Shoppers are set to be big winners as Asda signalled a new price war as its new top boss promised to revive the ailing chain
Supermarket giant Asda has vowed to unleash its biggest price cuts for 25 years in a bid to turn its flagging fortunes around.
The chain is set to use a “war chest” to ramp-up discounting as it announced an aim to be at least 5% to 10% cheaper than arch rivals Tesco, Sainsbury’s and Morrisons. The commitment is good news for shoppers, and could set off a new price war. So significant will the price cuts be that Asda said it would “materially” reduce its profits this year.
The company refused to be drawn on how much it was pumping into prices, and what sort of hit to profit it would mean. But Allan Leighton, the respected City veteran who has returned to Asda as executive chairman, said the investment in price would be “very significant” adding: “We need to open up a 5% to 10% price gap versus the other supermarkets. We have already started opening up a gap and we didn’t have one.”
Straight-talking Mr Leighton, a former chairman at the Co-op and Royal Mail, said the amount earmarked for prices was unlike any Asda had done since left the supermarket in 2000. “It is probably the biggest investment into Asda price since that time,” he said, adding Mirror readers would be among the winners given “Mirror customers are our customers.”
The pledge on groceries came as Asda cut fuel prices by 4p per litre at all its forecourts. Motoring group RAC said fuel prices should fall from a six-month high because of a drop in wholesale costs. Mr Leighton said the shake-up was “100%” about taking Asda back to what the business was like when he left.
“We were out-performing the industry week-in-week-out and it was the best place in Britain to work, and that is what we are trying to achieve again, that’s the objective,” he said. “It is back to being first, back to leading and back to being the champion He went on: “Asda was the place where you went where you know you had the lowest prices – non-tricksy, you didn’t have to be part of anything, a member or not a member, you just got the price. And that’s where we need to move back to and that’s what we’ll do. Everyone says the market’s changed – it hasn’t. People still go to shops, they want a great price, great availability, great service and come out again. Or they do it online and they want the same. This idea that the whole industry has turned upside down is not true.”
A source close to Asda said: “We have a substantial war chest to deliver a sustained, long-term investment in lower prices for customers.” Mr Leighton was at Asda eight years, latterly as chief executive, and spearheaded a revival that culminated in it being sold to US giant Walmart for more than £6billion. He is hoping to work his magic again, but has a big task on its hands, with Asda’s market share having tumbled.
Number crunchers Kantar recently said Asda was the only one of Britain’ big grocers where takings went into reverse in the 12 weeks to late February. Asda’s 5% drop contrasted with a 5.8% rise in sales at Tesco, and 4.8% Sainsbury’s. Even Morrisons, which has been facing its own battles, notched up 0.7% increase. The business is also lumbered with a huge mountain of debt – £3.8billion at the end of December – a legacy of its takeover by the billionaire Issa brothers and private equity giant TDR Capital.
Mr Leighton insisted that TDR was willing to take a financial hit. He said: “Instead of the business just continuing on as it was, trying to make profit but with no growth, we have gone the other way and, with the shareholders’ agreement, we are going to take the profit down and invest that in the business. There is absolutely no pressure on me or the business to come with a quick fix here. In fact, the wrong thing would be a quick fix. We are trying to build a business here for the mid and long term and therefore we will invest for the mid and long term.”
But Asda is still without a chief executive, and no sign of anyone being recruited soon. It comes after Mohsin Issa stepped back from his executive leadership role at Asda in September 2024. Mr Leighton insisted that if wanted a new CEO “we could have one tomorrow”. He went on: “We need to be sure what we require” and the person understood Asda “culture.”
The price pledge came as Asda published results showing total revenues, excluding fuel, were broadly flat last year at £21.7billion, but takings in stores open at least a year fell 3.4%. Profits – measured by adjusted earnings before interest, tax, depreciation and amortisation – increased by 5.8% to £1.14billion. Mr Leighton summed up the sales performance as “disappointing” and the profits as “Ok-ish”. He has previously admitted that any turnaround could take three to five years.
