UK Food Retailer Strategy: How Asda Lost It's Flywheel

Moving to your experience at Asda, could you give us the context for your experiences as a leader, coming into that business?

In my first few days in the business, I stumbled upon a paper that had been written by Archie Norman, in the mid-90s, called Value Retailing. It was about five or six pages, typed, quite articulate, but quite random, in a sense. His key platform was, we are a value retailer. We are a northern value retailer, who sells basic products – we’ve got some wider ranges – and we sell things that people buy, every day. We have to price competitive on those items, because if we’re not, people will shop elsewhere. For years, Asda had the price position in the market. But clearly, the discounters had come in and were now starting to challenge that and it had got to about 5%. Remember, this was 2010.

I read this statement and the premise of his thinking was, dead simple, everyday low price, cut promotions out. Promotions create a lot of noise in the business, they create a lot of issues in the supply chain, a lot of cost gets driven in, because you’re managing peaks and troughs of volume. Suppliers are having that and they cost that in. They get left with a load of stock, because you don’t want it anymore, because customers haven’t bought into it, to the extent we thought they were going to buy into it. So EDLP is the route to go. Drive down prices, drive up volume. Drive up volume, quid pro quo, drive down costs. Drive down costs, create war chests, reinvest in service proposition number one and more price reductions. It’s a virtuous circle.

That was his premise. That’s what saved the business and that’s why, in my view, Walmart bought into it, in 1999. It was more EDLP than Walmart believes they are. Walmart’s mantra is, save money, live better. I sent my team out and said, we’re struggling; what’s going wrong Volumes are falling. We are under performing in loads of big contracts, where we have got volume rebates with suppliers or we’ve committed to a certain volume. The one that I can clearly remember, is milk. We had committed to 400 million liters a year, with Arla and we were tracking at about 340 million liters. I sent the team out and said, come back to me with the five top volume items, in your category and tell me what the price position is, versus Aldi and Iceland.

20% to 25% price gap. No wonder volumes are going down. What was being done? I’d been in the job six weeks and I thought, do you know what, I’m not going to carry the burden of this issue. I’m going to get it out on the table, but I’m going to tell the business what I think they need to do. It’s linked back to the German’s value proposition. It’s linked back to everything that I’m being told by Walmart and this is what we need to do.

Andy and the board backed me and we spent 250 million on price. Within two months, we’d stopped the leakage to Aldi. The milk, we dropped the price from £1.48 to a £1. It cost us about £100 million to make that decision, but it was the right decision and Walmart supported it. We spent the next three years on a momentum and growth curve, that was just so inspiring. I’d spent a lot of time talking to my team, setting this direction around price and setting the direction around the fact that we’d get position on price, it would give us license to do MPD, to drive up the margins, to enhance the product and make it extra special. We had an off-site day, where I structured the whole day around the principles of good to great. Level five leadership, no ego, humble, getting the right people on the bus, in the right seats, with the message that said, I don’t need to motivate well-motivated people. You’re all well-motivated people. The only thing I can do to you, is piss you off and demotivate you, by my behavior. You know what we need to do. You get on and deliver it and I’ll just keep checking and balancing. I’ll keep doing all the stuff we’ve already talked about, such as questioning, setting the agenda. Never be complacent. Never accept what’s good – good is not great. Keep things simple in all diagrams, structures. I’ll talk a little bit about seven habits, in a minute, because that’s the anchor for me.

I go through the process of seven habits, on a daily basis. I quickly whizz through the seven. Am I behaving like that? Am I doing that, in my interactions? I introduced that, as a concept. I would send out little notes to people saying, have a read of this. What does it mean to you, that humility and legacy? I had a boss, Barry Williams, who’d been my colleague when I joined the business and then became my boss, in 2012. We shared the same view and the vision about what was going to make Asda successful.

At the end of 2013, we hit 17.5% market share; the highest Asda has ever had. That’s a value share. The volume share would have been even greater. But going into 2014, it became clear that there was a different agenda going to be set. Walmart were clearly looking at the profitability of Asda, the potential growth, the margin recovery, versus other opportunities around the world. The pressure was coming on US comps, which was, effectively, what set the Walmart share price. Asda was 8% of the turnover, buried away in the UK. They’d sucked a load of learning out. There was a massive drive to get to 1.1 billion EBIT, for 2015, in the plans. For me, it just went completely against everything that I believed Asda should be doing. It was a massive challenge for me, personally.