Asda's strategy of cutting out the middleman by sourcing fresh produce ­direct appears to be paying dividends.

Its direct supply arm, International Produce Limited, made a £6.1m pre-tax profit in the year to 1 January 2011 a £4.6m increase on profits for the previous 53-week period, according to accounts filed at Companies House. Turnover or sales to Asda increased by 17.3% to £58.4m over the period.

The results reflected "increased levels of trading since the acquisition of the company by Asda Stores Limited in 2009," IPL's directors said in their report. The future prospects for the company were "sound", they added.

IPL primarily sources fresh produce, pasta, canned meats, paté and cheese, but has outlined "aggressive" expansion plans for the next five years on its website.

It hopes to develop a bacon business to complement the ­existing categories in which it operates, for instance. It has also recently started to source wine direct and has set up a UK packaging facility, where it bottles imported wine bought in bulk.

When the wine venture launched, IPL said its direct sourcing would generate cost benefits that would allow Asda to keep investing in low prices a key consideration in the current supermarket price wars.

The supply arm in general was a key building block in helping Asda ensure "quality is maintained through the supply chain", added a spokeswoman.

Earlier this year, IPL MD Nick Scrase told The Grocer that IPL was fundamental in giving Asda a lead over its competitors. "Asda lives by the mantra 'saving you money every day' IPL is a key tool to doing that."

IPL which Asda bought from Bakkavör Group dealt with more than 920 separate suppliers last year. The monthly ­average number of employees stood at 811, up from 789 the previous period. IPL's highest paid director's pay not including company pension contributions rose from £159,000 to £194,000.

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Walmart picks Scrase to lead direct sourcing arm (1 May 2010)
Stores increase role in fresh produce sourcing (5 December 2009)