Asda - Death of A Mass Market Grocer

In the UK, we just love shops. We like Grocers who give us an experience and give us the chance to feel better about ourselves. Well, we used to - the unprecedented squeeze on household budgets over the last five years has made us seriously consider the idea of discounters and Aldi and Lidl picked the right time to go on a building spree to capitalise.

Asda, a retailer based on one trick only - Price - should have been taking advantage since 2008. A former board member proclaimed at the start of the recession that "This is our time". It's been anything but with a static market share which would be bad enough if they hadn't added over 150 new sites in the same period. Losing share at both ends of the spectrum would make most boards panic, but Andy Clarke has stuck rigidly to the same policy. This week though, in openly declaring a price war against the discounters, he's effectively killed off any ambition for Asda to be a true mass-market retailer.

There was a time, around 2007, when Asda were actually starting to attract ABC1 shoppers, largely through a dramatically improved range of wines and a hugely successful 3 for £10 deal across the category. But these shoppers, a big chunk of the UK grocery market, also demand shopping experiences. They are generally not big fans of soul-less barns - as their desertion of Tesco over the last few years has proven. To be fair, Asda have tried to make their shops nicer - the grey (sorry, "Taupe") walls have gone green and maroon while fridge carcasses have gone black. On non-food and clothing, they've actually led the way by bringing learnings in from their stop-start Living format. But while the new work looks very pleasing in some of the Supermarkets, the superstores and supercentres which deliver the big money remain hideous places to shop. In terms of major multiple refits or new stores of the last year or so - Tesco Bishops Stortford, Sainsbury's Welwyn Garden City and Morrisons St Albans all deliver a great shopper-focused vision of how retailing should-be. At Asda Trafford Park, we ended up with some low MDF cabinets for produce (plus the chilled produce black "maze") and the bakery fixture went from grey to black. No innovation, nothing for the shoppers apart the same tired message of engineered £1 price points.

It must interesting to see what McKinsie's are digging up. I really don't rate them highly myself - they are master in renaming solutions already found within in a business. But, in Asda, they might just work. During the 5 years I spent in the cultish world of Asda House, I worked with some of the brightest and most innovative retailers I have ever had the pleasure of working with. The problem was that inertia and an incredibly political reading of the "culture" at Asda House meant very few of those ideas ever saw the light of day. Often the mantra of "everyday low cost" was heard - certainly more than the question "what do our customers want?"

Well, yes, customers DO want price - and increasing numbers want this above all else. But if you are a retailer who wants to retain the number 2 spot, you can't just chase those customers. For every great piece of work that Asda do that might appeal to more affluent shoppers, for example the Leith tie-up with the ever-improving Extra Special range, going out and shouting out about prices and trying to attract the great unwashed will drive them back to Sainsburys, the expaning Waitrose or the resurgent (store-feel wise, at least) Tesco. For these customers tend to want a great experience - and, yes this is a harsh truth, they won't tolerate a scruffy shop if has scruffy shoppers as well.

Their mainstream competitors are getting it at the moment - all are investing in store environments, extending ranges to create points of difference AND still getting a price message across. You could argue that in times when price is so important to customers, you can assume that they will already find the value - and after about 15 years of "Price Wars" and the various Price Match schemes, they will now make their choice around the other stuff. The small, but growing, percentage who don't care about shops will head to Aldi and Lidl and won't even consider Asda any more. Those who do care, will see the further dumbing down and find somewhere they're more comfortable with.

2012 - Bring It On

When I was visiting London last month, I got stopped on the Millenium Bridge by a German TV News crew who asked the question “what are you looking forward to most in 2012?”. My answer was simple – 2013.

There’s no question that 2012 will be tougher than 2011. For all the hype about cuts last year, many only started taking affect halfway through and many more will hit us this year. There’s also a lag in consumers reigning in their spending. I feel the penny may have dropped at last that those credit card bills do actually need more than the minimum payment.

An even higher percentage of “leisure” time will be spent in supermarkets this year and a higher proportion of disposable income will be spent on food and drink. The paradox of this is that those above average household incomes will possibly be spending more on grocery than last year, irrespective of inflation.

So how will the mults react? Tesco and Asda seem obsessed with price, even more than their customers at the moment. You can understand it with Asda as it has long been their only lever and hard-coded into their DNA. But with Tesco, they seem to have forgotten what made them the behemoth they are now. During the 1990’s, they invested in price AND shops – now their shops are increasingly looking tired and unloved. Pictures are flying around twitter of items with the wrong coloured shelf-edge labels and even a complete lack of them – a surefire sign of store cuts biting.

Tesco will also face mixed impacts from their formats – Extras will surely struggle with non-food space returns falling but Metro and Express will both benefit from shoppers switching to top-up shopping and shorter journeys in their cars. Asda also claim to have formats, but the Supermarket format lacks a crucial element that Metro has – good location. Shoppers who prefer smaller stores tend to arrive by foot or public transport – much of the Netto estate was on retail parks and other cheap rent locations and not really set-up for this. I await the next set of Kantar data with interest as Andy Clarke’s assertion that Asda can now “do small stores” looks increasingly similar to George Bush’s declaration of victory in Iraq 8 years ago.

I personally can’t understand Sainsbury’s at the moment. I genuinely felt this time last year that were well placed to take the number 2 food spot away from Asda but it never quite materialised. Certainly the refit and opening programme is creating some stunning looking stores which invest a lot of space to the shopper, there’s still a slight issue convincing the crucial mid-market shoppers that they can get their full shop there. JS have incredibly strict shelf inventory rules which make it harder for them to offer breadth of range compared to their competitors. This will probably hamper their ability retain big trolley shoppers until a solution can be found. There could be an element of slow burn with JS though and I start the year in the same way I did last year, expecting them to get good growth and at the very least make the good folk of Leeds a tad nervous.

No such problem at Waitrose though – they suffer no problem with squeezing in range in their increasingly ambitious looking shops. They’ve also got the “buzz” around them amongst shoppers – a kind of aspiration that used to be reserved for M&S food before it appeared everywhere with Simply Food. They will have some big sales numbers to lap from last year which might point to a slight slow-down in their growth. Online will certainly help, and the early figures from them suggest a cracking Christmas period. There’s a good chunk of Ocado business they will pick-up as the early teething problems become a distant memory while the snobbier amongst us will surely look forward to a nice looking Waitrose van parking up outside the house to wind-up the neighbours.

Morrisons had an amazing year last year and I fully expect that to continue. They seem to have a great balance at the moment, with shoppers seeing them as cheap without such over t marketing as Asda and Tesco. Although a large proportion of their estate still looks dated and reminds me of my old Tesco in the early 1990’s, they’ve shown with their store development programme that they understand what the modern shopper wants from a store. Plus in M Local, they have a unique take on convenience which I think will work well, especially when they get brave and tackle the London shopper antipathy that has surrounded the brand since they took over the Londoner’s beloved Safeways.

Finally onto the Co-operative. They have marketing sewn up, even finding the only accent in the world that can rhyme “Good” with “Food”, and my experiences with them suggest there are a lot of great ideas and projects coming out of HQ. But, and it’s a big but, this just isn’t showing up in their stores yet. Their showpiece city centre new stores are great, but the vast majority of their estate is dated, messy, badly laid out and generally a poor experience. The business needs to be dragged kicking and screaming into the modern age, something that can be done without losing the ethical and community USP. The business needs to be brave and accept 2 or 3 years of pain and poor growth. But I’m confident that if they hold their nerve, there’s a cracking business there.

2012 will be incredibly tough for everyone, but I’ve personally never ducked a challenge. There will be a lot of whinging and bad decisions made over the next 12 months, but good businesses will always survive tough times.

See you on the other side!

Non food

Asda’s announcement that 4 of its 25 Asda Living stores were potentially closing and Tesco's redundancies in its Non-food trading team makes it a good time to look at the world of Non-food in grocers.

Not too long after Tesco closed it's last few standalone Home & Wear stores, Sir Terry Leahy took Tesco on a journey to a promised land where 50% of their turnover came from non-food. Last year, Andy Bond announced a rare aspirational target of making Asda number one in non-food. But with Tesco hinting in their interim statement that non-food was behind the UK slowdown and Andy Clarke announcing that Asda's Living format expansion was being slowed down (or halted as some cynics would say), has the non-food dream ended?

It's probably worth starting with a look at why food retailers got into this in the first replace.

Leahy's vision when opening the first Extra hypermarket at Pitsea in 1997, was to create one-stop destination shops. To do this, non-food was key. It's incredible to think now when you at Tesco's incredible electrical departments that only 14 years ago, it was a ramshackle collection of grey market tellies being sold off white grocery shelves. Clothing was limited to last season brands off the grey market and the shortlived "T for Tesco" label. Now Tesco are a top 5 clothing retailer thanks to the Florence & Fred range.

Of course, maximising the proportion of consumers disposable income spent in your stores has its benefits as does changing your margin mix. The ability to add in higher value products which deliver relatively huge margins has help Tesco and Asda effectively cross-subsidise lower prices on core grocery lines and provided fuel for the price wars of the last 10 years.

When the credit crunch hit in 2008, Tesco and Asda must have started rubbing their hands. Rick Bendell boldly claimed that Asda would “rebuild Britain” through Darren Blackhurst’s obsessive volume drive on basic non-food items. The theory was that selling Dinner Sets at £3 would drive huge volumes and that these volumes would bring better factory prices. It also assumed that the disposable age, where shoppers would think nothing of replacing homewares and electricals on increasingly frequent cycles, would go on forever.

The resulting recession and lack of return to strong growth in the economy has instead made them retreat to old habits. Rather than spend £250 on a PL television which won’t have the latest spec and may not last much past its warranty, we’d now rather put our trust in a Sony or Samsung and spend £350. And even then, we won’t be doing that on a whim anymore. In times of trouble, brands are seen as a safe harbour and homewares are seen as in investment of sorts.

The other big dark cloud is the exchange rate; non-food deals are generally done in $US and getting your forecasts on the rate wrong can have disastrous circumstances, losing you money before the stock has even been pulled off the boat. Add in volatile cotton prices and potential inflation in China and it no longer looks such an easy buck.

The earliest non-food plays were Home Entertainments and Books of course. The grocers have done much to lower prices on these products, arguably contributing to the demise of High Street specialists, but will now themselves be suffering from the march of digital. Even selling the hot DVD launches at a big loss to drive footfall isn't as effective as it used to be. And what happened to CDs, then DVDs, now looks to be happening on Books with the expansion of Kindles and their kind. Games is the last island of hope but that won't last forever - enjoy those midnight queues for the latest Call of Duty release while you can.

The reality now facing Tesco and Asda in particular now is that they have a large proportion of space dedicated to products their shoppers no longer want and often on mezzanines which are notoriously hard to get shoppers up to to. People looking for non-food bargains are happy to put their trust in the ever-improving Wilkinsons stores, leaving the grocers high and dry.

All can not be total doom and gloom though - clothing is still strong, although in Primark you have a tough market leader for budget fashion. In George and F&F, there are some brands while JS is starting to gain momentum with Tu, helped by some injection of credibility from Gok Wan. Morrisons have chosen to go with Peacocks which makes sense, even as an interim stop-gap to free up the space and establish their larger stores as a one-stop shop alternative.

Click-&-Collect may also prove to be a saviour. Tesco's catalogue operation looks slick and must be hurting Argos while it's only a matter of time before Asda actually manage to get their act together with their Direct website.

I believe there is a future for Leahy's vision in terms of getting all you need under one roof - petrol prices alone suggest it makes more sense than ever - but it will look very different. 50:50 space splits in 100,000 square foot stores will surely come to an end - and hopefully customers might start to get some space to breath in cramped mezzanines. After all, who wants to chose stuff for their home in a 5ft wide aisle with a load of people with trollies around them?