View from City Road: Asda has the power to prevail
Saturday 18 December 1993
The seasonal gesture, typical of Mr Norman's flair for PR, is meant to underline to staff and customers alike that the revival of Asda, which began the supermarket price war 15 months ago by slashing produce prices, is not simply about price-cutting.
None the less, it must surely be true that price aggression has been a big contributor to Asda's surprisingly strong 9 per cent increase in first-half like-for-like sales growth at a time when the industry saw increases of 1 to 2 per cent. Rearranging the Asda gondolas is one thing, but it can be no coincidence that sales volume in fruit and vegetables jumped 24 per cent.
Productivity gains are absorbing the shock of price cuts. An 8 per cent rise in sales per employee had net operating margins rising slightly from 4.1 to 4.3 per cent despite a near one-point cut in the gross margin.
In view of what has happened, Mr Norman and his team can claim that the first half of the self- imposed three-year recovery programme, designed to withstand tough price competition in an oversupplied market, has been a great success.
Margins only half those of J Sainsbury do not leave Asda well placed for price attrition or indeed a conventional depreciation policy, although write-downs have reduced property values to rock bottom.
Much now will depend on the success of the 'Renewals' programme, an extensive revamping funded from a pounds 200m provision in 1992. This shows every sign of boosting net margins and, despite a relatively low yield of 4.2 per cent against other food retailers, Asda has the earnings power to prevail in an out-of-favour investment sector. Mr Norman, after all, has millions riding on it.
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