Why is Asda performing worse than Tesco?

The Walmart subsidiary axes head office jobs as sales stutter.

by Adam Gale
Last Updated: 07 Sep 2017

It’s been a rough couple of years for Asda. With the great groceries price war raging around them, oblivious shoppers have been steadily deserting Walmart’s UK subsidiary. It’s only been over the last few months, as inflation has returned to the market, that Asda has stopped the rot.

The damage is substantial. Asda’s sales fell 5.7% in 2016. It's far the worst performer among the big supermarkets, as can be seen in this chart showing the change in quarterly till roll since 2014.

This chart shows till roll change between the 12-week period to August 17 2014 and the 12-week period to August 13 2017. Source: Kantar Worldpanel.

As aisles grow empty and prices decline, margins get squeezed. Asda’s feeling the pinch sufficiently that it just let go of 288 head office staff – that’s around one in ten - with a further 800 roles being redesigned, in one swing of the cost-cutting axe.

Why are times so hard for Asda? It wasn’t long ago that its future seemed bright, with Walmart’s  money and buying power promising to make it a worthy competitor to the mighty Tesco.

To understand that, we need to understand the reason the groceries sector has been suffering in general. First and foremost, consumer habits have been changing. The out-of-town hypermarket is so 1999. Today we want convenience, whether that’s regular trips to small stores or online ordering. All the players have had to adapt to this. Beyond that, and connected to it, is the rise of Aldi and Lidl.

The low-cost German supermarkets have been living through a golden era of organic growth. Their small(ish) stores suit customers’ new shopping preferences, as does their emphasis on price. Aldi and Lidl’s innovative approach to promotions and curious European products have gone down well too.  

The key word in all that, from Asda’s point of view at least, is price. Asda has always prided itself on being the best value of the Big Four, but against Aldi and Lidl that’s a battle it cannot win. Asda is cheap because of aggressive pricing and tremendous buying power; Aldi and Lidl have cheapness built into their very business model.

Tesco, Sainsbury’s and Morrison’s have all tried different things to survive in this difficult market. They’ve emphasised range and explored high-quality own brand products, but most of all they have expanded into convenience. Asda has not, and it has suffered accordingly.

It’s harder to know why Asda failed to respond with the same vigour under former boss Andy Clarke. It could be a misguided belief that emphasising price and scale would deliver results. It could be that the senior management deemed it too costly to change their strategy, figuring that it was better just to weather the storm. Perhaps Walmart wasn’t prepared to cough up.

While it does appear that the worst is over, it's hardly left the company in a great position. It’s still the worst performing of the big four, and Aldi and Lidl are still growing at a frightening pace. To thrive again, at some point Asda will need to adapt to consumers’ changing habits. It won’t be painless or cost-free, but disruption rarely is.

Read next: Why Aldi and Lidl will keep growing

Image credit: Rept0n1x/Wikipedia


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