Will Asda shoot itself in the foot with store cost cutting?

Asda’s plan to dispense with 4,100 department management positions has provoked a wave of anger from disgruntled staff.

There have been over 400 comments posted on thegrocer.co.uk about the plans since last Thursday’s announcement - a large majority upset at the perceived harsh treatment of those department managers facing the loss of their roles and the blunting of career progression.

Asda CEO Andy Clarke is adamant, however, that the initiative is necessary to cope with the structural change in grocery. In principle the argument looks compelling - e-commerce is resource-heavy and a serious effort to adapt to the market’s new realities requires a redeployment of resources from traditional in-store roles. Clarke told The Grocer: “We’ve trialed this in a number of stores for a good period of time. And the key benefit we wanted to see was that frontline customer service improved.”

Asda COO Mark Ibbotson adds: “We believe we are about 18 months ahead of our competitors - they’re all going to have to do this at some point.”

And some are already. In February Tesco caused a similar storm by announcing trials to scrap team leader positions across different types of stores.

And it’s not just the big four.Sir Charlie Mayfield, chairman of the John Lewis Partnership, at a BRC event last week contrasted a gradual 20% cut to Waitrose management with the “good things” - primarily IT-based - the changes had enabled the retailer to do.

However, the Asda restructure is also integral to a £1bn cost-cutting exercise amid a fierce price war - which has left Asda open to accusations it is primarily taking the axe to staff as a way of coping with ever-tightening margins - and follows the announcement of a new structure at head office that could see 200 jobs go. The retailer hopes its creation of 5,000 new roles in place of department managers will boost numbers and experience on the shop floor. “We are going to have more colleagues in the business post consultation so you’re going to see an even better level of service,” Clarke insists. But can a layer of team leaders be stripped out without affecting store performance?

”Asda can’t simply keep adding people because that has costs”

Steve Dresser, Grocery Insight

Sainsbury’s CEO Justin King has said his price-obsessed competitors have taken their eye off the ball, suggesting some have “taken major steps back on investment in store standards and service.”

Speaking as Sainsbury’s unveiled its annual results earlier this month, King said: “If everyone thinks pricing is the whole story, the gap we enjoy on the other things that are important to customers will widen.”

This week Sainsbury’s even changed its annual bonus scheme to place sole emphasis on in-store customer service and availability rather than sales.

Data from The Grocer 33 mystery shopper survey certainly points to a clear difference in in-store standards among the big five. Since the start of the year, Sainsbury’s average score, incorporating factors including store standards, product availability and checkout length, is 70.5 (out of 100) - considerably higher than Asda (62.9), Morrisons (63.9), Tesco (65.2) and Waitrose (62.4). Sainsbury’s has markedly improved its year-on-year scores (from 64.4 year on year), while the others have stagnated.

Bailing out falling sales?

A large proportion of Asda staffers commenting to The Grocer argue the restructure is about squeezing staff and service to bail out falling sales.

One Asda store manager, who claims he and his colleagues had been asked not to speak to the press, says: “Andy Clarke has reiterated that this will improve customer service, but I think a lot of that is spin. Taking away people with vital experience and replacing them with inexperienced staff who are just above the minimum wage is a risk.”

Asda is in consultation with the 4,100 staff affected, but there are widespread expectations that a significant proportion will leave if they are only offered more junior section leader roles.Staff comments on grocer.co.uk were similarly unconvinced the customer would end up as a winner from the changes. “More colleagues on the shop floor? I have never known less (sic),” says one, while another writes: “This all affects service to the customers. Come on Asda, where has all that dedicated customer service gone?”

Although Asda insists the restructure will lead to more bodies on the shop floor, Tony Gregg, from headhunters Anthony Gregg Partnership, said it pointed to an inevitable industry-wide decline in in-store customer facing roles. “The supermarkets are still playing catch-up with modern retail trends, but I think customers are becoming used to seeing fewer staff on the shop floor because the shop itself isn’t as important as it used to be.”

Industry observers have largely backed Asda’s efforts to modernise its business - primarily because doing nothing is simply no longer an option. For example, recent like-for-like sales drops at Morrisons and Tesco represent hundreds of millions of pounds in lost revenue from existing stores. It seems unavoidable that mitigating lost sales of that scale requires fundamental cost-cutting, particularly given industry-wide investments in lowering prices.

“If fewer items are going through the checkouts it becomes easier to justify repurposing staff,” says Agency Partners analyst Andrew Porteous. “There is a structural change going on in the sector and retailers have to make the business model work. If you’re dropping prices, and margins are getting squeezed, it makes sense to even that out in other areas.”

However, the level of headline job cuts they can sustain is limited for the likes of Asda - not least because online shopping in its current form remains resource-heavy in terms of picking and delivery.

“The market is shifting to online, but you can’t add volume without having the capability to cope with the uptake,” says Steve Dresser of Grocery Insight. “Online is so labour-intensive that Asda has to shift people around. They can’t simply keep adding people because adding people has costs.

“What Asda is doing makes a lot of sense, but it is risky pulling managers out because good managers often go unnoticed. A hell of a lot of people still shop in stores and that’s where you may win and lose the battle. If the store stats plunge then people will just go elsewhere.”

This is the key risk facing retailers looking to modernise structures: cutting costs without cutting service.

As one analyst says, there is a huge difference between cost-cutting and efficiency gains: “If you can reduce the cost of servicing customers without impacting quality, that’s efficiency. If you can’t, that’s cost-cutting.”

Asda believes it has struck that delicate balance. Its battle now is to convince its own staff and customers.