Asda needs to “dig down into its soul” and reshape its pitch to customers if it wants to tackle the rising threat from the likes of Aldi and Lidl following a rollercoaster 2024, analysts have warned.
The Leeds-headquartered supermarket giant has not been far from the headlines all year amid debt struggles, strikes, falling sales and becoming majority owned by private equity giant, TDR Capital.
In recent months, Asda has also had a change of senior leadership and ordered staff at its headquarters back into the office as it cut 500 roles.
With 2024 fading in the rear view mirror, City AM has taken a look back at Asda’s tumultuous year and asked industry experts about what could be around the bend in 2025.
A challenging 12 months for Asda in 12 points
Then-minority owner TDR Capital was hauled in front of a parliamentary committee in January as the supermarket braced for historic strike action.
Later that month, it was revealed that EY had quit as the supermarket’s auditor.
In February, it was first reported that Zuber Issa was considering offloading his stake in Asda.
In March, Mohsin Issa confirmed he will be stepping back from the day-to-day running of the business.
Later that month almost 10,000 Asda employees received incorrect payslips following an IT glitch.
In April, a report claimed that Asda’s bosses ploughed ahead with a transition onto a new payroll even though they were warned that doing so could risk thousands of workers being paid incorrectly
The following month, Asda made a move to try to push its debt worries into the next decade after it refinanced more than £3.2bn of what it owed.
In June, Zuber Issa announced he will sell his 22.5 per cent stake in Asda to TDR Capital which would make them the majority owner, controlling 67.5 per cent of the company in the third quarter of 2024.
It was also named as the UK’s most expensive supermarket fuel retailer ahead of rivals Tesco, Morrisons and Sainsbury’s.
In September, it was announced that Lord Rose would succeeded Mohsin Issa as CEO and be supported by TDR Capital’s Rob Hattrell.
In November, Asda announced that staff were expected back in the office at least three days a week as the firm began cutting head office jobs in an attempt to halt the supermarket’s decline.
It also brought back retail industry veteran Allan Leighton as its executive chair, replacing Lord Rose.
Supermarket needs to ‘figure out what it has that appeals to shoppers’
Addressing Asda’s 2024 Danni Hewson, head of financial analysis at AJ Bell, said she didn’t think that anyone associated with the supermarket chain would look back on the year with “anything other than consternation”.
She added: “To put it kindly, sales have been soft, it’s lost market share and it’s had to look backwards as it struggled to plot a course for its future.”
Hewson also said that while from from the outside the UK supermarket sector might look like a “shiny apple ripe for nibbling on, but the reality is margins are wafer thin, competition is fierce and customers savvy, especially at a time their own budgets are under pressure”.
She said: “It’s no accident the company’s former CEO has been drafted in as chair whilst another retail stalwart sticks around as the company keeps hunting a new head honcho.
“Allan Leighton and Stuart Rose have ample experience between them, but they’re both also keenly aware that the game has changed.
“It’s not enough for Asda to be the cheapest traditional supermarket around, Asda prices don’t look as alluring when the discounters are doing it cheaper.
“Asda needs to dig down into its soul and figure out what it has that appeals to shoppers, what breeds loyalty, and then supercharge it.
“It has had to deal with some specific challenges over the past year and falling inflation will help, as will drawing a close to the headache of separating its technology from that of former owner Walmart.”
National Insurance rise ‘will hurt’
Hewson also said that the increase in National Insurance contributions, announced in the government’s October Budget, “will hurt” but it will also hit Asda’s competitors as well.
She added: “Anyone who ever had the chance to see inside the operations room in Leeds during the US retailer’s tenure can attest that it had more than a passing resemblance to the bridge of the Starship Enterprise.
“Putting that to bed will allow more time to be spent focusing on the actual art of selling stuff and Asda is still at number three in the market.
“‘Must do better’ would be the comment on its report card, and with acceptance on every level that that’s the case, 2025 could be a real turning point.”
‘A potential case of round pegs in square holes’
Dr Gordon Fletcher, associate dean or research and innovation at University of Salford’s Business School, has said that despite Asda starting 2024 off the back of a strong Christmas, people had started to buy elsewhere.
He added that issues such as worker tensions and pay disputes drew attention to the company throughout the year.
Dr Fletcher also pointed to the relationship between the billionaire Issa brothers and TDR Capital ahead of the private equity giant becoming Asda’s majority owner.
He said: “Asda started 2024 off the back of strong Christmas and a commitment to price match against Aldi and Lidl.
“As the annual figures rolled out in April there was evidence of an underlying £1bn profit, but
this good news was against indications of a reduced share of sales in comparison to Tesco and
Sainsbury’s.
“People were buying elsewhere even if the company had restructured itself to reduce the
cost of making a sale – less staff, less overheads, changes in suppliers.
“Changes the company introduced included questions about its underlying debt burden that was the result of the private equity purchase initiated by the Issa brothers.
“But there were issues in this relationship too. By June, TDR Capital had announced that it was buying Zuber Issa’s 22.5 per cent share in the company and lifting its own stake to majority ownership with 67.5 per cent of the shares.
“Zuber was moving his attention to EG and away from Asda.
“August saw reports of a further decline in sales and a combination of messages making a
commitment to delivering both value and quality.
“A potential case of round pegs in square holes.”
What does Asda have to do in 2025?
Dr Fletcher added that “To make matters worse”, a dispute around an equal pay claim that started ten years ago also focused negative attention on the company”.
He said that Asda workers walking out in some stores, “complaining about decreasing hours, unsafe working conditions and a bullying management culture” was an “indicator of internal change focusing on cutting costs”.
On Asda’s 2025, he added: “The hope is that changes in the retailer and its fortunes can help it address these debts when they fall due.
“Asda’s prospects for 2025 can be compared to a race. The retailer needs to complete its current
change and present a clear offering to consumers that makes a clear – and good – offer.
“Is Asda competing head-to-head on price with Aldi and Lidl or presenting an offer based around quality – and all the complexities that brings? The race is real.
“Without improvements in trading the reality of the debt burden looms ever closer.
“As a private equity company, it is in TDR Capital’s best interests to place Asda in the best possible light for their ‘buy to sell’ strategy.
“What choices are ultimately made to improve the profitability of a sale of the company will be pivotal for Asda’s future – but what this means for its workers and customers may be quite a different prospect.”