Asda revival no ‘quick fix’ as supermarket spending drive to knock profits

Asda has warned major spending plans will eat into its profits, after pledging to cut the prices of thousands of products and revive its stores in a bid to win back shoppers from rivals.

Returning boss Allan Leighton said it would not be a “quick fix” to get the supermarket chain back on a stronger footing.

Asda, which is the UK’s third-largest supermarket, launched a turnaround plan under chairman Mr Leighton, who returned to the business 25 years after he was its chief executive.

Efforts to revive the business come as it revealed its total sales, excluding fuel, hit £21.7 billion last year – down 0.8% from the year before.

Compared like-for-like with 2023, sales declined 3.4%.

Mr Leighton said its sales last year were “disappointing” and its profit was “OK-ish”, adding: “Obviously there are one or two things that we need to fix: our pricing, our availability, and our range architecture – that has all started … we’re starting to make some progress.

“We’re flagging a significant investment back into the business, and that is going to materially reduce our profit in the short term as we rebuild the business and we rebuild our market share.

“I see this not as a profit warning but as an investment warning. This is us taking our profitability down to invest into the company.

He added that it was “absolutely not about a quick fix” for the chain, nor was he under pressure to find a new chief executive to lead the business.

Asda has been without a permanent chief executive since 2021. Its co-owner Mohsin Issa stepped down from running the supermarket last year.

The group has seen its share of the UK grocery market slip, with customers switching to rivals such as German discounter Aldi, which has grown rapidly and is now trailing closely behind Asda in the rankings.

But Asda’s market share has edged up by 0.3% since December, according to data from analysts Kantar.

In January, Asda said it had brought back its Rollback pricing scheme which saw the prices of more than 4,000 products in store and online slashed by an average of 25%.

It plans to continue to add thousands of new products to Rollback at regular intervals during the year as it looks to move its entire range to a new low “Asda Price”.

“Following the return of Rollback in January, our price advantage has strengthened and customers’ perceptions of the value we offer is starting to improve,” Mr Leighton said.

“While regaining customers’ trust will take time, we will undertake a substantive and well-backed programme of investment in price, availability and the shopping experience to deliver this.”

A source close to Asda added that the business has a “substantial war chest” to invest in lowering prices for customers over the long term.

The company’s adjusted earnings before tax and other costs, and after rent, came in at £1.14 billion for the past year – up 5.8% on 2023.

It ended the year with net debt of £3.8 billion, and about £800,000 cash on its balance sheet.

Earnings were boosted by the company’s fashion brand George, which captures a significant share of the market for school uniforms, as well as a full year of profit for its 356 Asda Express convenience stores.

Asda is expecting business costs to surge by between £75 million and £80 million when national insurance contributions (Nics) rise from April, following tax changes announced in the Government’s autumn budget.

“Like everybody else, we have to face into that,” Mr Leighton said.

“We’re managing those cost headwinds, but at the same time investing significantly in the growth of the company.

“That’s why we flagged it will have a material impact on our profitability, because we’re determined to invest in the company for the mid and long term, not for the short term.”