Retailer’s announcement relaunches price war into 2016 while CEO Andy Clarke says ‘radical and logical action’ is needed
Asda has invested £500 million in further price cuts in the first major move this year for price war between the top four retailers and discounters.
Chief executive Andy Clarke said the business must take “radical action” to win back customers and said he expects 2016 to be another year of intense pressure.
The investment into prices comes on top of the £1 billion over five years Asda said it would invest into price in November 2013. It is part of Project Renewal – a two-year programme within Asda’s five-year strategy to reinforce its value proposition.
The news comes as Asda also announced it has joined European buying alliance EMD, which will help develop the company’s own-label range. EMD is made up of 14 national buying structures and pools the collective buying power of 250 supermarket chains.
EMD membership will help develop a “radical shake-up” of its approach to buying, Asda said, and alongside leverage from IPL it will be able to “release significant savings from its supply chain”.
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.”
Clarke said Asda saw the change coming and responded in 2013 but “didn’t move fast enough”. “There is currently no growth in the food market and the rise of the limited assortment discounters means that we must take radical action to win back our customers. Today, from our strong financial position, we are taking another bold step forward in our five year strategy,” he said.
“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, as the chancellor warned on Thursday, 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.”
Alongside the price cuts, Asda will also invest in 95 of its largest stores to make them “more relevant”, removing “fringe ranges” and investing in own-label.
Clarke continued: “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 warned that industry faces “more turbulence” in the short-term, but insisted that in the long-term he has the “right and winning strategy”.
“We expect that 2016 will be another year of intense pressure at a macroeconomic level, in addition to sales remaining under strain from price deflation, a continued competitive background throughout the sector, and radically changing customer shopping habits,” Clarke said.
The news comes as both Aldi and Lidl begun 2016 by reducing the price point of select promoted fresh produce items from 39p to 29p. Trading figures for the key Christmas period are due this week (w/c 11 January) for several of the major retailers, with Asda due to report in mid February.