ASDA Wal-Mart

This article is part of the Foodspin project of Spinwatch.

Overview

Since 1999 Asda has been wholly owned by Wal-Mart – the largest company and arguably "the most ruthless employer" in the western world. The takeover should be seen as part of a long process - Asda had been mirroring Wal-Mart's strategy for some years before it happened. The takeover has far-reaching consequences for British retail as other companies react to it and find new ways to compete. Therefore, although this was originally conceived as a profile of Asda, it is impossible to write it without continually referring to Wal-Mart. However, the main focus here is on Asda as there is already a proliferation of anti-Wal-Mart information on the internet. See Links, Contacts and Resources section for more references. Also for more general information about supermarkets look at Corporate Watch's profile of market leader Tesco, here: http://www.corporatewatch.org/?lid=252.

Asda has been criticised for misleading advertising, using suppliers who are known to have illegal employment practices, ignoring planning regulations and destroying greenbelt land, lack of serious environmental policy and blatant greenwash. With its 'strategy of consolidation', copied directly from Wal-Mart, Asda pursues an aggressive takeover policy of small towns, wiping out local competition and local jobs. False claims by the company about 'value' and 'convenience', have been challenged, along with the exploitation of every opportunity to push impulse buying.

Market share and importance

Owned by Wal-Mart Stores, the biggest company in the world by value, ASDA is the second biggest supermarket chain in the UK with 17% of the market share. This includes sales of non-food items. Asda overtook Sainbury's in July 2003 (they are now floundering with 16.2% of the market) although it is still a long way off Tesco's almost unassailable 28% market share.

As of June 2004 Asda operated 259 stores and 19 depots, mainly in Scotland and northern England, and employed 122,000 staff or 'colleagues'.

Corporate Watch report that Wal-Mart's total net sales from 2004 came to $256 billion, which was an increase of 12% from the previous year. $47 billion of this came from the international sector, of which 45.6% was from Asda – that's roughly $23 billion.

History and Strategy

Corporate Watch describe how Asda was formed in 1965 by a group of farmers from Yorkshire, and its activities are still mainly based in the north of Britain. It expanded south in the seventies and eighties, in 1989 buying rival chain Gateway's superstores for £705m. This move overstretched the company and it found itself in deep trouble trying to sell too many different products. It came close to going bust and had to raise money from shareholders in both 1991 and 1993.

In 1991 Archie Norman was recruited from Kingfisher as the new chief executive, and Asda returned to its roots as a food retailer, standing out from the crowd by being significantly cheaper than its three large rivals. This was achieved through concentrating on prices instead of loyalty schemes.

The Road to Wal-Mart

"I have long been an admirer and I went on a pilgrimage to Wal-Mart's headquarters in 1994... I came away thinking they had something we have got to have. In many ways I think this is coming home." -- Archie Norman, former Asda CEO

Asda already had one piece of the jigsaw in place - owning larger stores than its rivals. The next step was to copy the 'everyday low price' strategy, concentrating on continuing low prices rather than a series of promotions backed by expensive advertising. That has developed with the 'Roll-back' campaign, again borrowed from Wal-Mart.

After years of mutual fancying, Asda was bought by Wal-Mart – or "became part of the Wal-Mart family" - on 26 July 1999 for $10.8 billion. Since then, Asda claims that it has gained one million new customers. It is converting some stores to Wal-Mart's supercentre format under the ASDA-Wal-Mart banner. The Wal-Mart name first appeared in the UK in July 2000, when the Asda-Wal-Mart super centre opened in Bristol. Two more Asda-Wal-Mart super centres opened in 2000, and it is likely that another ten will open by 2006.

Although the takeover is relatively recent, Asda was following and copying Wal-Mart practice through most of the nineties. So to understand the changes Asda is going through and their consequences we must take a look at Wal-Mart. Planning laws currently make it difficult to develop hypermarkets and Wal-Mart style supercenters in the UK. However, with businesses continually lobbying the government and finding loopholes in planning law, they are not out of the question.

Wal-Mart

"The story of Wal-Mart is ultimately a local story..."

Wal-Mart was founded in 1962 in Bentonville, Arkansas, by the Walton family, who now account for five out of the ten richest people on the planet. Its expansion has been phenomenal. A so called 'strategy of consolidation' smashes local small town businesses, often leaving inhabitants without alternative local retailing outlets. In many ways the story of Wal-Mart reads like a textbook case study of how well a company can do in the current global economic system, and how the rest of the world reacts. H. Lee Scott, the company President, was in 2004 named by Vanity Fair magazine as the most powerful person in the world – above Bill Gates and Rupert Murdoch.

Wal-Mart became ultra-competitive through disrespectful treatment of their associates, even customers, abusing suppliers, using sweatshops and greymarket merchandising. Wal-Mart is infamous for its abuse of workers' rights and has a long and continually updated list of crimes (the company seems to be involved in a number of lawsuits at any given time – for more detail see Corporate Crimes section). In parallel to massive developments of Wal-Mart Supercenters in the 90s, a swathe of anti-Wal-Mart websites appeared as a result of increasing resistance from many sections of society - workers, shopkeepers, customers and non-governmental organisations.

Wal-Mart's international development targets US neighbours (Canada, Mexico, Puerto Rico and Argentina), the countries with the biggest family income (Britain and Germany), and countries with large populations or high population density (China, Korea and Brazil). The company has a policy of acquiring big supermarket chains aggressively, as it did with French hypermarket giants Casino and Auchan, and Japanese supermarket Mycal. For very brief summaries of Wal-Mart's activities in each country, see http://www.kamcity.com/wor/Retailers/walmart.htm.

Europe is one of Wal-Mart's 'strategic growth objectives'. The company's first foothold came with the acquisition of Wertkauf, a German 21-store hypermarket chain, in December 1997. It subsequently purchased 74 German stores from the Interspar chain in December 1998. In Germany, 2000 losses are said to have been over $250 million. Competitors say that the Wal-Mart concept is just not right for the German market. Wal-Mart has had problems with labour relations in Germany. The company refused to sign a collective agreement and to join the employer's association, which led to a strike by subsidiary workers in 2005.

Wal-Mart has said it wants stores in every country in Europe. Asda is thus an important acquisition as a springboard to Europe, but according to Lee Scott, Wal-Mart's chief executive, expansion into the rest of Europe is "not imminent" . Wal-Mart's international division contributes 18% to their total sales, with Asda accounting for nearly half of that.

According to one report, Wal-Mart's next move in colonising the world is likely to be in Russia.

A former Safeway chairman in a recent interview said he was "convinced" that Wal-Mart had looked at Tesco and Sainsbury's before making the deal with Asda, and that he was "glad for UK retailing" that no deal between Wal-Mart and Tesco had been reached.

Wal-Mart sells everything from pharmaceuticals to guns, so no retail sector is safe from its competition. About 60% of sales are non-grocery items. They also sell petrol as a loss leader to attract people to other products – up to 10 cents/gallon cheaper than independent station owners. This is a classic example of the Wal-Mart strategy to push out smaller more traditional specialised businesses through high volume marketing.

The company also sells George, Asda's clothing label, in the U.S.

'Strategy of consolidation'

Walmart's increasing drive for profits and moving into other product markets caused huge food and business 'deserts' in the USA - especially in small towns. Arrivals of Wal-Mart stores are particularly scary because when local business is completely smashed and profits come down (when the incomes of local communities are lowered by the decline of competitive business) the company immediately removes its store to the nearest bigger town. Most of these cases involve removing stores from a couple of smaller towns to one bigger one, hence the name 'strategy of consolidation'. Local business cannot come back to life immediately, so people in the smaller towns are still dependent on Wal-Mart and therefore have to cover much longer distances for their shopping trips. The process thus creates more traffic as well as social dislocation.

Mirroring Wal-Mart Strategy

After restoring its market position Asda engaged in an aggressive price war for market share using its 'every day low prices' marketing line. In 2001 Asda slashed prices by £52 million and announced the first of 400 'Smart Price' food products based on Wal-Mart's new £450m budget brand. In the first five years since being bought by Wal-Mart, Asda's grocery market share has increased fron 13% to over 16% without acquiring any new stores.

In its bigger stores, Asda is following a Wal-Mart strategy of increasing the sales area by removing stockroom space and increasing the non-foods sales area. Massively increasing non-food sales is an area that Asda Wal-Mart has pioneered, leaving other supermarkets running to catch up.

"In 2002, we added 5,000 new general merchandise lines to our range taking the total number of non-food lines up to 12,000, 8,000 of which are sourced jointly with Wal-Mart. These new lines have delivered prices unheard of in the UK market - toasters, kettles and irons for under £8; pillows for less than £2.50; microwaves under £35. Sales growth in non-food items has risen by over 25 per cent since we have expanded the general merchandise range."

Around 30% of Wal-Mart's total US sales come from its 'Speciality' division, which includes vacations, car rentals, hotel discounts, jewellery units, and photo, optical and pharmacy services. Asda is also now expanding into these areas.

Due to the government regulations on out-of-town superstores development Asda, with other retailers, admitted making a change in strategic direction with a new concentration on the high street. On November 16 1999 Asda announced it would take the battle for new store sites back to the high street as out-of-town planning controls would curb the potential for new hypermarket-sized developments. It announced plans to open up to 50 'small' stores concentrating on food and drink by 2004. This Asda Fresh format, involving a £75m investment, does not include clothing. At 25,000 square ft, average stores may only be a quarter of the size of Britain's largest supermarkets and less than half that of many of its own superstores.

So successful was Asda in copying Wal-Mart strategies that the then Asda CEO Tony Denunzio claimed that, "when we were acquired, it was like acquiring a clone."

For some time Asda was the bookies' favourite candidate to take over Safeway. In the event the contract was won by Morrison's, but at the time there was much speculation and fear that if Asda and Safeway had merged, they would be by far the largest supermarket in the UK, leaving not even Tesco with a chance of competing. Asda has also now bought several former Safeway stores. Rumours that Asda Wal-Mart is now poised to take over discount clothing retailer Matalan are being played down.

Resources

• ASDA Wal-Mart: Products and Projects
• ASDA Wal-Mart: Who, Where, How Much?
• ASDA Wal-Mart: Influence / Lobbying
• ASDA Wal-Mart: Corporate Crimes
• ASDA Wal-Mart: Links, contacts & resources