Asda Faces Sales Challenges Following IT Overhaul Completion

Asda, the third-largest supermarket group in the United Kingdom, has announced that its sales for the current quarter will be affected by disruptions related to the completion of a significant IT overhaul. This project involved separating Asda’s systems from those of its former owner, Walmart, which sold the supermarket to Zuber and Mohsin Issa and the private equity firm TDR Capital in 2021. The transition was completed this week, marking a pivotal change for Asda as it moves to operate on its own technology.

Allan Leighton, Asda’s executive chairman, noted that the completion of this major project has caused some temporary challenges, particularly in product availability and online customer experience. “The collective rate of completion did cause some temporary disruption with product availability and in our online experience, which will impact our sales outturn in the current (third) quarter,” Leighton explained. He described the undertaking as possibly the largest IT systems change in Europe, emphasizing the complexity of the task: “It’s open-heart surgery while the patient’s still alive.”

Asda’s performance data reveals a slight decline in sales for the second quarter ending June 30, 2023. Sales fell by 0.2 per cent, a marked improvement from the previous quarter’s 3.1 per cent drop. This recovery was attributed to strategic price reductions and an increase in product availability, which reached 96 per cent—the highest level seen in eight years.

The ownership transition has brought Leighton back to Asda after more than two decades since he last served as CEO. In March, he outlined his ambitious goal of achieving prices 5 per cent to 10 per cent lower than competitors, a strategy that he warned could “materially reduce” profits. His comments sparked concerns among industry leaders, notably impacting the shares of Tesco and Sainsbury’s, as fears of a potential price war loomed. Nevertheless, such a price war has not yet materialized, and both Tesco and Sainsbury’s have since reported robust results, with their stock prices recovering.

Looking ahead, Leighton remains optimistic about Asda’s performance, forecasting that the supermarket will achieve positive like-for-like sales growth by the end of the year. However, recent industry data from the 12 weeks leading up to August 10, 2023, indicates that Asda’s sales fell by 2.6 per cent year-on-year, resulting in a 0.9 percentage point decline in market share, now standing at 11.8 per cent.

The competitive landscape is intensifying, particularly with discount retailer Aldi closing the gap. Aldi’s market share currently stands at 10.8 per cent, just one percentage point behind Asda. As the grocery market adapts to these shifts, Asda faces the challenge of maintaining its market position while implementing new systems and strategies. The coming months will be crucial for the supermarket as it navigates this transition and strives to enhance its customer experience.