Figures published last week reveal that Asda is currently the UK’s worst-performing supermarket, with sales dropping six per cent and the grocer rapidly losing market share. Retail Systems news editor Alexandra Leonards speaks to industry experts to investigate where the retailer is going wrong and how it can begin to win back customers.

Asda has been open about its mission: the company – acquired by the Issa brothers and TDR Capital from former owner Walmart in 2021 – seeks to reposition itself as the UK’s second-largest supermarket with plans to open 300 new convenience stores by the end of 2026.

However, these ambitious plans have suffered a significant blow in recent months. Figures published last week by Kantar reveal that the grocer lost more than one per cent of its market share and six per cent of its sales across the 12 weeks to 4 August. In stark contrast, over the same period Sainsbury’s – which after 11 years in third position overtook Asda in 2015 (save for one month in 2019 when it slipped back into third place) – experienced its highest year-on-year increase in market share since July 1997.

Following its poor sales results, over the weekend Asda told The Sunday Times that it will decelerate its convenience store initiative and cut down spending to focus on its existing stores. The company is backtracking on its expansion strategy, signifying a pivotal moment where it must choose between pursuing growth ambitions and fighting to maintain its current market position. Several factors have led the supermarket chain to this juncture where it struggles to retain its once very loyal customer base.

Stuck in the middle

Sarah Montano, professor of retail marketing at the University of Birmingham’s Business School, tells Retail Systems that because of its position as the third largest supermarket in the UK, Asda is being “squeezed in the middle” by the larger players and the budget supermarkets – particularly the German pairing of Aldi and Lidl which have taken the discount grocery sector by storm since 2020.

“It would be perhaps unfair to say that Asda has done anything wrong per se, but rather that the other supermarkets have considered their strategies and are meeting their customers’ needs better,” explains Montano. “Aldi and Lidl are always going to compete on price and recently Tesco and Sainsbury’s have done well offering tempting loyalty card prices alongside their traditional quality products.”

She says that all retailers must be clear with their customers on what they stand for and who they are, something she feels that Asda is currently missing.

“Asda needs to really think about what they can offer their customers,” continues Montano. “What can a customer get at Asda that they can’t get elsewhere? This is what Asda needs to shout about. It needs to hear and then react to what its customers want – which is a basic of retail.”

Losing connection with shoppers

Tom Wormald, managing partner at Yonder Consulting, which has worked with the likes of Amazon and Marks & Spencer (M&S), agrees that the retailer has “lost its connection” with shoppers, arguing that the company no longer offers Brits a strong enough reason to choose Asda over other supermarket brands.

“If it is to truly reconnect with its customers again, it urgently needs to rebuild its purpose in the minds of shoppers,” adds Wormald. “It has to stand for something, play to its strengths – whether it’s the range of products, offers, or innovation – and give a reason for shoppers to spend their money there in the first place.”

Asda has recently taken some steps to bridge the gap with customers by announcing plans to have more staff working at its checkouts.

“This will be welcomed by many who are fed up with the ubiquitous ‘unexpected item in the bagging area’ refrain,” says The University of Birmingham’s Montano. “Many, particularly older customers, see the supermarket as a place to socialise and talk to someone, so this is a really good start from Asda.”

Wormald agrees that investment on staff at checkouts and moving away from self-service shows encouraging signs of bringing back a more personal feel to the shopping experience.

Asda’s Rewards app

Data shared exclusively with Retail Systems by Similarweb shows that Asda’s Reward app is seeing lesser growth than that of Sainsbury’s Nectar app.

According to the web traffic and analytics company, as of July 2024, monthly active users of the Asda Rewards app across iOS and Android have grown 13 per cent year-on-year to 3.3 million users compared to 31 per cent growth to 4.1 million customers for Sainsbury's Nectar. While Tesco Clubcard saw the least growth over this period, its dominant position in the market – with 9.8 monthly active users – largely negates this.

The figures likely reflect that the UK’s two biggest supermarkets are offering something that Asda simply isn’t providing. While all three retailers are providing discounts based on cumulative spending – which means customers can save on future purchases – Tesco and Sainsbury’s are providing specific discounts on selected products for loyalty members.

Tesco first pioneered this strategy, with Sainsbury’s quickly adopting with its Nectar member pricing. But Asda hasn’t yet rolled out a similar scheme.

Similarweb’s senior insights analyst Daniel Reid explains that Asda is relying on being the most affordable amongst the “branded supermarkets”, where customers can find well-known brands at lower prices, though again this is a quickly evaporating unique selling point.

Reid says that with Tesco and Sainsbury’s enhancing their competitiveness through these rewards schemes, combined with the pressure from Aldi and Lidl forcing all supermarkets to reduce the cost of their own-brand products or introduce budget ranges, price competition is fiercer than ever.

Yonder Consulting’s Tom Wormald warns that while once-upon-a-time Asda’s USP revolved around being the UK’s cheapest supermarket, the company hasn’t really responded to the threat posed by Lidl and Aldi.

This, adds Wormald, highlights the danger of relying on price as the main customer connection.

“The danger is that Asda doubles down on cost reduction, seeking efficiency and process improvement as the route back to growth,” he says. “But this would miss the real problem – or even exacerbate it.”

Reid suggests that the financial leveraging involved in the deal involving Asda’s acquisition from Walmart also limits how aggressively Asda can price its products, which may be contributing to its loss of market share.

The supermarket also ended 2023 with a debt pile of £3.8 billion following its buyout of EG Group last year. Asda acquired the company for around £2.3 billion, taking over its 350 petrol stations and over 1,000 food-to-go locations across the UK and Ireland.

“To regain its footing, Asda might consider levelling the playing field with Tesco and Sainsbury’s by adopting a similar rewards system,” he continues.

Alongside this, Reid suggests that a renewed focus on its core strength – being the cheapest supermarket for branded goods – could help Asda recapture its position in the market.

Mismanagement and staffing woes

Some in the industry are more inclined to blame what they call Asda’s “financial mismanagement” for its declining market share.

GMB Union, for example, recently said that cuts to staff hours have led to lower standards and a loss of customer trust.

The trade union, which has been highly critical of the supermarket in recent years, said that the company’s majority owners TDR Capital were to blame for “heaping” on debt.

Asda has also faced strike action from GMB members over a number of issues, including cuts to hours.

And in an interview with The Telegraph last week, Asda chair Lord Stuart Rose said that he was “embarrassed” by the company’s decline in market share and urged Asda’s co-owner Mohsin Issa to move away from the day-to-day running of the supermarket.

He told the publication that under Issa’s management the company has neglected customers by putting too much attention on Project Future, its £800 million IT project.

“We need a full-time fully experienced retail executive to come in,” added the former- M&S chief executive. “We always said Mohsin was a particular horse for a particular course. He is a disrupter, an entrepreneur, he is an agitator.

"We’ve added a significant number of stores and we’ve changed a lot but it now needs a different animal. In the nicest possible way, Mohsin’s work is largely complete.”

Stealing back customers

With Asda finding itself in a position where it’s not quite dominant or cheap enough, it raises questions about the future of the company. Is it destined for a further decline in market share, or could there be a chance for the supermarket to claw back customers with a new strategy?

“In a competitive supermarket landscape, Asda can either double down on pricing or shift its focus to a more positive customer experience,” says Yonder Consulting’s Tom Wormald. “With competition from cheaper supermarket alternatives like Lidl and Aldi, the former route will be much trickier - and without fundamental changes to its logistical mode and the significant investment this will entail, Asda will struggle to outperform the hyper-efficient discounters at their own game.”

He says that in order to differentiate itself, Asda must focus on improving the in-store experience and finding ways to “reinsert itself” into the minds of consumers.

“Building a deeper understanding of what consumers want from their shopping experience and overlaying that with data it’s acquired through purchase patterns should give it a strong steer,” continues Wormald. “The challenge will be leveraging this insight to drive the changes needed - but without a strong commitment to improving customer experience, Asda’s position on the High Street will only continue to fall.”

Retail Systems appealed to Asda for an explanation of how it plans to address its recent drop in market share, though the grocer declined to respond to our request for comment before publication date. But turning to the company’s most recent financial results give us some clue as to what we may see from Asda over the coming months.

Following a drop in sales in its most recent quarter, Asda said it would focus on improving customer experience, with chief financial officer Michael Gleeson positing that the company has set out “clear and decisive action” to deliver a more consistent customer experience.

The supermarket, for example, has started a £50 million store upgrade programme with the aim of improving the customer experience across 171 stores. Earlier in August, Asda said that changes have already begun at 130 of its stores.

Asda has also said it will invest in improving availability across all categories, including 1,000 core grocery lines “most important to customers”.

Additionally, it plans to invest a further £30 million in worker hours, which it says will improve the replenishment of stock during opening hours in store; increase the number of colleagues on checkouts at the weekend; and provide a more effective cleaning programme in stores.

Finally, the supermarket plans to roll out a new trade plan for the rest of the year – with a key focus on driving increased use of Asda Rewards. It did not say whether this new strategy would involve implementing a pricing scheme similar to that of Tesco and Sainsbury’s.

Asda’s journey to reclaim its market position is fraught with challenges, but not without hope. The retailer’s recent initiatives, such as enhancing customer experience through store upgrades and increasing staff presence at checkouts, are steps in the right direction. However, to truly regain its footing, Asda must differentiate itself by understanding and meeting the unique needs of its customers.

Adopting a competitive rewards system similar to Tesco and Sainsbury’s could be pivotal. while focusing on its core strength of offering branded goods at competitive prices and improving in-store experiences can help Asda reconnect with its customer base.

The road ahead requires a delicate balance between cost efficiency and customer satisfaction. With a renewed focus on these areas, Asda has the potential to not only stabilise but also thrive in the competitive supermarket landscape. Asda is by no means a spent force, but the coming months will be crucial in determining whether these strategies will be enough to reestablish its dominance in a market that is appearing to leave it behind.

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