Wal-Mart's entry into the UK market should be good news for consumers but could signal tighter margins for Irish suppliers to Asda.

Given the US retailer's aggressive price-cutting tendencies, most analysts expect the takeover of Asda will trigger a price war in Britain. Such fears pushed the share price of Tesco and Sainsbury lower yesterday, with consumers expected to be the only winners in a price war.

But Irish suppliers may be affected as lower prices eat into profit margins. Asda is the third-biggest UK supermarket chain and it imports substantial products from Irish food and dairy companies.

According to the Irish Business and Employers' Confederation (IBEC), about 35 per cent of food products sold in the UK are sourced in the Republic, mainly dairy products, meat and processed foods.

But Mr Kieran FitzGerald, IBEC's director of food, drink and tobacco, played down the impact of Wal-Mart's arrival. "The UK has been experiencing a price war for the past 10 years. Discounts tend to be targeted at products such as bread and milk to catch the maximum number of consumers, but margins are recovered on other items."

He also suggested the scope for discounting had been greatly reduced in the British market, particularly following the various food scares. "Consumers are more focused on safety and product integrity than price," Mr FitzGerald said.

A spokesman for the Kerry group said Wal-Mart's arrival in Britain should not signal any further pressure on margins. "The UK has always been competitive," he said.

Glanbia said it would assess the situation. "We look forward to business as usual," a spokesman said yesterday.

Apart from discounting prices, Wal-Mart is renowned for its use of information technology to remove costs from the supply chain. It will be some time before Irish companies feel the impact of any such changes.

In the interim, the huge differential in value between the pound and sterling provides a cushion against any immediate cost-cutting. Irish exports to Britain remain highly competitive and are helping companies here to expand their market share.

In the longer term, Wal-Mart's move into Britain could signal the first of many mergers and consolidation within that market. Companies such as Tesco will seek increasingly to forge alliances of sufficient strength to withstand competition from Wal-Mart.