Blackfriar: Has Asda lost its focus?

Asda's press conferences have become a sorry affair of late. The management stands up and says how well the group is trading and we poor hacks scratch our heads and ask how you can describe a big slump in underlying sales as good?

By The Newsroom
Wednesday, 18th May 2016, 5:01 pm
Updated Wednesday, 18th May 2016, 6:06 pm
Has Asda lost its focus?
Has Asda lost its focus?

At its last trading update Asda suffered its worst Christmas on record with a dismal 5.8 per cent slump in underlying sales and blamed short term ​price cuts by rivals for its poor performance.

The decline during the three months to January 1 was the Leeds-based grocer's worst ever quarterly performance and put even more pressure on chief executive Andy Clarke who had previously described the 4.7 per cent sales crash in spring last year as the grocer's "nadir".

At mid-day on Thursday we are expecting to hear that things have got even worse as the grocer continues to haemorrhage shoppers to discounters Aldi and Lidl.

But at least management won't have to face a barrage of criticism from pesky journalists. There's no press conference this time. Hmm, I wonder why?

Critics believe Asda has lost its focus and is failing to champion steep price cuts for customers who are deserting its aisles in favour of cheaper prices at the discounters.

Mr Clarke defended the grocer's decision not to join in its rivals' pre-Christmas price cutting by saying that the actions of its competitors are not sustainable.

"Of course Q4 was softer than we thought. That was about the market not our strategy," he said in February.

"We are a business in control not in crisis."

He added that the recovery of market leader Tesco in the fourth quarter had surprised everyone.

"They certainly shaped up in the last quarter," he added.

Mr Clarke also called into question Morrisons' deep price cuts on alcohol ahead of the festive season.

"In food we were surprised that the volume of short term promotions were as deep, especially in beer, wine and spirits.

"Will it lock in customers? I doubt it."

At a time when arch rivals Bradford-based Morrisons and Tesco are enduring profit slumps in a bid to woo back customers by cutting prices, Asda has insisted that its profits are more important than underlying sales.

Commenting on Asda's last quarterly performance analyst Clive Black at Shore Capital said: "This is much worse than we anticipated. Such a performance, coming as it does on top of the 4.5 per cent fall in same-store sales reported for the third quarter, is clearly a disappointment for Asda's CEO and president, Andy Clarke.

​"​We have a lot of time for Mr Clarke. He has earned our respect through his effective reading of the market - of the Big Four superstore players he called and adjusted first to the challenges of the limited assortment discounters - ​his ​candid assessment of Asda's market position and the broad direction that he has taken the business.

​"W​e believe Mr Clarke may be leading a team where a lot of its best and most talented players have been transferred to Wal-Mart in the US, leaving a hard-working but still depleted UK team to cope with the challenges of the tough market.

​"​Mr Black hits the hammer on the nail. Mr Clarke is an experienced and highly respected grocer and Blackfriar bets that if he had his way he'd be getting deep and dirty on the price cuts and matching Aldi and Lidl.

But his hands are tied by US parent Wal-Mart which just looks at the nice fat profits Asda brings into its coffers and ignores the fact that shoppers are leaving in droves.

Asda has lost its mojo. Mr Clarke must be green with envy that his counterpart at Morrisons, David Potts, has been allowed free rein to sacrifice profits in order to win customers back. Shoppers don't care if Asda is making a huge profit. They just want low prices.

Unlike its rivals, Asda has no clear identity. Tesco is the market leader. It has hundreds of convenience stores and shoppers love convenience. No more pushing a trolley round on a Saturday, battling crowds and annoying kids. Shoppers can pick up a basket on their way home from work or pop down to Tesco Metro to buy whatever they've run out of.

Sainsbury's shoppers love Sainsbury's. They don't want to pay the prices at Waitrose and M&S, but Sainsbury's is a lot posher than Tesco, Asda and Morrisons and they really feel like they need to wash their hands it they ever have the misfortune to visit Aldi or Lidl.

Meanwhile Morrisons is rediscovering its roots and shoppers love the fact it's willing to slash prices. They also like the fact it processes more than half of its products itself so it has control from the farm to the fork - known as vertical integration in retail jargon.

Asda has warned that ​it doesn't expect 2016 to get any better although it does plan to narrow the gap with the discounters to five per cent. (Two years ago there was a 20 per cent price gap between the discounters and Asda and the gap now stands at 11 per cent). Will that stack up with shoppers though? Why pay five per cent more at Asda when they can shop at Aldi and Lidl?

Asda seems to have lost its way under US retail giant Wal-Mart, which appears happy as long as Asda rakes in profits of £1bn every year.

Critics says Asda used to champion the consumer by slashing the prices of upmarket brands such as Levi Jeans, much to the brands' fury.

Now it's just another supermarket without a distinct brand.