Link into Wal-Mart IT to save £150m for Asda

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Link into Wal-Mart IT to save £150m for Asda

Daniel Thomas
Asda will achieve cost savings of up to £150m per year when US parent Wal-Mart's IT systems are fully integrated with the supermarket chain's own systems, analysts have predicted.

The estimates, from analysts in the research division of Deutsche Bank, came as Asda announced strong like-for-like sales figures for the second quarter of 2002, with growth in the "low double digits".

In a research note, Deutsche Bank said efficiencies that Wal-Mart, which bought Asda for £6.7bn in 1999, has brought to the supermarket chain will cut costs and boost sales figures by improving levels of on-shelf availability.

Wal-Mart's deployment of advanced IT systems to control its distribution and stock levels have helped the group to cut prices in Canada and the US, and Asda, which has already cut some prices, is expected to reinvest the savings in further reductions.

Tony Hart, managing analyst at research firm Datamonitor, said IT integration projects, particularly within companies of the size of Wal-Mart, can produce "amazing" savings.

"Integration is the number one project chief information officers want to invest in because of the amazing savings that can be achieved," he said.

"The size of Asda and Wal-Mart means savings on this scale are potentially achievable - Wal-Mart is a massive player in the market and has lots of influence over suppliers, for example."

Asda would not comment on exact figures, but expects to achieve a full return on investment from the IT integration within five years, according to Martin Sayer, head of retail systems at Asda.

Sayer said the integration with Wal-Mart, which will be completed in October when all of Asda's depots come online, has brought a number of benefits. He admitted that in the past Asda has lagged behind rivals, such as Tesco and Sainsbury's, on IT adoption. "This puts us ahead of our competitors and gives us the opportunity to leapfrog our competitors," Sayer said. "There is an expectation it will pay for itself in five years."

Asda had two key objectives: to move on to the Wal-Mart system; and to take the opportunity to upgrade its own IT infrastructure, Sayer said. "Clearly there were business benefits for us in doing that," he said.

Asda started by converting its in-store systems 18 months ago. It then converted the finance and supply systems at its head office and is now two-thirds of the way through overhauling its distribution network. Once this is finished in October the company will have end-to-end network connectivity, he said.

Asda is now assessing how it can best exploit the integrated systems. "The big opportunity for us is to understand how we can best make use of this across the business," Sayer said.

In addition, the company is exporting elements of the project as best practice to other elements of the Wal-Mart group around the world, Sayer said. "It is enterprise-wide, offering clear visibility right down the supply chain network. It will help the company to improve productivity and performance and, ultimately, sales levels and availability."
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