ASDA Abolish End-of-Day Price Reductions in All Their Stores: The Aftermath
The sorry saga of ASDA's 'fall from grace' as one of our most value-conscious supermarkets has served to highlight a growing trend amongst our major retailers in favour of increasing profit margins at the expense of the consumer.
A recent 'Which' report recommends supermarkets offer their customers cheaper alternatives to branded items in all their stores, and ensure these items are well-stocked.
I made similar recommendations when this blog was first published after Jack Monroe's expose of ASDA in April 2022 led to welcome action on ASDA's part.
It is to be hoped that the 'Which' report will shame retailers enough to take action...time will tell whether they attempt to 'tough it out' or not....Read on for more details about what's happened since the cost-of-living crisis hit.
See the latest update at the end of this article for a full roundup of ASDA's struggle for survival after yet another hedge-fund venture went bad....
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Following ASDA’s unfortunate decision to abolish end-of day reductions in April, I made some predictions of the consequences of their action in my blog (first published 17th April).
Here are some further observations made during the last 3 months which may help shed some light on what ASDA’s new management are up to…
Policy change
Unfortunately, there has been no sign of any reversal of this ill-advised policy, which suggests the move was part of a concerted 'strategy update' rather than a short-term expedient to free-up staff time. To add further insult to injury, close observation of the percentage reductions in goods which have reached their sell-by date reveals that few if any items now fall below 30-40% of their 'normal' price, even after 2 reductions, which is the maximum the stock control system now allows.
The Debt problem
After considerable initial resistance from the CMA, ASDA have now finally secured approval to purchase 350 petrol forecourts and 1,000 takeaways in the UK and Ireland from its sister business, EG Group. This a a risky strategy in the current economic climate, to say the least, and the 'growth or bust' approach it signifies, freely admitted by the new CEO, Stuart Rose, is reminiscent of the 'Trussonomics' phenomenon that so nearly trashed our UK economy last year.
ASDA now face two significant issues. One is the excessive debt they have taken on to finance the expansion, the servicing of which ensures they will no longer be able to compete effectively with the discounters on price for market share.
The other, perhaps less obvious, risk is the reliance on the convenience store market as an alternative way of bolstering profit margins. This retailing sector traditionally does well when the economy is buoyant; however, by the nature of things small convenience stores price higher and have a minimal range of low-budget items - a visit to any of the smaller Tesco convenience stores and a comparison with their 'Extra' store prices and ranges should convince.
The current cost-of-living crisis now looks to be anything other than short-term, with more interest rate rises still to come and stubbornly high food price inflation. This is forcing shoppers towards the superstores and discounters, and the trend is likely to continue - it is no coincidence that both LIDL and ALDI are opening new stores in the UK 'like there was no tomorrow'. The extensive convenience store opening programme of a few years back, undertaken by many or the majors, now seems to be on hold. The 1000 re-branded ASDA convenience and filling-station stores could therefore end up being a huge financial millstone round the neck of the organisation. Would you be prepared to invest in a business with a risk profile like this ?
Staff dissatisfaction
Staff in my local store have been surprisingly forthcoming
in their condemnation of recent policy changes and their general
dissatisfaction with their new contract T&Cs. Apparently there are now very
few, if any ‘permanent’ contracts at shop-floor level, and wages are close to UK minimum wage. Shift patterns are often imposed and altered with little warning despite the problems with work-life balance that can cause for struggling families. Due to a combination of high turnover, staffing reductions and
fewer people actually willing to work under increasingly stressful conditions for 'peanuts', ASDA are having trouble
filling vacancies (as can be seen from their online job adverts). I suspect this is
likely to continue unless their management’s exclusive focus on maximising
short-term profit margins is abandoned.
Food Wastage and
Environmental Harm
Although I have to admit I’m not usually in a position to visit our local store just before closing time to see for myself what
has been left on the ‘sell-off’ shelves, I have observed significantly more
food remaining unsold during mid-evening visits. Discussions with staff have
confirmed much more is being thrown away the following day than before end-of-day markdowns were abandoned. Staff
are themselves unhappy about this trend and quite rightly deplore the waste it involves (and the extra disposal work it generates for them). There must also be a
significant additional landfill disposal cost to ASDA.
Local Community
reaction
Discussions with fellow shoppers locally also reveals disquiet about the
direction ASDA is taking under new management. Not only is environmental waste
an issue for them, but ASDA’s recent price increases seem to be out of
proportion to those seen in other supermarkets (see later for some very recent examples of price hikes). I
have heard some woeful tales from some local erstwhile ‘regulars’ who used to
rely on end-of-day reductions to make ends meet – I can only hope they will be
able (and entitled) to use means-tested food banks to help keep their families fed in future.
Price Rises and
Reduction in Availability of Budget Lines
A close watch on availability and pricing of ASDA's ‘Just
Essentials’ (JE) range has revealed three trends:
a)
Predictions that more products in this range
would be dropped were accurate. At least 3 lines have disappeared from the
shelves altogether in the past month and two others are continually out of
stock and haven’t returned to the shelves for more than 2 weeks.
b)
Stock levels of the remaining JE products appear
lower than of late and are being allowed to run out more frequently – this
could of course be a logistics problem with deliveries, but I suspect the
products concerned have been deliberately under-stocked in an attempt to wean
customers off these loss-leader products and onto more profitable lines.
c)
Price rises across the store have risen particularly
rapidly over the last 3 weeks. This has however not been uniform – as also
predicted, the steepest rises have been in the budget ranges. Examples I have
seen recently (prices in GBP; 8.6.23):
JE Cornflakes 500g: 0.70 to 0.85 (+21%; LIDL 0.64, ALDI &
Tesco 0.69)
JE Marmelade: 0.40 to 0.59 (+48%; Tesco)
JE Sliced Loaf (800g): 0.39 to 0.45 (+15%; LIDL & ALDI 0.39)
JE Porridge Oats 1kg: 0.70 to 0.90 (+21%; Tesco 0.75)
JE Instant Coffee Granules: 0.83 to 0.99 (+19.3%)
JE Plain Yoghurt (500g): 0.45 to 0.54 (+22.6%)
Vegetable cooking oil (5 litres): 8.50 to 12.10 (+42.4%; Tesco 8.25 (+clubcard 7.00))
The message from all this, for me at least, is a clear one – ASDA has ditched its more competitive low price approach and is going for ‘profit or bust’ with a view to maximising returns in the short term and increasing the attractiveness of the business for a future buyer.
Their takeover of the Coop's filling station shops may also be part of this strategy. In
common with some other retailers, they are taking full advantage of the 'captive' consumer’s currently enhanced expectations of continued food price hikes to bolster
profits further in advance of the predicted falls in supplier costs this summer. You can be sure prices will remain high for a significant period after supplier costs start to fall....
All this is, as we have seen, at the expense of the environment and its
customers, particularly those who are least well-off and therefore have to
spend an ever-increasing proportion of their hard-earned income on food.
Although this type of behaviour is entirely predictable for an institution
now run exclusively by (and for!) venture capitalists, it will, I suspect, not help them retain customers in the face of the continued onslaught from the
discounters.
Far from it – the goodwill ASDA accumulated under Walmart
management as a reliable and cheap source of groceries during the recent pandemic is
fast evaporating and will take years to reclaim. This is only likely to happen if and
when ASDA finds itself back in the hands of more forward thinking and
community-minded management. Let's hope this happy event occurs sooner rather than later.
In the meantime I would recommend anyone on a tight budget
(i.e. most of us nowadays !) to source their groceries elsewhere – you’ll likely find it
significantly cheaper from now on….
Update 24.6.23: Looks like it's official - at the PM's direction, the Chancellor is himself looking closely at the role of supermarkets in recent excessive price rises. The clear implication is that 'some' retailers are trying to rebuild their profit margins by taking advantage of our expectations of large price hikes. No 'naming and shaming' as yet, though - presumably this would be part of the metaphorical 'stick' for any who refuse to comply with his recommendations.
Apparently the retailers concerned are strongly suspected of failing to pass on reductions in supplier prices, some of whom in turn are failing to take sufficient account of falls in raw material costs in their own pricing (reminiscent of the big banks' current behaviour in failing to pass on interest rate rises to savers after the 10-year savings income famine).
Far be it for me to advocate formal price controls - we saw what happened if you interfere with the market wholesale that way in the 1970s. However, I'm all for using regulation generally as a 'stick' to bring supermarkets and their suppliers to heel on this. Profiteering in the middle of a cost-of-living crisis is unconscionable, and should be stopped - by any means necessary. We should also take a stand as consumers by lobbying our MPs for action and voting with our feet where we suspect individual retailers are guilty of over-pricing.
In their defence, supermarkets claim their profit margins are already 'wafer thin'. Somehow this doesn't really 'ring true' given Tesco's continued bumper multi-billion profits for 2023 announced recently, to quote but one example.
Update 5.7.23: So now we know why the
new ASDA management were so keen to defy the CMA's recommendations and acquire all those
new filling stations & their convenience shops from the Coop....they wanted
a bigger slice of the profits 'cake' that the big four supermarkets have cleverly engineered for themselves by effectively defrauding consumers with higher than necessary fuel prices.
But….as we can see from the numerous news headlines that have hit
our news screens this week, they have finally been rumbled...
The resulting outcry from consumers and regulators alike should
now force the government to do something.
The problem is that this particular government is simply
exhausted and, like most of its electorate, most of its MPs now accept that it is 'not long for this world' and are busy declaring their intent not to stand again and updating their CVs...as
a result it has become extremely risk-averse. Ideologically, it would also far
prefer not to risk any accusations from Labour of imposing price controls,
which are of course anathema to the Tory 'free market' approach (and don’t
usually work anyway). Thus any opportunity to 'kick the can down the road'
again will be eagerly grasped, and I would predict little or no effective
action in the short term to control the profiteers. Let’s hope I’m wrong and they
do finally ‘grasp the nettle’.
One thing is clear, though - we cannot allow cartels of large international companies to take blatant advantage of a cost of living crisis to bolster their
profit margins in UK – apart from the perceived immorality of such behaviour, we all
need to feel the pain of rampant worldwide inflation and high interest rates, shareholders
and company bosses included - not just the hard-pressed consumer.
All of the ‘big four’ food retailing firms concerned are way big enough
to stand a few months of lower profits without any danger of them failing. (Two
of them are under recent new management, which as discussed is probably no coincidence). The
only one on slightly shakier ground financially is of course ASDA, who have recently saddled themselves with a huge additional debt burden that will need to be
serviced at something north of 6% interest for some time to come. How have they
managed this ? Guess what…by buying up all those filling stations and convenience stores….
Neither are their suppliers blameless in all this. An interesting statistic that is currently circulating is that while the average supermarket profit margin is around 3-5%, and has fallen significantly since the start of the crisis, that of the major supplier conglomerates hasn't and has held up at around 14-16% and is not declining. Unilver's £3.3bn profits announcement yesterday with a rise to 17.1% profit margin confirms the trend and dwarfs the margins quoted for the major retailers. Although the conglomerates are now hastening to reassure consumers that 'the worst is past' for price increases, the reputational damage is already done. Thus perhaps we should focus at least some of our ire on this group of faceless behemoths, who clearly have even deeper pockets than the supermarkets...
What can we as individuals do to help ?
My advice
would be to 'vote with your feet' (and in this case your wheels!) and make sure that wherever possible you buy
your fuel and food from the lowest price supplier - this will at least
convince retailers that we mean business on curbing their now-outed
profiteering....
To make the supplier chains feel some of the pain, we should also shun all branded items and buy supermarket own brand regular or price-saver items only wherever possible. Many of us are already doing so, given that the branded items are almost always more expensive. If own-brand and budget items in your store run out (and supermarkets are very adept at understocking these loss-leaders nowadays!), complain to the store manager and the central customer services department. The more complaints they get, the more likely they are to take action.
As a quick postscript, I can’t resist highlighting the fact that
the CMA didn’t take much notice of the original takeover of ASDA by the Issa
brothers from Wallmart for ‘pittance’ of £200M. CMA’s almost tacit approval for this deal is
now being seen by those in high places as a definite failing on their part. It may
have seemed like a good idea at the time, but look how it’s turned out.....
A salutary lesson for the future, perhaps ? More 'teeth' are required for the regulators to do their job properly, I suspect.
We badly need longer-term environmental reform in the food industry, and as an indication of what might be to come here, my eye was drawn recently to a piece on what our european neighbours (notably France) have done about food waste, and planned obsolescence generally. The following link is very revealing and shows that despite his current problems with immigrant uprisings, Macron's government really means business - on waste at least.
Not only is the destruction of all unsold food items prohibited in France by law (and has been since 2016) but electronic equipment manufacturers are required to provide an 'indicator of reparability' for all products sold. Although I'm not the most ardent of francophiles, I have to admit a grudging respect for this approach, which is also becoming widespread in other EU countries. If adopted here it would effectively curtail the planned obsolescence doctrine applied by manufacturers to their electronics.
We would also do well to emulate their food regulations and prohibit disposal of unsold food items - that would certainly make the big four supermarkets think again about their policies on disposing of goods which are reaching their sell-by dates.
Much has been made recently of our UK commitment to net zero and all things environmental. Our PM himself has gone on the record as adopting a leadership role in Europe. I fail to see how we can possibly aspire to this when we can't even match our closest EU neighbour on the practicalities of preventing food waste.....
Update 26.8.24: I hate to say it, but - I told you so....the dire predictions of last year seem to be coming true for ASDA now...and with a vengeance. Even their own CEO, Stuart Rose, is 'unimpressed' with ASDA's performance and has strongly advised the remaining Issa brother (i.e. the one who hasn't yet sold out and taken his profits) to step aside from the running of the business so Rose can try to revive its fortunes. See link for a recent article for more details. Another issue, which could yet turn out to be the 'coup de grace', for this management team at least, is the recent verdict in the NEXT equal pay tribunal, which more or less guarantees that the ASDA shop-floor employees bringing a similar action will also succeed. A big retrospective bill for salaries denied in the past, then, which could run into the hundreds of millions if the claim for retrospective pay is upheld.....
We don't seem to have any mechanism in place to protect our major businesses from this type of corporate exploitation by the hedge funds. I'm all for a free market, but there are limits.....whether ASDA survive in their present form or not, we must find an effective way of protecting our communal assets, so that no one can hijack, and then ruin, them for the sake of a 'quick buck'...
26/7/23
Blog first published 10.5.23
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