At various points, during recent years, it has been claimed that chief executive of Marks and Spencer/Tesco/Morrisons/Debenhams (delete as applicable) has the “toughest job in British retailing”.
Today, though, it is hard to avoid suggesting that being chief executive of Asda is actually harder than any of those admittedly demanding jobs.
Barely a year after taking over as CEO of the UK’s third-largest grocery retailer, Asda announced on Monday that Sean Clarke is on his way, to be replaced in January by his deputy Roger Burnley.
Image: Sean Clarke leaves Asda at the end of the year. Pic: Asda
It confirms Asda as the British supermarket most likely to chop and change at the top.
Mr Burnley will be Asda’s sixth CEO this century, following in the footsteps of Paul Mason, Tony De Nunzio, Andy Bond, Andy Clarke and Sean Clarke.
During that time, Morrisons has had just four people at its helm and Tesco and Sainsbury’s only three apiece. Tesco, Sainsbury’s and Morrisons have each had various local difficulties at one or other point in that period. Yet all three look like havens compared with Asda.
Mr Burnley’s appointment certainly points to some unusual internal politics at Asda.
In June last year, Andy Clarke was telling Retail Week, the trade publication, that he expected to be succeeded as CEO by Mr Burnley after luring him back to Asda from Sainsbury’s.
Image: Roger Burnley takes the helm at Asda from January. Pic: Asda
A week later, presumably to his surprise, Asda’s American parent, Wal-Mart, announced it had plucked Sean Clarke from running its China operations to succeed him. It was seen as a snub to Andy Clarke.
That Sean Clarke’s departure has been announced, barely a year into him having taken the job, will been by some as an admission by Wal-Mart that it got the decision wrong.
The big problem that both Andy Clarke and Sean Clarke had – and which may also dog Mr Burnley – is that Wal-Mart demands a certain level of profitability from Asda.
Its operating margins of around 5% – compared with 1.5% at Tesco and 2.4% at Sainsbury’s – are the highest in the UK grocery industry. That has been difficult to deliver when Asda’s main point of difference with its rivals is supposed to be its low prices and at a time when a ferocious price war has been intensified by the rapid expansion of the German discounters Aldi and Lidl.
Those margins have been maintained in recent times by efficiency improvements that, in August, saw Asda enter a ‘consultation period’ with more than 3,200 employees across the country and, the following month, announce 300 job cuts at its head office in Leeds.
The doomsday scenario for shareholders in the other big three quoted UK supermarket operators has long been that, one day, Wal-Mart chooses to launch an all-out price war.
David McCarthy, the highly regarded industry analyst at HSBC, suggested last year that, if Asda pressed the “nuclear button” and invested half of its operating margin in price cuts, “a competitor reaction could wipe out almost all industry profitability and would force an industry restructure”.
That looked possible when, just before Sean Clarke’s appointment, David Cheesewright – the Briton who heads Wal-Mart’s international operations – said Wal-Mart was “disappointed” with Asda’s performance and said it was time to switch from protecting profits to protecting market share.
But it didn’t happen. Asda has sacrificed some of its margin in order to cut prices but not to the extent some predicted it might. The supermarket’s like-for-like sales – the measure covering stores that have traded in the same format for at least a year – rose by 1.8% during the second quarter of this year, compared with the shocking 7.5% drop in the same period last year that probably cost Andy Clarke his job, although that was still the weakest performance of the big four.
All the signs are that Asda not only continues to lose market share, not only to the German discounters, but also to a revitalised Tesco.
An explanation for this can be found in the regular price index published by The Grocer magazine. It reveals that, at a time of rising food price inflation, not only has Tesco been raising its prices more slowly than the other major supermarkets for most of the year but Asda has also been raising its prices more rapidly than the sector average. In short, it has not cut prices as aggressively as expected.
Mr Burnley’s big challenge will be in persuading his bosses at Wal-Mart’s home in Bentonville, Arkansas, that he should be given more freedom to cut prices aggressively than his two immediate predecessors enjoyed. His rivals – and their shareholders – will be hoping he fails to.