Tesco and Sainsbury likely to follow Asda price cuts

By Rod Addy contact

- Last updated on GMT

Related tags: Asda, Tesco

Asda announced plans to create 12,000 jobs in the UK over five years
Asda announced plans to create 12,000 jobs in the UK over five years
Tesco and Sainsbury will likely follow Asda’s cost- and price-cutting lead to combat discounters Aldi and Lidl, according to food industry commentator Clive Black, responding to Asda’s latest results.

In an analyst’s note, he said Asda had made a head start, crunching down on costs, simplifying its offer, reducing promotional activity and vouchering, slashing middle management jobs, and training personnel. In November last year it also pledged £1bn of price cuts between 2013 and 2018​.

“We believe that Asda has set a course of action underway that will be repeated not just by Morrisons, which has been announced, but Sainsbury and Tesco UK too,”​ said Black, Shore Capital’s director and head of research.

In results covering its second financial quarter (Q2), published yesterday (August 14), Asda’s ceo and president Andy Clarke added to business plans announced earlier this year. He declared aims to use large stores’ space “innovatively”​, creating “new reasons to visit”​.

Remodels and refurbishments

Black speculated whether this innovation would include the incorporation of gyms or restaurants. The supermarket also plans 86 store remodels and 87 refurbishments next year.

“So, Asda is toughing it out well to our minds, a reflection of a good focus on the day job​,” said Black. “Indeed, Asda is leading the big boys with its focus on price, proposition and costs. That said, the others are following now, which makes for a potentially even more challenging industry.”

In April, Asda announced plans to create 12,000 jobs​ in the UK over five years. It confirmed 1,360 redundancies in July, while at the same time claiming that it would create 5,630 leadership and management roles​.

2,600 job cuts

Morrisons announced in July that it expected 100 staff to complete a degree course in leadership and logistics at the University of Hull in the next two years​. And it announced price cuts in June​, plus plans for 2,600 job cuts in a management restructure, while creating 1,000 convenience store roles and 3,000 jobs​ in new supermarkets.

On February 25, Tesco unveiled a £200M price cut campaign, although at the time Black doubted the cuts would be enough​ to fend off the discounters.

In June, Lidl launched plans to create 2,500 jobs in the next nine months​.

‘Click and collect’ orders to treble

Asda said Q2 like-for-like sales, excluding fuel, had risen by 0.5% comparing the 10 weeks to June 30 with the same period last year. That was an improvement on Q1 sales growth of 0.1%. Management claimed its share of the home shopping market had increased to 18.4% and said it expected ‘click and collect’ internet orders to treble in the next five years.

“The last quarter has seen unprecedented change within the food retail sector, and whilst I do not underestimate the challenge currently presenting retailers, I am proud that our business identified and put plans in place to respond to these changes early,” ​said Clarke at a briefing in London on the results.

“We have a clear five year strategy based on Everyday Low Prices and we continue to implement that strategy with agility and pace.”

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