After posting its best quarterly like-for-likes in over a year, and with its torturous IT transition almost behind it, the first rays of sunlight are finally shining on Asda. Even so, executive chair Allan Leighton knows the retailer still has plenty of work left to do
“I see things in a slightly different way, as do all of our Asda colleagues,” said Allan Leighton, in a bullish mood after the grocery giant announced its Q2 results.
Leighton was responding to grocery market share data from Worldpanel released last week, which showed its market share had dropped by nearly one percentage point in the last year.
As he sees it, despite all the noise and doom-and-gloom around the supermarket he’s been back at the helm of for nearly 12 months, there’s a lot to be positive about.
The “investment warning” Leighton flagged earlier in the year is still in place. While this is “having material effects on our profitability”, Leighton says he is committed to putting money back into Asda.
While like-for-like sales have slid over the past few quarters, the rate of decline in Q2 was the lowest it has been since Q1 2024. Its Asda Express c-stores also outperformed the market and fashion brand George continued to steadily grow.
In terms of strategy, Leighton and team have also been busy. In the quarter, availability was at its highest levels in eight years and, at long last, the nightmare that has been its IT transition Project Future is now over with all Asda stores, food depots and head offices operating on the new systems.
“My Asda role started not 12 months ago, and in that period, we’ve had our best quarter in the last five quarters. There are lots of reports on performance, not all of which take in the full picture of what kind of business we are,” Leighton said.
“You know, Asda is a bit more than a supermarket. Supermarkets don’t have brands like George that are worth £2bn. Most of the other supermarkets are closing their cafes. We’re opening them. Most of the supermarkets are closing counters. We’re not.
“We have a massive pharmacy business. We have the second-largest optical business in the UK. We have standalone clothing stores. We’ve got up to 400 Greggs, Costas and Subway concessions, and we have 700 petrol filling stations. So that’s the way I look at it.”
The IT shroud
For the entirety of Leighton’s time back at the helm, Asda has been dealing with the long hangover from the IT transition that started under previous management.
Project Future was intended to be a six-month process to divorce Asda’s IT systems from its previous owner Walmart’s. Nearly a year later, Asda says the nightmare is finally over.
However, the retailer is still dealing with one last sting in the tail. Leighton confirmed the project would drag on sales for the third quarter and had affected some product availability and the online customer experience.
Despite the drag, Leighton is clearly ecstatic that the Project Future debacle is behind the business. He described the migration as the “biggest transition undertaken by any retailer in Europe”.
“As of literally last night, the rollout is complete. All stores and food depots. Two-and-a-half-thousand system changes. And we’ve been converting about 50 stores a week for the last 10 weeks. Literally billions of transactions have taken place in that time,” Leighton said.
“We’ve been in two worlds for a long time,” he added. “Being in two worlds itself adds a degree of complexity and friction because every week, you’re using two systems to process billions of pounds of sales.
“We are now totally green, which is good for Asda. We have been operating both green and blue, and just operating in one world brings a great deal of simplicity to the business”.
Mind the price gap
Leighton was also hugely positive about the price gap that Asda is building up against its supermarket rivals.
Rollback price cuts have been extended to over 50% of products in the quarter, with plans to continue rolling that out to more of the full range. As food inflation continues to steadily grow, Leighton clearly thinks this is winning shoppers over to Asda.
“The price gap is open and widening,” Leighton said. “And the formula for growth, which is our plan, is really beginning to bite into the business.”
Despite this, Asda is still wary of what’s on the horizon. Leighton’s signature was one of more than 60 retail chief executives on a recent British Retail Consortium letter warning the chancellor that last year’s autumn Budget had fanned the flames of food inflation.
Chief financial officer Michael Gleeson summed up Asda’s position, heading into the next Budget.
“We’re managing inflation differently from the rest of the sector, but we’re concerned when the government is piling on £7bn of extra costs into a sector that’s also seeking to absorb things like rising food inflation.
“We think it’s unreasonable for any business or sector to be told to absorb all these added costs and then still be tasked with keeping food prices exactly where they are,” he said.
While there may be some clouds in Asda’s sky, the City’s response to this week’s trading update has been broadly positive, and the outlook looks increasingly rosy for the slumbering grocery giant.
“The results today are actually much stronger than maybe many expected, when you get under the skin of them,” one grocery analyst said. “I’d much rather be working at Asda now, than at Morrisons”.
No comments yet