Asda appointment reflects confidence in strategy

Asda appointment reflects confidence in strategy

The appointment of long-time Asda executive Andy Clarke as chief executive of the supermarket operator suggests that US parent Wal-Mart is seeking strategic continuity at its UK arm, despite recent admissions that the company's sales growth is falling below expectations. Katy Humphries reports.

Wal-Mart announced this morning (11 May) that it has promoted Andy Clarke to the post of president and chief executive officer, effective immediately.

Clarke, formerly chief operating officer at the UK's second-largest supermarket chain, replaces Andy Bond who announced last month that he will be scaling back his involvement at the company and taking on the part-time role of chairman of the group's executive board.

The appointment of Clarke comes as little surprise to the market, with industry observers widely expecting Wal-Mart to promote either from within Asda's own ranks or the wider company.

With Asda finance chief Judith McKenna ruling herself out of the race and chief merchandising officer Darren Blackhurst quitting the business last week, many came to view Clarke as a relatively safe bet for the top job.

"We have a robust succession planning and talent development process and Andy Clarke has long been identified as a leader,” Wal-Mart president and CEO Doug McMillon explained.

Clarke is a long-time Asda veteran. He has held a variety of management positions having joined Asda in 1992. After a brief stint at clothing retailer Matalan and frozen food chain Iceland between 2001 and 2005, he returned to Asda to serve first as retail director and then COO, a post he has held since 2007.

As Hargreaves Lansdown analyst Keith Bowman tells just-food: “Wal-Mart appear to have gone for a safe and trusted pair of hands.”

Clarke's promotion also seems to confirm that Wal-Mart's top brass is confident that its UK arm is on the right strategic track.

Certainly, Asda is one of Wal-Mart's most profitable international operations. However, concerns over slowing sales growth and declining market share have hounded the UK supermarket group of late.

For the 12 weeks to 18 April, Asda's 2.5% revenue growth was behind Morrison at 6.6%, Sainsbury 4.1% and Tesco's 3.7%, according to Kantar Worldpanel data.

The company also saw its market share dip slightly - falling to 16.9% from 17% a year earlier -  while all three of its major rivals were able to grow share during the period.

Kantar claims that Asda's fortunes have soured because UK consumers are returning to premium products as the country moves out of recession and confidence returns.

“We’re seeing a sustained return to premium buying behaviour, which does not support Asda’s ‘value’ proposition,” Edward Garner, communications director for Kantar Worldpanel, suggests.

Asda has responded by switching its focus from deep discounting and promotions to offering every day low prices and, last month, Asda launched a "cast-iron promise" that consumers will not find their shopping cheaper elsewhere.

However, this EDLP focus could prove a challenge given the promotional nature of the market, RBS analyst Justin Scarborough warns.

“The EDLP focus may be the right thing but while everyone is still promoting strongly and while consumers still search for offers, then Asda has little choice in my opinion but to join in.”

At a recent investor day, management also outlined plans to consolidate Asda's position as the country's number two food retailer and number one in non-food.

The company said that it would open 100 smaller supermarkets and improve its online retail offering over the next five years in a bid to become a stronger multi-channel and multi-format retailer.

In this way, Asda management suggested that it expects to generate sales “ahead of the market” between now and 2015.

Given Asda's detailed plan to drive growth over the next five years, the internal appointment of Clarke suggests that we are unlikely to see any significant shift in the company's strategic direction, at least in the near-term.

In naming Clarke as CEO, Wal-Mart has sent a clear signal of its confidence in Asda's prospects and the ability of the existing management team to deliver on its promises.