has always been International Produce Limited, but we’re going to change it to International Produce working with Asda because I think there’s still a misunderstanding within the industry of what International Produce is. It is us by proxy - it is an Asda business, and we’ve chosen to manage it in a slightly different way,” Scrase says.
There’s no doubt IPL, its facilities and staff, make up a significant part of Asda’s infrastructure. Asda pays all IPL costs, but, it is still 76 per cent owned by Bakkavor and 24 per cent by Emilio Teresa, the owner of Thames Fruit. Theoretically, Asda could purchase the company after five years in 2009, although whether this happens is yet to be decided. Whatever the outcome of ownership, Scrase says Asda remains loyal to the IPL concept. “No doubt there will be debate in the future about where the ownership of this business rests, whether it will continue as it is or become Asda in totality, but one things I’m absolutely sure about is that this model is working for us and we will continue to use this model and develop it and make it work better for us,” Scrase says.
And moving forward, yet more plans for expansion and development are afoot, he reveals. “We’re now trying to engage more frequently with Wal-Mart. Its food sales are growing at an incredible rate and its produce is growing at an incredible rate so there’s now an opportunity for us, with International Produce, to start developing business opportunities with our parent. And that’s quite exciting because there will be some real strengths on our side with sourcing from South Africa and equally some strengths with our American business sourcing from Chile because they are natural markets. So we’re pretty optimistic about how we can develop things further.”
Asda too is putting an ever-increasing focus on its fresh produce category. Scrase says the chain is looking to grow its market share further still, and part of this includes expanding its range of organic and local produce as well as its premium tiering. “Varietal development is having far greater emphasis than it ever has before,” he says.
“I guess where we may have been guilty of concentrating just on value, we’re now concentrating on value and developing range, choice, varieties, local, as well as keeping that core attribute of being the best-value retailer. It’s quite an exciting time to be in produce. Produce is driving the overall sales of our food business now. Asda has had a far better time over the last few months, we’ve performed well and produce has led some of that.
“So in our longer term thinking for the end of this year, 2008, 2009, we’re starting to talk about what we can do better with IPL’s help. But on the pure metrics of, is our quality better than it used to be in these fruit areas, is our sales better in these fruit areas and is our profitability and value to our customers better in these fruit areas, the answer is yes, yes, yes. So there’s some real confidence in the overall Asda business that, in International Produce, we’ve hit on something that works for us.”
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