New business taxes mean “the consumer is feeling it” as companies pass on their costs to shoppers, according to the boss of Asda.
However, Allan Leighton said the supermarket chain was investing to keep a lid on prices and attract cash-strapped shoppers.
The UK’s third largest supermarket chain, which is at risk of being overtaken by the discounter Aldi, said sales fell by 0.2% to £5.3bn in the three months to 30 June.
The decline was less steep than in the prior quarter after the retailer made a “material investment” in keeping prices down. An 8.6% rise in sales at Asda Express convenience stores and a 2.5% rise in George fashion sales helped to boost the numbers.
Leighton, who returned to Asda as executive chair last year to help turn around the company 20 years after he first rescued it, told the Guardian: “A lot of taxes are hitting down on businesses and that’s flowing through to the consumer and the consumer is feeling it.”
Retailers face a £7bn increase in costs this year, according to the British Retail Consortium, after changes were introduced in April to employers’ national insurance contributions, packaging levies and the legal minimum wage.
“To a degree that’s unhelpful,” Leighton said, with weak consumer confidence making life harder for retailers as taxes and commodity price rises continue to drive inflation. But he said pressure on disposable income also “puts us in a good position” given Asda’s historic reputation for value, which he is trying to revive.
Leighton said he still expected a “material reduction in profit” at the business this year as it intended to invest what he has called “a pretty significant war chest” in keeping prices down and putting more staff on the shop floor.
The company said on Thursday it had cut prices by an average of 22% on more than half its products, with price rises in its stores “significantly lower”. It said product availability was now at the highest in eight years.
Leighton said his turnaround job was on track and that while the task was not harder than he had expected, “it is hard as the business underperformed for a long period of time”.
The company said the sales improvement in the last quarter may not be maintained over the summer because of “temporary disruption with product availability” in stores and disruption to its “online experience” caused by teething problems with the rollout of new IT systems.
after newsletter promotion
Asda, which runs more than 580 supermarkets, nearly 500 convenience stores and 769 petrol forecourts, said it had this week completed a revamp of IT systems to end its reliance on technology provided by its former parent Walmart. The project, which had been planned to be completed by the end of 2024, is thought to have cost close to £1bn, £200m more than initially hoped.
Leighton said he still expected to end the year with sales in growth but he reiterated a forecast that it could take three to five years to revive Asda’s fortunes.
The retailer has been struggling since a £6.8bn buyout by the Blackburn billionaires the Issa brothers and the private equity firm TDR Capital in 2021. TDR now controls the business after buying out one brother, Zuber, while the other, Mohsin, stepped back from in effect running the retailer last year but retains a 22.5% stake.
Asda’s parent group slumped to a near £600m loss last year as sales at the supermarket group fell and the cost of servicing its debt pile increased. Sales at established stores slid by 3.4%.
Asda said it would resume opening new Express convenience stores in early October with a new site in Castleford, West Yorkshire. Up to 20 further convenience sites are scheduled to open in October and November, taking the group’s total to almost 500.