ASDA Expands to Win Greater Share of Retail Market

ASDA, the British Supermarket chain owned by Wal-Mart, has announced the creation of over 12,000 UK shops in the next five years. Employing 172,000 people in Britain, it is currently competing with Sainsbury’s for the second-biggest share of the retail market, but has been forced to adapt to new challenges from rising low-cost budget stores. 

Aldi and Lidl have led the way in terms of competition for the retail market. Aldi is just coming off a record a 35.3% growth, increasing its market share to 4.6%. Lidl’s strong growth has also seen its market share expand to 3.4%. Adapting to this fierce competition has been a challenge for ASDA, which invested £1 million (US$1.67 million, April 2014) to bring down prices in an attempt to compete, harming its sales;chief executive of ASDA Andy Clarke points out that fourth quarter sales, were down 0.1%.

The rise of Lidl and Aldi has also impacted other dominant market players: Tesco, Sainsbury’s and Morrisons have all seen a decline in market share, although Tesco still dominates, with 28.6% of the market share. Sainsbury’s recently reported its first fall in sales for nine years and although chief executive Justin Kang attributes this to falling food inflation and poor weather, greater competition from low cost competitors in Lidl and Aldi, and a potential price war are likely to have played a part. On top of this, of the big four competitors, evidence suggests that ASDA’s market share was the most resilient, while Morrisons has lost out the most.

‘Seismic shift’ in retail market

Since acquiring ASDA 15 years ago, Wal-Mart has invested £8 billion (US$13.37 billion) into the UK economy, created over 100,000 jobs and opened 342 new shops. Mr. McMillon’s decision to increase the pace and invest in new stores comes in response to “a seismic shift in the structure of the retail market is under way…not just in the UK, but right across the world”. Indeed, ASDA’s desired growth for the next five years is nothing less than seismic. Customers can expect 12,000 new jobs, 40 new conventional superstores and 100 new supermarkets, 150 forecourt shops.

Other major players are pulling back. Sainsbury’s , ASDA’s strongest competition for the second largest market share and Tesco, which possesses the strongest market share, are both pulling back on new store construction. Tesco is looking to cut back its capital spending to $2.5 billion (US$4.18 billion) for the next three years and to do so it needs to cut costs somewhere. In response, it will focus more heavily in online and convenience channels, improving existing stores.

However, Wal-Mart’s strategy is not simply a response to these ‘seismic shifts’; it seems to be a strategic decision. New stores are to be located in areas of southern England where there is poor market penetration in order to expand its physical presence.  Will this be enough to secure and expand market share? That all depends on whether the rise of low-cost retailers continues on their current trends. One thing is for certain, the retail market is changing and Wal-Mart is making a concerted effort to continue to stay ahead of the game.