Supermarket giant Asda has launched a stinging critique of the government, accusing it of 'killing confidence' among shoppers, while simultaneously admitting that a significant sales drop was largely due to its own 'self-inflicted' technology problems.
A Quarter of Declining Sales
The UK's third-largest supermarket chain saw its financial performance deteriorate in the three months to the end of September. Total sales fell by 3.8% to £5.1 billion compared to the same period last year, a sharp reversal from the 0.2% growth it had managed in the previous quarter. Sales in comparable stores also dropped significantly, down by 2.8%.
This decline occurs as analysts from Worldpanel by Numerator warn that discount rival Aldi is poised to overtake Asda as the UK's third-largest supermarket. The sales and profit slump follows the debt-fuelled £6.8 billion takeover of Asda in early 2021 by the Issa brothers and the private equity firm TDR Capital.
Self-Inflicted Wounds and a Six-Month Setback
Allan Leighton, the chair of Asda who returned last year to lead a turnaround, was blunt in his assessment of the company's performance. He described the fall in sales and market share as 'totally self-inflicted', linking it directly to a lengthy and problematic separation of its IT systems from those of its former owner, Walmart.
These technological issues had severe consequences for the retailer's operations. They led to noticeable gaps on shelves as product availability suffered. Furthermore, problems at a specialist distribution centre impacted clothing and homewares supplied to more than a quarter of its stores. Leighton also admitted that a new grocery home shopping app had proven 'more clunky than what we had before', which served to put customers off.
The chairman conceded that these operational failures have set his revival plans for the business back by six months. However, he stated that the retailer has now 'made good progress' on resolving the IT problems and that product availability has returned to appropriate levels. 'It's all behind us now,' Leighton said, expressing confidence in the company's strategy moving forward.
Government Policies 'Hampering' Growth
Beyond internal challenges, Leighton directed strong criticism towards the government's economic management. He argued that the country is 'stuck in reverse' and that ministers need to encourage business investment instead of hindering it with additional costs.
'They have got to encourage business to invest and they keep hampering that with costs,' Leighton stated. He emphasised that for retailers to thrive, they need 'a positive consumer', but the government is 'killing consumer confidence because of the fact there is no growth and nobody is investing'.
This criticism aligns with recent official figures showing an unexpected slump in UK retail sales, attributed in part to shoppers waiting for Black Friday deals and general uncertainty in the run-up to the budget. On a specific policy note, Leighton said the impact of feared business rates changes for large retailers in the recent budget would be 'neutral' for Asda, a relief that was not as bad as some in the retail sector had feared.
The Road Ahead: A Focus on Price
Despite the difficult quarter, Asda plans to stay the course with its core strategy of aggressive price cuts. Leighton claimed that competitors did not sufficiently match Asda's well-publicised investments in lowering prices for shoppers.
He asserted that Asda's price position is improving, stating the supermarket is now between 4% and 7% cheaper than its major competitors, such as Tesco and Morrisons. With the IT issues reportedly resolved, the company is banking on this price leadership and a more stable operational base to recover its market position and win back consumer confidence in a challenging economic climate.
