Turnaround Strategy Fails To Halt Sales Slide At Asda

As expected, Asda reported a seventh straight quarter of declining underlying sales yesterday despite recent efforts by management to turnaround performance.

In the 13 weeks to 30 March, the group’s like-for-like sales slumped 5.7%, virtually no improvement from the 5.8% fall in the previous quarter.

In recent months Asda has invested another £500m in price cuts and started modernising its stores and improving its product range through its Project Renewal programme. However, the chain’s parent company, Walmart, admitted yesterday that this had failed to stop customers defecting to rival supermarkets and the discounters.

“The UK continues to struggle, due primarily to fierce competition,” said Walmart’s Chief Financial Officer, Brett Biggs. “Improvements in price and product availability throughout the quarter were not enough to overcome traffic and food volume declines in our large format stores,” he added.

Biggs revealed that the number of people visiting Asda had declined 5% over the last quarter and that average amount spent by shoppers was also down 0.7%. However, he said that Project Renewal remains its key focus with the aim to simplify and strengthen the chain’s offer, reduce costs and drive sales.

Unlike previous quarterly announcements, there was no statement from Asda’s Chief Executive Andy Clarke and his management team. Along with last year’s second quarter results, Clarke prematurely said the chain had reached its low point. He has maintained that Asda’s EDLP strategy is the way forward to profitable growth, rather than money-off vouchers used by its direct rivals, which he has deemed as “gimmicks”. However, Tesco, Sainsbury’s and Morrisons have now adopted the same approach by cutting their prices at the same time as investing heavily in promotional activity, which has lifted their sales performance.

Duygu Hardman, an analyst at Verdict Retail, commented: “While Asda has traditionally attributed its suffering market position among the Big Four to the short-term tactics of its competitors, this is no longer the case with the focus shifting to value rather than price Asda needs to achieve the right balance of price, quality and service if it wants to better address the fast-changing needs of its customers”.

Phil Dorrell, partner at consultants Retail Remedy, added: “If Asda was a ship it is one that is limping back to port having been torpedoed by smaller and more agile competition. Trying to maintain its position on price alone is simply not working, which it should have realised several quarters ago.

“Asda does offer a lot more than price, it just it hasn’t shouted about it in the media or in store. With sound store positions and a broad offer, if unexciting and too low end, Asda has the ability to bounce back. But a blinkered price strategy won’t be the answer.”

Clarke, who is the longest serving chief executive of the big four grocers, is expected to step down next year and hand over the reins to Roger Burnley, who is due to join Asda in October after quitting Sainsbury’s last year.

NAM Implications:
  • A logical approach for Walmart would be aggressive organic growth combined with acquisition of another multiple, both options limited by UK legislation – planning & competition
  • Discounter growth largely at the expense of the mults, structurally i.e. permanent
  • Meaning that the fight for growth is between Asda and the other mults
  • Therefore, Walmart could finance – allow Asda to lose money – price cuts and promotional initiatives that are capable of forcing a change…
Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someonePrint this page