Asda rolls forwards

Today, Walmart CEO Doug McMillon announced 12,000 new jobs would be created by Asda, over the next five years.

This expansion is in line with the 21% IGD-predicted growth in the food, grocery and drink sector, over the next four years. Asda has over 17% of the grocery retail market so if the market is growing it’s not surprising that ASDA expects to grow too. 12,000 posts only represents 6% of their staff base – which, in turn, will generate an extra £6bn in sales. Not a bad return on investment!

ASDA’s strategy to invest in different retail formats also mirrors the projected areas of major growth in the sector which are online, discounting and convenience.

There isn’t much growth predicted in superstores (8%), in fact Tesco has already announced it is scaling back its plans in this area. But ASDA are proposing 40 new superstores in their latest expansion plans. Coupled with their ambition to grow in locations they are not yet trading in, we can expect the superstores to be in the south or in areas where they can double up as Internet shopping fulfilment centres, with good access to the road network.

Bear in mind that despite the predicted growth in online shopping of 124% by 2014, this will still only represent 10% of the grocery market. The seismic shift that Walmart CEO Doug McMillon referred to earlier today is underway, but like other seismic shifts, such as the invention of the motor car, it will take a while for the full impact to be felt. Widespread car ownership meant retail shifted from town and city centres to out-of-town locations – but it was only in the 1990s that the full impact of out-of-town retailing on town centres was really acknowledged.

Asda is obviously gearing itself up for on-line shopping but I expect this is to ensure its can compete against another worldwide power, Amazon, who already has a slick logistics operation built for online shopping, and is starting to deliver groceries from Amazon vans in the US.

ASDA also needs to keep an eye on the discounters. In 2010 a quarter of shoppers said they would use Aldi, Lidl and the like more often, by 2013 this had risen to a third of all shoppers.

ASDA famously competes on value, so it feels the competition from the discounters more than say a operator like Waitrose. And three weeks ago Morrisons also moved into the discounting territory, taking it head-to-head with ASDA by announcing it was going to cut prices to bring back the shoppers it had lost to the value retailers.

But ASDA is owned by the biggest retailer in the world, Walmart, which has unrivalled economies of scale and power over supply chains. Morrisons may not survive a head-to-head price war against Asda. In which case some of ASDA’s projected growth may, in fact be existing Morrison trade. Exit Morrisons stage left; enter ASDA stage right.

IGD predicts ‘convenience’ to bring the biggest cash growth of any type of grocery shopping-an extra £10bn by 2018, representing a preference to shop ‘little and often’ – in many instances, to complement the big online shop. Only 1% of online grocery checkouts are valued less than £60. Not surprisingly, ASDA are planning to cash in on convenience with 250 new smaller format stores, such as supermarkets or forecourt shops in petrol stations.

The growth of convenience is good news for the high street as long as people can access top up shopping easily or food shopping can conveniently be part of a trip to the town centre for other reasons. Leisure, employment, accessing public services and public transport are all important attractors, which convenience retailing can complement and which, with today’s announcement, is an area ASDA is keen to expand into.

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