Inside Asda’s turnaround plan to win back customers from supermarket rivals
It’s a difficult time to be at Asda’s helm – with sales down as well as competitors eating into its market share, the supermarket giant has announced an ambitious three-point turnaround plan to stave off further declines.
Without a permanent CEO – the position has been empty since 2021 and filled on an interim basis by Mohsin Issa – the job is even harder.
“We’re focusing on availability. We’re focusing on customer perception, and we’re focusing on our trade plan,” chief financial officer Michael Gleeson told City A.M.
The first of these is key: while Morrisons’s CEO Rami Baitiéh has presided over a ‘back to basics’ plan has seen availability of products on shelves, Asda’s availability fell across the year from 91.4 per cent to 90.3 per cent.
And while official figures for customer perception have stayed largely flat, it isn’t hard to find complaints of missing stocks, messy stores and unavailable staff on online forums.
The grocer has invested a huge amount in its turnaround plan: “Millions are being spent on improving the customer experience, getting more people back on tills, making sure those shelves are restocked in a timely fashion and expanding its loyalty programme. In other words, doubling down on the day job,” Danni Hewson, head of financial analysis at AJ Bell, said.
Fickle customers?
If its turnaround program is to work, Asda ultimately has to be able to compete on price.
“The grocery sector is always tough but when you’re dealing with rising prices and increased competition from discount stores it’s particularly brutal”, Hewson said.
“Loyalty became a thing of the past as cash-strapped households hunted around to find the cheapest prices and bragged about their prowess on social media.
“Asda was in a tricky spot going into the cost-of-living crisis. Its USP has always been value so being consistently beaten on price by Aldi and Lidl put them in a tricky position,” she added.
Aldi has been catching up to Asda’s third-place market sport: it is the fourth largest retailer by consumer spend and boosted sales by 0.8 per cent in June. It now has a share of 10 per cent.
Asda’s market share dropped by four per cent in the 12 weeks to June 9, 2024, compared to the same period in 2023. It has been forced to drop prices in line with both Aldi and Lidl as customers look for lower prices.
Asda has invested £70m in price reductions, Gleeson said.
“I think the big four – collectively and individually – have done a significantly better job in the last 18 to 24 months and [they have] hopefully given customers fewer and fewer reasons to leave,” Gleeson said.
The grocer cut prices by an average of 17 per cent on more than 280 items to get their prices in line with German discounters.
Staffing issues
Another potential pitfall may be staffing.
Earlier this year, workers at multiple Asda superstores went on strike to protest cuts to working hours, poor quality training and management issues.
Last week, Asda workers at its superstore in Wisbech went on strike for the second time.
“For the second half of the year we’re investing £30m in pay in hours in our store, becoming the highest payer of the rate of pay for the big four supermarkets.
We’re going to… improve the availability of [staff] on checkouts [and] the cleanliness of their stores,” Gleeson said.
The grocer will invest another £50m in a store upgrade programme, and has recently completed a “very significant” IT transformation, Gleeson said.
Asda’s debt problem
Part of the reason Asda has had staffing issues has been its very large pile of debt.
Soaring interest rates have driven up the cost of borrowing and Asda’s falling sales have compounded the problem.
But according to Gleeson, debt is falling: “We’ve made significant progress in deleveraging,” he said, adding that Asda’s debt ratio has improved in the last year.
Hewson is optimistic that Asda is about to turn a corner: ““Asda has some hard yards to try and claw back but there is a sense that the transition to private ownership has now bedded in, and the focus is back on delivering for the consumer,” she said.
“It feels like the new team have been distracted and when you look at the new store footprint you can understand where the focus has been,” she added.
“[We’re on a ] journey to build a bigger and better Asda,” Gleeson said.