Andy Bond’s shock decision to vacate the hot seat at Asda has left the industry pondering whether he’s done so in the nick of time. Elinor Zuke reports
As soon as Asda dropped the bombshell on Monday that Andy Bond was to step down, the grapevine started quivering with conspiracy theories.
Was Asda's lukewarm recent performance to blame? Had Bond fallen out with the Walmart overlords? Was it his reluctance to take a senior job in the US or had his tenure simply come to its natural conclusion?
The Chinese whispers will no doubt continue, but if we accept Asda's line that Bond has always been master of his own destiny, the more pertinent question is: why now and what next?
When Bond took the helm in March 2005, Asda held 16.5% of the UK grocery market [Kantar Worldpanel 12w/e 27 March] while Tesco led with 29.3%. A year later, Tesco had widened the gap to 30.6% against Asda's 16.3%.
Market share under Bond peaked in September last year at 17.4%, and although it has since fallen back to 17%, the fact remains that Bond presided over 15 consecutive quarters of growth and reported like-for-like sales growth of 6% in his final full year as CEO.
The most recent Christmas sales figures, however, hinted at a slowing of the Asda juggernaut. Till sales rose just 2.1% in the four weeks to 24 January, compared with 5.1% for Tesco, and Asda has struggled to grow sales and market share since [Kantar].
Announcing his shift from president and CEO to chairman of the Asda Executive Committee to colleagues this week, Bond said: "I've completed what I've set out to do leading us to greater confidence after a period where we were treading water."
Most analysts agree that history will judge Bond kindly and the recent blip will be seen as just that. "He's certainly held in high regard and his legacy is clear," says Clive Black, head of research at Shore Capital. "He spent a considerable amount of time in charge of George to great effect and he ran Asda extremely effectively."
The consensus among industry experts is that Bond has done all he can.
"I suspect that he's a man who realises he's taken Asda as far as it can go and the growth numbers now won't be as attractive. He's got out while he's on top," says one supplier.
The question now is how Asda plans to drive its market share.
Bond made headlines at Asda's full-year results statement by claiming the retailer would return to its Every Day Low Price (EDLP) mantra. "We will no longer get drawn into playing this game," he said of promotions, criticising rivals for using them as "weapons of mass distraction".
However, exclusive research by Brand View for The Grocer shows that, contrary to Bond's statement, Asda has increased the number of multibuy promotions and reduced how long they run for.
Across a sample of 1,000 items from representative product categories, multibuys at Asda increased by 70% in the first quarter of 2010 compared with the same time last year, from 443 to 752. Indeed, this was a bigger increase than both Sainsbury's (55%) and Tesco's (41%). The number of temporary price cuts and rollbacks remained steady (964 in 2010; 956 in 2009), as did the depth of cut (22% in 2010; 21% in 2009), but the average length of a promotion fell from 56 days to 40 days.
Asda insists the shift is being made and that the proof will be seen in the coming months. It also stresses that it has pledged to use money normally paid by suppliers to support promotions to fund price cuts across the entire store although none of the suppliers contacted by The Grocer had experienced this change in policy.
One supplier even claims he has come under increasing pressure to ramp up the level of promotions. "Asda is looking for rollbacks of as little as two or three weeks. Anything to get volume up right now as it's being killed by the volume and depth of Morrisons' promotions at the moment."
Meanwhile, analysts question how viable a return to pure EDLP would be in a promotion-driven market. "EDLP is not possible in Britain," claims Shore Capital's Black. "It's boring. For whatever reason, Brits like an element of promotion, but they like this within the context of price reassurance."
Black suggests Asda was uncomfortable with the amount of promotion it was engaged in at the end of last year. "The danger is of damaging the brand equity of Asda Price and I don't think they ever got into a position where they resolved that. I sense Asda and Tesco would like to reduce promotional activity, but it's a bit of a drug."
Asda's focus on being the cheapest in the market has been a major plank in its marketing strategy, but it has taken on Tesco in a war it can't win, says Richard Perks, Mintel director of retail research.
"Its operating margins have been falling steadily in the past five years but Tesco's have been maintained," he says. "Lower prices have worked in some respect sales performance has been good, but it's at a cost to profitability. I wonder how much longer they can maintain that stance."
Asda blamed its difficult Christmas trading on adverse weather, which exposed its vulnerability as a largely out-of-town supermarket.
Despite holding second position in terms of market share, Asda has just 394 stores compared with Tesco's 2,282 and Sainsbury's 828 (including convenience). Currently just 25 of Asda's stores are less than 25,000 sq ft; a situation it is keen to redress. It recently advertised for an operating model and process review manager to lead its growth in smaller stores and make savings on the format.
One way to build market share is to buy it. Walmart is rumoured to be sizing up a bid for Home Retail Group, which owns 744 Argos stores and 349 Homebase outlets, to drive growth in non-food, an area in which Asda significantly lags behind Tesco.
"The Argos format could fit nicely," an investor says. "Buying online and picking up in-store might be interesting."
Whoever does pick up the reins and there is no shortage of candidates (see boxout left and news page 5) they'll be able to call on Bond's expertise for the foreseeable future. In his new role, Bond will provide a strategic counsel for the new CEO. But his admission that "repositioning us around EDLP is a journey, not a quick fix" suggests his successor will have plenty to ponder on taking the hot seat.
Until then it's business as usual at Asda or as Bond succinctly signed off his speech to staff: "You should all now get back to work."
The new Bond: place your bets
Andy Clarke - Evens
Richard Pennycook - 9/2
Judith McKenna - 2/1
Jack Sinclair - 4/1
David Wild - 5/1
Richard Hodgson - 6/1
David Cheesewright - 7/1
Darren Blackhurst - 7/1
Mark Price - 7/1
Rick Bendel - 9/1
Odds provided by Cantor Index
Asda lays out design for Living (16 April 2010)
Bond to step aside as Asda chief exec (12 April 2010)
Asda stops promotion overdose and puts the focus back on EDLP (20 February 2010)