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The Money Programme Friday, 1 October, 1999, 13:43 GMT 14:43 UK
More 19/09/99
The Money Programme

Wal-Mart and Asda: low prices or high hopes?

The take-over of Asda by the biggest retailer in the world, Wal-Mart, has led to feverish speculation about what this will mean for British shoppers. Will the American giant's huge buying-power mean lower prices and sharper competition?

Nothing spectacular has happened yet, since the 6.7 billion take-over is only two months old, but already you can see the American influence on the big airy headquarters of Asda in Leeds. Two clocks hang on the wall, one measuring Leeds time, and the other, the time in Bentonville, Arkansas, where Wal-Mart's empire is based. A blackboard is placed by the escalators, bearing the latest Wal-Mart share price in New York. Many employees take a keen interest in this price because they've shifted their Asda share options into Wal-Mart shares; it's said the level of last night's Dow Jones is now the talk of the Leeds canteen.

But back to the big question - will Wal-Mart shake up UK shopping by slashing prices?

Asda is expected to make some price reductions by using Wal-Mart's legendary information technology systems which send details from the check-out till to the suppliers of goods, to streamline ordering and distribution. But analysts suggest it may be some time before Asda can instal the new systems and reap the benefits fully. It's also possible that Asda could offer much lower prices on the goods bought internationally through Wal-Mart's global suppliers, and some industry-watchers believe this will affect what's called "non-food" most of all, including cosmetics and electronics.

What does Asda have to say about prices? The chief executive Allan Leighton says "We aim to be on average 5 to10% lower than our competitors on an average basket that ordinary people would buy in a week."

He frankly admits to having taken some ideas from Wal-Mart, long before the takeover, including the price-cutting programme Rollback. "You know we borrowed Rollback from them some time ago, and we just kept that programme going."

He says they had planned to accelerate the Rollback programme this year, and that's what they've done, cutting thousands of prices. But the key to low prices, he says, will be the enhanced buying power behind Asda.

"I think that the great opportunity you have, is that when you've got some real scale, then you can buy at very good prices. And that is the best way of doing it. Because it enables you to work with manufacturers. You can give the manufacturers big volumes, which is basically what they want. Because that's how they get their efficiencies. And then you get those efficiencies passed on, and that's how you really get, low, low prices. It's very easy to do some tactical stuff, and people always talk about that. You can beat up manufacturers and things like that. But you know that's pointless and short term."

But some analysts argue that Allan Leighton doesn't yet have the buying power he needs, since he can't offer substantially bigger volumes to local suppliers here in the UK. They would argue that the Wal-Mart takeover won't, after all, revolutionise our shopping habits overnight, although it's bound to influence the way the retail landscape evolves.
Lesley Curwen, reporter

Links to more The Money Programme stories are at the foot of the page.


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