Asda’s sales slump by 2% as debt pressures, competition mount

Asda has experienced a fresh slump in sales, marking it as the worst-performing supermarket chain in the latest 12-week period ending May 12.

According to new figures from Kantar, Asda’s sales dropped by 2%, following a 0.4% decline in the previous 12-week period.

This decline underscores the supermarket’s struggle to boost demand amidst rising competition and a heavy debt burden.

Asda’s market share has also diminished, falling to 13.1% from 13.9% a year earlier, and significantly down from 14.8% in early 2021.

In contrast, rivals Tesco and Sainsbury’s have strengthened their positions, holding 27.6% and 15.1% of the market respectively. Both competitors saw their sales grow by 5.6% in the latest period.

Impact of food price inflation

The data also revealed that overall food price inflation has fallen to its lowest level since October 2021, standing at 2.4% in the four weeks to May 12.

This marks a significant slowdown and indicates that prices are gradually coming under control as the Bank of England aims to cut interest rates.

However, despite this decrease in inflation, Asda’s decline in sales suggests that other factors are influencing shopper behavior.

Fraser McKevitt of Kantar noted,

“Grocery price inflation is gradually returning to what we would consider more normal levels. Typically, an inflation rate of around 3% is when we start to see marked changes in consumers’ behavior, with shoppers trading down to cheaper items when the rate goes above this line and vice versa when the rate drops.”

However, he also indicated that it could take longer for shoppers to revert back to their old habits after nearly two and a half years of spiraling costs.

Financial pressures and debt burden

Asda has been grappling with significant financial pressures since the Issa brothers and TDR Capital acquired the company for £6.8 billion in 2021.

The supermarket’s debt stood at £3.8 billion at the end of last year, and finance costs have surged, rising to £225 million in 2023 from £185 million the previous year.

Earlier this month, Asda refinanced some of its debt to manage these costs better.

Cost-cutting measures and future outlook

In response to its financial challenges, Asda has implemented significant cost-cutting measures over the past 18 months.

This includes reducing working hours for tens of thousands of staff. Despite these efforts, the supermarket continues to face difficulties in boosting sales and retaining market share.

The Kantar figures highlight the need for Asda to find new strategies to compete effectively with its rivals and manage its debt.