Connect with us

Published

on

The air is suddenly full of talk about supermarket price wars.

Some £4.4bn was wiped from the stock market valuations of Tesco, Sainsbury’s and Marks & Spencer on Monday following comments from Allan Leighton, the executive chairman of Asda, on Friday in which he promised the grocer was planning its biggest price cuts in 25 years.

Mr Leighton, who returned to Asda last November, said there was a “war chest” available to Asda and indicated he was prepared to “materially” forego profits in the short term to win back market share.

Money blog: ‘My Deliveroo order was wrong and it refused to replace it. Is that allowed?’

He told The Times: “We have a long way to go. We’re three months into what is going to be three years of really getting the basics of the business right and getting the business to outperform the rest of the industry on a like-for-like basis.

“That’s what restores our market share and profitability. It ain’t going to happen overnight.”

Those remarks are rightly being taken seriously by investors – by the market close on Monday Tesco shares had fallen by nearly 15% since Friday morning and those of Marks & Spencer and Sainsbury’s by 10% and 9% apiece.

That is because nobody, arguably, knows Asda better than Mr Leighton.

What’s gone wrong at Asda?

It was he, along with current Marks & Spencer chairman Archie Norman, who rescued Asda from collapse in the early 1990s before selling the business to US giant Walmart in 1999.

Initially, that transaction appeared to go well, with Asda wresting the number two slot in the UK grocery market from Sainsbury’s in 2003.

But Walmart’s insistence on preserving margins gradually saw its share eroded and the number two slot recaptured by Sainsbury’s.

By 2019, it was clear Asda was no longer regarded as a core asset by Walmart. That was the year an attempt was made, blocked by competition regulators, to merge the business with Sainsbury’s.

Worse was to follow.

In October 2020, Walmart offloaded a majority stake in the grocer to the petrol forecourts billionaires Mohsin and Zuber Issa and the private equity firm TDR Capital.

The debt taken on during the takeover blunted Asda’s competitiveness and resulted in it losing market share – mainly to Tesco and Sainsbury’s but also to the German hard discounters Aldi and Lidl.

It went through a series of managers before TDR Capital bought out Zuber Issa in June last year to take a majority 67.5% stake while Mohsin Issa, who retains 22.5% of the business, relinquished the day-to-day running of the business.

A new era

Cue the return of Mr Leighton.

Within weeks, after Asda was the worst-performing supermarket over the Christmas period, he had announced a ‘Big Jan Price Drop’ price-cutting campaign which saw average price reductions of 26% on selected products.

That was dismissed by rivals, most notably Ken Murphy, the chief executive of market leader Tesco, as not representing a genuine price war.

Mr Leighton’s response has been to reintroduce the ‘Rollback’ price-cutting promotions he and Mr Norman introduced in the 1990s in a bid to revive the spirit of the old ‘That’s Asda Price’ campaigns, complete with shoppers patting their back pockets, backed by heavy newspaper and television advertising.

It is being seen by industry experts as a wider price-cutting initiative than the more limited campaign Asda had been running to ‘price match’ Aldi and Lidl.

While the price cuts are the most eye-catching initiatives, so far as consumers will be concerned, Mr Leighton has also spent £43m on extending opening hours for some stores and has also bolstered his management team.

The most important hire was David Lepley, the group retail director at Morrisons, who was appointed in February as chief supply chain officer – a recognition that Asda needed to sharpen up on its product availability.

Can the new boss work his magic again?

The big question many in the industry have is whether Mr Leighton – who has since leaving Asda in 2000 had a spell as chairman of the Co-op – can work his magic again.

The grocery market now is very different from the one in the 1990s when Tesco was only in the foothills of the explosive growth it was later to enjoy, first under Lord MacLaurin and then under Sir Terry Leahy, while Sainsbury’s was going through a fallow period.

Morrisons, which acquired the old Safeway chain in 2004, was also a much smaller business than it is today.

Moreover, in the 1990s, the hard discounters Aldi and Lidl – who entered the UK in 1990 and 1994 respectively – had a miniscule market presence.

Hard discounting in grocery retail was also less developed than today with the old Kwik-Save chain its leading exponent.

In other words, the climate was ripe for a player like Asda to seize share with big, well-targeted price cuts, snappy advertising and, crucially, excellent product availability.

Compare that with today.

A different time

Tesco’s market position is as dominant as it has ever been while Sainsbury’s is a strongly entrenched number two in the market and a revived Morrisons, under Rami Baitiéh, has also returned to growth.

Aldi and Lidl, although the former has recently seen its market share slipping, also remain formidable competitors.

Tesco and Sainsbury’s, who have benefited more than anyone from Asda’s travails, have the most to lose in the event of a turnaround. But they are also better placed than anyone else to withstand one: Tesco’s Clubcard is arguably the world’s most successful supermarket loyalty and rewards scheme and provides the grocer with data and insights that no one else has, enabling it to react rapidly to changes in the market or to shopper habits.

Read more:
The town where almost a third are economically inactive
The way economic data is collected is changing – here’s why it matters

Sainsbury’s is trying to do something similar with Nectar, while both schemes are increasingly able to personalise offers to individual customers, entrenching loyalty.

That may become even more important if, as Simon Roberts, Sainsbury’s chief executive, asserts, the ‘big weekly shop’ is becoming more important as working from home becomes less common.

Tesco and Sainsbury’s sharper than they used to be

As the renowned sector watcher Clive Black, analyst at investment bank Shore Capital puts it: “We need to remember that the listed players are better grocers than Asda with a broader customer set, stronger balance sheets and a will to remain competitive”.

He points out that, apart from the advantages bestowed by their loyalty programmes, Tesco and Sainsbury’s are sharper on price than they used to be, are able to price-match Aldi meaningfully and offer better ranges and more choice than both the German pair and Asda.

That view is shared by the retail team at brokerage Jefferies which has questioned whether Asda’s price cuts can deliver the increase in grocery volumes in the time it requires without a fresh injection of capital from shareholders.

What about consumers?

Will this be good news for consumers? Possibly.

But the grocery sector will be hit hard by the forthcoming increase in the national living wage and, more especially, the rise in employer’s national insurance contributions announced by Rachel Reeves, the chancellor, in her autumn budget.

Those measures will not only push up the costs of supermarkets but also those of their suppliers. Those higher costs will at least be partly passed on to customers.

So too will be the cost of implementing new recycling regulations due in October.

And, all the while, food price inflation is picking up in staples such as eggs, milk and butter. The British Retail Consortium is expecting food price inflation to be north of 4% during the second half of this year.

Accordingly, while Asda’s price war may bring some relief, it feels more likely at present as if it will merely result in lower price rises than British shoppers would otherwise have experienced rather than an outright drop in prices across the board.

Continue Reading

Business

Woman and three teenagers arrested over M&S, Co-op and Harrods cyber attacks

Published

on

By

Woman and three teenagers arrested over M&S, Co-op and Harrods cyber attacks

Four people have been arrested by police investigating cyber attacks targeting M&S, Co-op and Harrods.

A 20-year-old woman and two males, both aged 19, and a male aged 17, were detained in London and the West Midlands this morning as part of a National Crime Agency (NCA) operation.

They were arrested at their homes on suspicion of Computer Misuse Act offences, blackmail, money laundering and participating in the activities of an organised crime group.

Money blog: Cost of renting over owning home is a lot

Electronic devices were seized from the suspects and are currently being analysed by forensic experts.

M&S halted online orders, and shelves were empty in shops after the cyber attack on the retailer earlier this year.

The initial hack into the retailer’s systems took place in April through “sophisticated impersonation” involving a third party.

More on Cyberattacks

Disruption is expected to continue at the retailer until the end of this month.

Please use Chrome browser for a more accessible video player

Mickey Carroll in May answered why M&S cyber attack was so bad.

The Co-op and Harrods were also subsequently targeted by hackers.

Paul Foster, head of the NCA’s National cybercrime unit described the arrests as a “significant step” in their investigation, which remains “one of the Agency’s highest priorities”.

He added: “…our work continues, alongside partners in the UK and overseas, to ensure those responsible are identified and brought to justice.”

The National Crime Agency is keen to “signal” to “future victims” the “importance of seeking support and engaging with law enforcement”, stating that “the NCA and policing are here to help”.

The NCA has also thanked M&S, Co-op and Harrods for their support in their investigations.

The arrests, which took place early on Thursday morning, were supported by officers from the West Midlands Regional Organised Crime Unit and the East Midlands Special Operations Unit.

Earlier this week, the chairman of M&S told MPs that the hack had been “traumatic” and like an “out-of-body experience”.

Follow The World
Follow The World

Listen to The World with Richard Engel and Yalda Hakim every Wednesday

Tap to follow

Archie Norman, however, refused to be drawn on whether the retailer had paid any ransom.

“We are not discussing any of the details of our interaction with the threat actor, including this subject, but that subject is fully shared with the NCA,” he said.

It is estimated that the cyber attack will cost M&S up to £300m this year.

Read more:
South West Water agrees to pay £24m for wastewater failures
Royal Mail to scrap second-class post on Saturdays and some weekdays

Days after M&S was attacked, the Co-op was targeted and forced to shut down some internal systems.

Harrods was then hacked, and also had to shut some systems despite its website and shops continuing to operate.

Of those arrested, a 17-year-old British male and a 19-year-old Latvian male were from the West Midlands.

A 19-year-old man was from London and a 20-year-old woman from Staffordshire.

Continue Reading

Business

US-listed Ulta Beauty swoops on high street chain Space NK

Published

on

By

US-listed Ulta Beauty swoops on high street chain Space NK

A New York-listed company with a valuation of more than $21bn is to snap up Space NK, the British high street beauty chain.

Sky News has learnt that Ulta Beauty, which operates close to 1,500 stores, is on the verge of a deal to buy Space NK from existing owner Manzanita Capital.

Ulta Beauty is understood to have registered an acquisition vehicle at Companies House in recent weeks.

Money blog: Top chef reveals thing he hates about customers

The exact price being paid by Ulta was unclear on Thursday morning, although one source said it was likely to be well in excess of £300m.

Manzanita Capital, a private investment firm, engaged bankers at Raymond James to oversee an auction in April 2024.

The firm has owned Space NK for more than 20 years.

More on Retail

Manzanita has also owned the French perfume house Diptyque and Susanne Kaufmann, an Austrian luxury skincare brand.

Read more from Sky News:
Royal Mail to scrap second-class post on some days
Warning a pub a day to close this year

Founded in 1993 by Nicky Kinnaird, Space NK – which is named after her initials – trades from dozens of stores and employs more than 1,000 people.

It specialises in high-end skincare and cosmetics products.

Manzanita previously explored a sale of Space NK in 2018, hiring Goldman Sachs to handle a strategic review, but opted not to proceed with a deal.

None of Ulta, Manzanita, Space NK and Raymond James could be reached for comment.

Continue Reading

Business

Royal Mail to scrap second-class post on Saturdays and some weekdays

Published

on

By

Royal Mail to scrap second-class post on Saturdays and some weekdays

Royal Mail is to be allowed to scrap Saturday second-class stamp deliveries, under a series of reforms proposed by the communications regulator.

From 28 July, Royal Mail will also be allowed to deliver second-class letters on alternate weekdays, Ofcom said.

The post will still be delivered within three working days of collection from Monday to Friday.

Money blog: Top chef reveals thing he hates about customers

The proposals had already been raised by Ofcom after a consultation was announced in 2024, and the scale back was proposed early this year.

Royal Mail had repeatedly failed to meet the so-called universal service obligation to deliver post within set periods of time.

Those delivery targets are now being revised downwards.

More from Money

Rather than having to have 93% of first-class mail delivered the next day, 90% will be legally allowed.

Please use Chrome browser for a more accessible video player

The sale of Royal Mail was approved in December

The target for second-class mail deliveries will be lowered from 98.5% to arrive within three working days to 95%.

A review of stamp prices has also been announced by Ofcom amid concerns over affordability, with a consultation set to be launched next year.

It’s good news for Royal Mail and its new owner, the Czech billionaire Daniel Kretinsky. Ofcom estimates the changes will bring savings of between £250m and £425m.

A welcome change?

Unsurprisingly, the company welcomed the announcement.

“It is good news for customers across the UK as it supports the delivery of a reliable, efficient and financially sustainable universal service,” said Martin Seidenberg, the group chief executive of Royal Mail’s parent company, International Distribution Services.

“It follows extensive consultation with thousands of people and businesses to ensure that the postal service better reflects their needs and the realities of how customers send and receive mail today.”

Citizens Advice, however, doubted whether services would improve as a result of the changes.

“Today, Ofcom missed a major opportunity to bring about meaningful change,” said Tom MacInnes, the director of policy at Citizens Advice.

“Pushing ahead with plans to slash services and relax delivery targets in the name of savings won’t automatically make letter deliveries more reliable or improve standards.”

Acknowledging long delays “where letters have taken weeks to arrive”, Ofcom said it set Royal Mail new enforceable targets so 99% of mail has to be delivered no more than two days late.

Changing habits

Less than a third of letters are sent now than 20 years ago, and it is forecast to fall to about a fifth of the letters previously sent.

According to Ofcom research, people want reliability and affordability more than speedy delivery.

Royal Mail has been loss-making in recent years as revenues fell.

Read more from Sky News:
Greater risk to UK economy from Trump tariffs, BoE warns
What is a wealth tax and how would it work?

In response to Ofcom’s changes, a government spokesperson said: “The public expects a well-run postal service, with letters arriving on time across the country without it costing the earth. With the way people use postal services having changed, it’s right the regulator has looked at this.

“We now need Royal Mail to work with unions and posties to deliver a service that people expect, and this includes maintaining the principle of one price to send a letter anywhere in the UK”.

Ofcom said it has told Royal Mail to hold regular meetings with consumer bodies and industry groups to hear their experiences implementing the changes.

Continue Reading

Trending