In the first full year of ownership under the Issa brothers and TDR Capital, Asda saw its underlying profits fall by almost a quarter as spiralling costs and investment in keeping prices down impacted margins.
Over the 12 months to 31 December 2022, the group’s adjusted EBITDA fell from £1.17bn to £886m on total sales up just 0.1% to £20.5bn.
Annual like-for-likes were down 0.2% after a poor start to the year when first-quarter sales plummeted 9.2%. However, Asda’s performance improved significantly during the second half of the period, with fourth-quarter like-for-like sales up 5.4%. This followed moves to improve its competitiveness amid the cost of living crisis, with price cuts and the introduction of its new ‘Just Essentials’ value range. Asda revealed that more than 10m customers regularly shopped the new range in the second half, with sales up 73% since the launch in May.
The group noted that it was the best-performing traditional supermarket during the festive period, with sales climbing 6.4% in the 12 weeks to 25 December 2022 (Kantar). This momentum continued into 2023, with the chain’s February like-for-like sales increasing 6.8%.
With cash-strapped shoppers seeking value, Asda’s own-label sales were up 11.4% during the fourth quarter. However, some consumers continued to treat themselves with sales of the supermarket’s premium Extra Special range increasing by more than 15%.
Co-owner Mohsin Issa said that the business took a conscious decision to invest in mitigating the impact of inflation, stating that whilst price reductions “contributed to a decline in profitability, it was the right thing to do for our customers” amid the cost of living crisis.
With the group currently ramping up its presence in the convenience channel, Issa said that it was making good progress on its plan to restore Asda to the number two position in the UK grocery market, focusing on “giving customers desirable products at affordable prices and the ability to shop with us whenever and however they like”.
Earlier this week, it was reported that the Issas and TDR were pushing ahead with plans to merge Asda with their EG Group business to tackle the petrol station empire’s debt mountain, which starts to mature in 2024.
NAM Implications:
- Despite good intentions, cutting prices to help cash-strapped shoppers impacts the bottom line…
- (Essentials value offering helps)
- But optimising Retail Media potential could be a saviour longer term.
- Meanwhile, helping Asda in its ‘plan to restore Asda to the number two position in the UK’…
- …has to be a worthwhile pointer for your next initiative presentation in Leeds?
