Asda steps up price war with new pharmacies
Friday 28 June 1996
Asda stepped up its campaign for cheaper basic healthcare products yesterday when it announced it was buying 10 pharmacies that would be added to Asda stores. The deals mean Asda will have pharmacies in half its 207 outlets, all of which will stock the cheaper Asda brand of vitamins, minerals and paracetamol.
The announcement came as Asda unveiled a 24 per cent increase in profits to pounds 304m and said it was still undecided on the launch of a nationwide loyalty card. Asda has been testing a card in 18 stores for more than a year but is now the only one of the big four chains without a nationwide scheme.
Asda chief executive Archie Norman said the company had the technology to launch a card but had not decided whether or when to strike: "I'm not interested in putting prices up today just to give someone vouchers in three months time," he said. "But we do recognise that loyalty cards have something to offer. Their day will come."
Mr Norman said Asda would continue its campaign against resale price maintenance on non-prescription medicines in spite of opposition from smaller pharmacists who say independent operators may be forced out of business. "We calculate that this is costing the British public some pounds 300m per annum and that 80 per cent of this goes in excess margin to major suppliers and multiple retailers."
After successfully attacking the Net Book Agreement which collapsed last year, Mr Norman said the company would seek other areas where Asda could offer lower prices. Though the company would not be drawn on its next area of attack, it refused to rule out that compact discs may be a target.
Asda revealed that its book sales had increased by 50 per cent since the collapse of the NBA. Its entertainment sales, which include compact discs, have now reached pounds 100m. Asda now claims it is the UK's fifth largest entertainment retailer, just behind WH Smith.
Asda's profit figures mark the beginning of Asda's like-for- like sales improved by 12 per cent last year, the best performance in the sector. With growth rates like these the management question whether a loyalty card is necessary. Mr Norman said that demand was slightly higher and that the trend was expected to continue through the year. "There is more cash around in the household budget."
Asda's meat sales increased in spite of BSE though petrol profits were dented by the price war. Gross margins were reduced by just under 0.5 per cent to help drive sales. A similar reduction is expected this year.
Apart from petrol where the price war has stripped away almost all of Asda's fuel profits, other disappointing areas included the clothing range where buying mistakes and the weather led to disappointing first-half sales. However, the company still intents to make the George brand second only to Marks & Spencer in terms of sales.
Asda plans to add eight new superstores this year, compared with the previous year's seven. The expansion should add another 3,000-4,000 jobs to the current army of 75,000. Asda hopes to replace its card based "clocking on" system with a swipe card equivalent that will be more accurate and efficient.
Asda has invested pounds 24m of a planned pounds 70m investment on new technology. This includes sales-based ordering which has been introduced to 19 stores so far.
The share option scheme will be extended to another 10,000 staff, taking the total to 41,000. Asda also plans to increase the penetration of its own brand from 34 per cent to 40 per cent of total sales by 1998. In 1995/96, 2,000 own-brand products were launched. a new range of fruit juices is the next to be added.
Group sales increased from pounds 5.7bn to pounds 6.5bn. The dividend was increased by 20 per cent to 2.65p. Asda shares closed 4p down at 114p.
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