Asda’s second-quarter numbers are unsurprisingly disappointing, yet the 7.5% dip in like-for-likes is perhaps heftier than anticipated.
They’ve been disappointing for quite some time now, with the key caveat that like-for-like sales growth was not a key objective for the previous regime – or parent company Walmart – as Asda instead prioritised the bottom line and the balance sheet.
Market leader Tesco has already shown us what can happen when a business prioritises the shareholder over the shopper, and a similar narrative has played out at Asda.
A lot of fat has been cut from the business, but there are several signs that the scalpel-wielding went a little too far and started encroaching on the muscle too.
This echoes the scenario in Walmart in the US, where scrimping and saving on payroll was excessive and the departments that really matter to shoppers – such as produce, proteins and service counters – started suffering, as did availability and standards across the rest of WalMart’s sprawling Supercenters.
So, the agenda now turns back to driving the top line at Asda.
“A lot of fat has been cut from the business, but there are several signs that the scalpel-wielding went a little too far and started encroaching on the muscle too”
No question, this will be a long-haul process and will require a lot of thought and no small measure of investment.
Some of this investment will inevitably be in price as Asda attempts to continue narrowing the gap with Aldi and Lidl. Hopefully, Asda will use this as an opportunity to restore some clarity to its pricing.
On paper, Asda’s everyday low price stance should be the clearest proposition for a shopper to understand.
Problems with price
Instead, recent months have seen an escalation in promotional activity, meaning that Asda’s price structure has become relatively complex in contrast to Tesco and Sainsbury’s, who have both simplified their promotional mechanics over the last year or so.
Today, Walmart has reasserted that “driving sales through strategic price investments” will continue at Asda, although it highlighted other agenda items such as improved availability and assortment discipline and further cost streamlining.
“For me, the biggest issue is quality, or at least the perception of it”
Walmart chief executive Doug McMillon concluded: “While our turnaround will take time, I’m confident in the new leadership team there and want to assure you we’re addressing this with urgency.”
For me, the biggest issue is quality, or at least the perception of it. Our shopper research indicates that Asda has the lowest quality perception of the big four and my suspicion would be that recent advertising endeavours have done little to correct what I would regard as being a significant gap between perception and reality.
Asda is actually a decent place to shop and its private-label assortment is genuinely impressive in terms of depth and quality.
Lessons from China
New boss Sean Clarke did a very good job of bolstering the reputation of Walmart China in terms of produce quality, while not losing any of the retailer’s low price DNA – a track record that could augur well as Asda seeks to reinvent itself.
I’ve been impressed by what I’ve seen in terms of new thinking around big stores, and also by the category work that has landed in meat and chilled.
There are some important categories that need reworking – notably bakery and produce – but some early iterations here are encouraging.
If the changes to ranging and merchandising are all backed up by appropriate payroll investments, then Asda should be back on the front foot before too long.
The next challenge will be attracting lapsed Asda shoppers back into the stores to see for themselves the very real improvements that have been taking shape.
- Bryan Roberts is insights director at TCC Global
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