7th Oct 11
Profits at Asda hit by price war
by Paul Russell
Asda price: supermarkets struggle as consumers tighten belts
Asda price: supermarkets struggle as consumers tighten belts
Almost £100m was lopped of Asda’s profits last year as a price war with rivals and one-off costs blunted its performance.
The Walmart-owned group’s operating profits declined by 10.4 per cent (£93m) to £803.5m last year, according to analysis of accounts. The accounts, filed at Companies House, reveal that like-for-like sales, excluding fuel and VAT, finished 0.6 per cent higher during the period, a better performance than market leader Tesco, which reported flat sales over the year ending February 2011.
Overall sales at Asda increased by 3.6 per cent to £20.5bn, in comparison with Tesco’s 4.3 per cent top-line growth which took its total turnover to £40.1bn. Asda’s headline profit figure was dragged down by an increase of £137m in royalties to Walmart as well as a charge of £18m relating to stock options tied to Walmart’s share price.
Philip Dorgan, an analyst at Panmure Gordon, said that after taking off royalties and financial charges, underlying profits rose 4.6 per cent to £998.6m – a performance which he referred to as an average year. The grocer’s operating margins went up by 4.9 per cent over the period, but that amount was still way below the industry leading 6.2 per cent reported by Tesco, said Dorgan.
For much of last year, Asda and Tesco were outperformed by smaller rivals Sainsbury’s, Waitrose and Morrisons, as well as discounters Lidl and Aldi, in an intensely competitive market. Strong sales allow Aldi to move out of the red last year, reversing a loss of £21.2m in 2009 into £18.7m in operating profits. Asda’s market share fell from 16.9 per cent to 16.8 per cent in 2010, revealed data from Kantar Worldpanel.
Last year saw widescale changes at Asda, such as the surprising departure of its chief executive Andy Bond, with Andy Clarke, the former chief operating officer, stepping into his shoes. The shake-up came on the back of a weak Christmas and the retailer’s poorest like for like performance since 2006.
One of Bond’s final moves as chief executive was to launch the “price-guarantee” – a vow to undercut all its main competitors by 10 per cent on a grocery basket. However, Clarke said the company had not been quick enough to distance itself from a grocery market which is becoming increasingly promotion-based. The new chief also surprised many by saying that its quality was not at the desired level, and has since injected £100m to relaunch the grocer’s core own food label range as “Chosen By You”.
In 2011, there has been intensifying competition in the grocery market due to the return of food price inflation and high fuel costs. Tesco reported its poorest six-monthly sales figures in the UK for two decades on Wednesday, with its large non-food business being hit by a reluctance to spend on non-essentials like CDs and gadgets:
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