Asda chief executive Andy Bond is in a good mood. Talking exclusively to Retail Week at Asda House in Leeds, he is eagerly looking forward to his trip to Wal-Mart’s head office in Bentonville, Arkansas, for the annual shareholders meeting this week.
“This is my week of rock stardom,” he jokes. “We take 200 colleagues – most of whom have worked for Asda for years, so typically that might mean mums in their 40s – and they’re my cheerleaders when I’m on stage doing my presentation.”
Because of Wal-Mart’s strength in the US music and video market, it can pull in top stars for its conference. In the past, big names such as Halle Berry, The Eagles and Shania Twain have turned up to entertain colleagues from around the world. This year, the English singer and songwriter Joss Stone heads the bill. And Bond is one of the chosen few to have the pleasure of dining with the award-winning singer.
“I got a call from the music and video buying team in the US asking could I come for dinner with Joss Stone, because I was the only senior person attending who is British, so they might need me for translation,” laughs Bond. “Of course, this just adds to my rock-star status.”
Bond has another reason to have a spring in his step as he prepares to cross the pond. Last month, Asda revealed a 6.4 per cent increase in like-for-likes, excluding petrol, for the three months to March 31. And TNS figures released last week showed the grocer had increased its market share to go 0.9 percentage points ahead of Sainsbury’s, building on its 0.4 point lead a year ago.
Bond is quietly confident that Asda will have a good year. “The things we set out to do three years ago are coming to fruition in terms of broadening range, improving store standards, keeping the cost-base low and investing in the price position. We’re doing the right things,” he says.
“We inevitably gained some benefit from this economy, but we like to think that we have contributed by having a brand that people want to shop at.”
Keeping prices down
Bond feels particularly strongly about that point. Asda may well have benefited from shoppers seeking to tighten their belts, but he stresses that the grocer’s success is not all to do with the economy.
“I get frustrated that people think Asda is doing well at the minute because it is benefiting from people having less money,” he says. “Asda is doing well at the minute because we’re a good retailer again.”
He explains that shoppers always want low prices and, while Asda’s commitment to value is essential, the grocer is developing on all levels. “On our opening price point, we are seeing growth ahead of overall growth because some people are trading down,” says Bond. “Ironically, our premium ranges and higher price-point ranges are doing the best. The reason is that some [people] are trading into Asda who would normally shop at more premium stores. There is also a sense of treating yourself at home rather than going out.”
Pricing nonetheless remains key to Asda. “We should close the door on Asda the day we are not the lowest-priced retailer, because that’s what we promised to do,” says Bond. “And no one should be happy with pricing when we have food inflation. We need to do more and we will.”
Bond does believe that, while food inflation is a serious issue for the industry, some of the stories fuelling tabloid newspapers have been exaggerated and supermarkets have been unfairly lumbered with some of the blame.
“If you take a small number of items and pick the right items, you can actually say that inflation is 35 per cent if you want. And some items on the shelf are 100 per cent. But it’s a very small number,” he explains. “If you look at a broader range, the numbers are concerning but much more modest.”
Bond points out that, by using the figures calculated by the Centre for Economic and Business Research – from which Asda calculates its Income Tracker – food inflation is put at a rather more modest 5 per cent and, for Asda, inflation is about 4 per cent.
“The untold story is that food inflation is lower than overall inflation,” he says. “It is bizarre that we [grocers] are almost being seen as the drivers of inflation when the real story is that, for 10 to 15 years, supermarkets have been the ones keeping inflation under control.”
There are also signs that the market will naturally correct itself, Bond believes. He points out that one of Asda’s farming experts has been tracking wheat prices from 2005 to 2007 and data clearly shows the significant spikes, but there is also the start of a decline.
“The planting of wheat has gone up dramatically because farmers have an ability to change what they’re planting and prices will therefore drop,” he says. “We are already seeing the price of wheat come down and, while our suppliers buy forward contracts and may be locked in, the point is that the markets are already factoring in some rebalance of supply and demand in one of the key commodities.”
Bond does concede that there are several factors outside of supermarket or government control that affect food inflation. However, he adds: “I’m a simple retailer and I’ve got no idea what inflation will be in five years’ time, but there are some signs to suggest food inflation is going to come back into more sensible conditions.”
Asda’s role, continues Bond, is to do what it can to keep prices down. “Anyone in a consumer-facing business should be worried [about the economy] – undoubtedly, people have got less money,” he says. “Do I think we’re in a recession? Probably not. But people are finding it tougher.”
Aside from food, a crucial proportion of Asda’s business comes from its non-food product. Bond says discretionary spend in non-food is starting to toughen but, with the value proposition running through all its lines, such as George clothing, that should again set Asda in good stead to ride the storm.
And Asda will not take its foot off the pedal in terms of growth in non-food, with a pipeline of Asda Living stores on the agenda and the relaunch of its online operation with a single site for food and non-food by the end of the year.
The grocer is also exploring smaller stores. It tested the Asda Essentials fascia in 2006 with shops of about 9,000 sq ft just for own-brand, but the format did not work. The Essentials store at Pontefract, West Yorkshire, is still trading, but now stocks other brands too.
“On the one hand, Essentials was a failure because it didn’t produce the sales, but on the other hand, it taught us a lot. The store at Pontefract is a small Asda, with brands, and you can do a full weekly shop there. That is something we could expand on,” explains Bond.
He says Asda has about 20 stores of approximately 15,000 sq ft already and they work particularly well in relatively small towns, where they end up being the biggest store in town. He says this strategy does not imply a move into “convenience by stealth” – he argues that they are not convenience stores because customers can do a full weekly shop there.
Bond acknowledges that there are stores in the Somerfield portfolio that Asda would be interested in taking a look at, but there are other ways to grow. “Smaller sites open up new-build opportunities because of planning regulations,” he says. He adds that it is unlikely these stores would be on the high street, because car parking is essential.
Competition test good news?
The Competition Commission’s report published in April could also give Asda an advantage. Bond says: “We believe we are the only beneficiaries of the competition test, because we’ve got the smallest number of stores of the big four.”
While Bond maintains the industry should “calm down about how radical this is in terms of changing the face of British retailing”, he believes that, by the time the test comes into force in 2010, it should in theory double the rate of Asda’s growth.
The appointment of an ombudsman has been less popular among supermarkets. Bond says he is “agnostic” about the decision and his concerns lie in the potential cost, the opinion that retailers will pay for it and the unintended consequence that consumers will end up paying more.
He believes that multinational suppliers do not need an ombudsman to fight their corner and points out that, when food inflation dies down, supermarkets will be the ones to claw back costs from suppliers for their customers.
He says: “We are going to be the advocates for customers when prices have come down; I wonder how many suppliers will be knocking on the door offering price reductions?”
Bond is confident that, while the UK is in for a period of sustained economic tightness, Asda is well-placed to offer its customers value as well as expand the business.
And, as he parties with Wal-Mart this week, he will be mindful that any growth will always follow Asda’s parent’s slogan: “Save money. Live Better.”
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