A transformation is under way at Asda, with further stores opening and more radical steps that will help the supermarket group adapt to changing consumer habits. Chief executive Andy Clarke explains the strategy.
“Struggling supermarkets” is an all-too familiar alliteration for the newspaper headlines, as month after month of Kantar figures have shown growth among the “big four” at its lowest level in a decade.
The cause is simple enough: changing consumer habits – driven by the rise of online shopping and the continued squeeze on income. The solution is not so easy.
Pressure is mounting on those at the top to deliver new strategies – particularly at Tesco and Morrisons, where performance is hardest hit. While recent press coverage of Asda has focused on 1,360 job losses among store management staff, the company’s chief executive, Andy Clarke, seems to be weathering the storm rather better.
Returning to the Kantar figures, you get an inkling of why. In the 12 weeks to 20 July, Asda was only just behind Sainsbury’s with growth of 0.9 per cent (versus 1.2 per cent). In the month prior to this, Asda was recorded with the largest growth among its immediate competitors, at 3.6 per cent against Sainsbury’s 3 per cent. And in the period to 25 May, Asda was “the only large grocer to grow share year-on-year”, with 2.4 per cent sales growth leading to a market share of 17.1 per cent. In each report, Tesco and Morrisons fell in terms of both sales and share.
The numbers involved are small but, in a flat market, significant. Clarke believes they reflect a “clear change in form across the big four” and are a sign of Asda being “ahead of the curve” in its reaction to changing market dynamics, compared with its competitors.
The need for change
The current restructure at the Leeds-based firm was put into motion after a “rigorous strategic review” 18 months ago, which was followed by store trials last year to refine the organisational structure. Clarke calls it a “proactive piece of change” that has been planned, trialled and communicated transparently – the only way to try to maintain morale among those affected by redundancies around them, he says.
The whole executive board spent time in the stores both before and after decisions were made, and it chose not to delay a grassroots survey that gave all employees an opportunity to share their thoughts.
“We’ve been careful to ensure we continue to listen. Even though it’s difficult, when we believe this is right for our business, we have to put ourself out there and be prepared to take criticisms and challenges,” says Clarke.
But he adds: “The big picture is that the net effect of these changes will be more people in the organisation, as we are refining the organisational structure in stores to support the growth of our online business.”
In fact, the new five-year strategy, as announced by Asda’s US owner Walmart in April, has the potential to create up to 12,000 jobs – news that was welcomed at the time by the prime minister. “I am delighted that Asda is continuing to invest heavily in the UK,” said David Cameron.
The strategy will also see the company add 40 “superstores” (each spanning 25,000 square feet or more), 100 supermarkets (typically 5,000-12,000 sq ft), 150 forecourt shops and 1,000 click-and-collect points, and extend online penetration – it wants to triple the value of online business by 2018.
So Clarke, unlike some commentators, doesn’t think that the end of the superstore is nigh – although he says that the company is “fortunate” in having fewer large-format stores than its competitors. “We’re all conscious of how we’re changing shape. What is happening is that what goes on within the superstore is changing.”
The new format that Asda is set to trial reduces the space given to the white goods and electrical items that tend to sell well online, in favour of growth categories such as fresh food, homeware, health and baby products. Space is important for Asda’s clothing range George, which continues to make the chain the UK’s largest children’s-wear retailer by volume. But the growth of click-and-collect trade also means that retailers have extra flexibility on the stock they choose to carry, says Clarke.
Asda has also been looking at how to share excess space with local community groups. Getting closer to communities is also driving the company’s growth in supermarkets (as opposed to the larger superstores), says Clarke.
Meanwhile, one of the ways Asda is planning on expanding in the south – where its market share is closer to 12 per cent, presenting “a natural opportunity” for expansion – is new forecourt shops.
Some of Clarke’s changes are more radical – and he argues that they need to be. “Click-and-collect is changing the face of retail,” he says.
This trend has led Asda to launch “drive-thru” facilities – first trialled in York in spring last year and rolled into all stores by this summer. In addition, the company has also partnered with Transport for London to install collection lockers at various tube stations in the capital.
Race to the bottom?
Adapting to consumers’ increasing tendency to shop online is just one of the imperatives facing the supermarket giants. Another area that has seen increasingly intense competition is price – and Clarke believes Asda has a significant advantage here.
All of the big four are fending off the relentless rise of the discounters, Aldi and Lidl, which have posted growth of 20-30 per cent in successive Kantar reports – and Clarke agrees that it is “probably untenable” for his competitors to maintain their current price gaps.
This isn’t a price war for us – it’s simply about executing our strategy and delivering something that we’ve always been consistent about
But he adds that reducing them requires “significantly larger investment” and will lead to a correspondingly large impact on competitors’ profitability, as their business models haven’t traditionally been predicated on such a dynamic. Asda, on the other hand, has had a long-term price promise, guaranteeing that it will be 10 per cent cheaper than its rivals, rather than offering to price-match.
“This isn’t a price war for us,” he says. “It’s simply about executing our strategy and delivering something that we’ve always been consistent about.”
He adds that discounters “aren’t a new concept. They’ve been in our market for as long as I’ve been in retail”. And, he says, “we have three strong divisions in food, general merchandise and fashion. That gives us the breadth that you can’t get at a discounter.”
But he also highlights the economic trends behind the pressure on price. For the past six years, Asda has run an income tracker survey, which has reflected the squeeze on household incomes – and has predicted this squeeze will continue until at least 2018.
And as with many business executives, Clarke raises the concern of youth unemployment. It’s an issue that is top of his agenda for his presidency of food and consumer goods industry charity IGD next year, and has been a key issue for Leeds & Partners – the inward investment body he chairs – as well as something he wants Asda to help tackle.
He also emphasises Asda’s support for the first “social supermarket”, which opened in Barnsley in December, to serve those close to food poverty. “I think more social supermarkets will emerge over the next three years,” he says, arguing that such initiatives can’t be about competition. “For Asda, or any large or small business around the country, being aware of the communities you operate in must be of great importance.”
Such awareness has led to more light-hearted opportunities for the company. It helped to recruit, train and provide uniforms for 10,000 volunteers at Yorkshire’s Grand Départ for the Tour de France this summer.
Meanwhile, although the UK grocery industry has its own hills to climb, Clarke argues that the sector remains world-class, with international eyes watching how the main players here respond to the changing dynamics. He just wants to lead the pack home.
Mums, Asda and politicians
Eighty per cent of the 18 million customers who go through Asda’s doors each week are mums. In the run-up to next year’s election, the supermarket giant asked some of them about their everyday lives and what they thought that government should be doing to help.
In the resultant Mumdex report, 88 per cent thought that politicians aren’t good at engaging with mums or the issues that matter to them, while two-thirds wanted to see more women in power. Their top asks from government included imposing limits on energy prices, raising personal tax allowance and improving rights for working families.
Of course, Andy Clarke cares what his shoppers think and, although he doesn’t want to be a political pollster, its in Asda’s interest to help them get their voice heard.
But asked what he wanted from whichever party is in power this time next year, his thoughts turn to business rates and planning processes – although the latter is less of an issue than it has been as the demand to open new spaces has declined.
“We continue to stay close to decision makers,” he adds, on topics including fuel duty and alcohol and tobacco sales. And he highlights the continued need for government to focus on the red tape challenge, where bureaucracy stands in the way of business growth.
The Clarke CV
2010-present: Chief executive, Asda
2005-10: Retail director, then chief operating officer, Asda
2004-05: Managing director, Iceland
2002-04: Chief operating officer, Matalan
1992-2002: Store manager, then regional manager, then trading andoperations roles, Asda
1982-92: Grocery manager, then store manager, Wm Morrison