Andy Bond was widely expected to be announced as the new boss of Asda as The Grocer went to press this week, marking the start of a new chapter in the history of the Wal-Mart subsidiary. But analysts warn it will be the most challenging chapter for many years given the power of Tesco in the UK.
When president and CEO Tony DeNunzio shocked the industry last week by announcing his departure from the chain, the betting on his likely successor opened. Names in the frame included trading and marketing director Angela Spindler and former logistics director David Cheesewright, who has been enjoying success as chief operating officer of Wal-Mart Canada since last June. There was also the outside possibility that one of Wal-Mart’s big guns in the US might be parachuted in.
But the smart money was always on Bond, the 11-year Asda veteran who has been the chain’s chief operating officer since last August, with responsibility for retail, logistics and property developer Gazeley. He was also responsible for the George clothing brand, and his success in this area no doubt helped Bond make his mark with the Wal-Mart top brass.
While most analysts agree DeNunzio’s surprise decision to leave the UK’s second-biggest grocery chain to join Dutch retail group Vendex KBB was one of choice rather than forced, it may be that DeNunzio has quit while he was ahead.
The sparkle has disappeared from Asda’s trading results over the past year, in stark contrast to its biggest rival Tesco, and there are a number of barriers facing DeNunzio’s successor if he wants to catch up.
TNS data for the 12 weeks to February 27 showed that Asda’s year-on-year sales growth had slowed to 4.38% compared with a growth rate of 12.15% at Tesco. It had also
lost £133m worth of sales to Tesco. When DeNunzio became chief executive, Asda had just reported like-for-like sales growth for the six months to July 31, 2001 in the high single digits, attributing its success to strong food sales, and had boasted of gaining 500,000 new shoppers since the start of the year.
The biggest question facing DeNunzio’s successor is what he is going to do to revive the chain’s growth, says Shore Capital retail analyst, Clive Black.
“It is difficult to see where Asda can get extra space to feed like-for-like sales growth because of planning restrictions, and it looks as if non-food opportunities will have to be the driving force. Asda has a fabulous business in George, which has now moved on to the high street, as well as Asda Living, but it is too early to say whether it is going to go full steam ahead on these ventures.”
Even if it does, Black stresses that anyone would be foolish to think Asda will take its eye off food. In fact, he believes that maintaining growth in the food market will be the greatest challenge facing Bond.
It may be that he will further tweak the EDLP strategy at the heart of Asda’s trading philosophy. Last week Spindler said EDLP was here to stay, but admitted more excitement was to be added by focusing on ‘buy two for’ offers to encourage an increase in consumer spend.
Despite the slower sales growth, and DeNunzio’s departure, Asda is hardly in trouble, says Black.
Yet DeNunzio’s departure has reignited the debate about whether the chain can endure constant management convulsions.
The list of former Asda management reads like a who’s who guide to the retail industry: Justin King, chief executive at Sainsbury; Richard Baker, chief executive, Boots; Andy Hornby, head of retail banking at HBoS; Penny Coates, MD of Nottingham East Midlands Airport; Catriona Marshall, trading director at Pets At Home; and Mike Coupe, trading director at Sainsbury.
Asda has thrived despite all of these departures. But analysts Citigroup Smith Barney this week questioned how damaging the latest bout of executive churn will be.
“Asda has previously prospered on change and has undergone a series of management changes post the Wal-Mart acquisition. This time, however, a new CEO will be inheriting a business struggling, not on the crest of a wave,” it says.
Black disagrees: “Since Archie Norman and Allan Leighton left, virtually all their senior managers have gone on to bigger and greater things - it was a fantastic pool of managers and it is saying something about Asda that it has managed to keep going despite losing these people.
“Asda is still a very strong retailer but it has reached a threshold. There is no doubt that Wal-Mart was deeply disappointed that the Competition Commission stopped its bid for Safeway, leaving Tesco in a much better market position than its competitors.
“Asda could have ended up with more if it had completed the deal with Sainsbury to divide up Safeway - perhaps it didn’t see the true prize of taking Safeway out.”
Black adds: “Asda can now never catch up with Tesco, unless there is a change in planning rules in the UK or the competition authorities allow the big four to become a big three. But it will be very interesting if there’s an outside bid for Matalan - we feel that Asda and Tesco would definitely follow with a counter-bid.”