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Asda president and ceo Andy Clarke has revealed that the grocery chain will invest an extra £500m in lowering prices as he predicts another year of ‘intense pressure’ for supermarket retailers.
He said a radical shake-up of the retailer’s approach to buying, combined with the leverage from Asda-owned IPL (now the number three UK food supplier) and being part of parent company Walmart, will release “significant savings” from its supply chain.
The latest £500m commitment, on top of an original £1bn price investment across five years to the end of 2018, is expected to widen the price gap between Asda and the rest of the ‘big four’ supermarkets and close the price gap to the limited assortment discounters.
Andy Clarke said: “Asda is unquestionably the UK’s lowest price full range supermarket business and we intend to strengthen that position. Indeed, we reaffirmed this as 2016 began when we became the first retailer to cut unleaded and diesel prices below £1.
“The structure of UK grocery retailing has permanently changed to reflect the way that customers shop today. Being part of Walmart also gives us insight into similar trends in the rest of the world and it’s clear that this is a global phenomenon.
“We saw the change coming and responded in 2013 but we didn’t move fast enough. There is currently no growth in the food market and the rise of the limited assortment discounters means we must take radical action to win back our customers.
“Fundamentally changing how we buy products means we can realise significant savings from our cost base and pass these directly to customers through a rebased pricing model.
“Joining forces with the huge EMD network of 250 European supermarkets will give us significant economies of scale. We’ll continue to work with our suppliers to lower costs in our supply chain and return sales to growth in partnership.
“But we are not complacent. We remain cautious and we expect that 2016 will be another year of intense pressure at a macro-economic level in addition to sales remaining under strain from price deflation, a continued competitive background throughout the sector, and radically changing customer shopping habits.
“Our eyes are open to the fact that more impactful changes and decisive action still needs to be taken to make sure we remain not only a viable business, but a strong market-leading one.”
Asda will also invest in 95 of its largest stores to make them ‘more relevant to the customers of today’.
Andy Clarke explained: “We know our customers better than anyone else and we need to structure our offer to meet their changing needs.
“This knowledge has shaped our plans to make our bigger stores easier to shop, laying them out in a way that’s relevant to today’s customers by removing fringe, marginal ranges, significantly investing in our own-label ranges and providing services that they need.”
He concluded: “In the long run, ours will be the right and winning strategy. In the short term, we will face some more turbulence. But we are not afraid to do things differently and have been the first in the industry to take action on earlier occasions. That puts us in a very strong position in this market, and gives us the ability to deliver what our customers want.”
Asda will report its fourth quarter and full year strategy and trading update on February 18 in line with Walmart’s reporting period.
