Despite experiencing a decline in market share, Asda ascribed its increased profitability to its customer loyalty initiative.
The profits of the third-largest supermarket chain in the United Kingdom surpassed £1 billion in 2023, an increase of 24%, during a period when households struggled to meet the cost of living.
Asda reported a 5.4% increase in supermarket sales, which contributed to its bottom line, excluding transportation costs and the impact of opening new stores.
Pretax income increased by 24% from 2022 to £1.1 billion in 2023.
Even excluding petroleum, the value of these total sales reached nearly £22 billion over the course of the year.
Why have profits increased?
The chain attributes this to the approximately six million customers who currently utilise the Asda loyalty programme.
Approximately 50% of total sales are attributed to the Asda reward programme, which the company describes as a “critical revenue generator.”
George, the apparel division of Asda, was already the largest children’s retailer in the United Kingdom, but annual sales increased by 3.4% to £1.5 billion.
In contrast, sales expansion was more sluggish than it had been in the previous year.
High inflation-driven price increases aided Asda’s sales, according to the company’s chief financial officer, Michael Gleeson.
Mr. Gleeson stated that Asda had “made every effort to shield customers from the most severe effects” of inflation and had promised to match the prices of hundreds of products sold at discount competitors Aldi and Lidl.
As a result of these efforts and its increasing sales, Asda continued to fall behind its rivals.
Kantar, an industry analyst, reports that its market share decreased to 13.6%, trailing behind Sainsbury’s and Tesco, due to intense competition from Aldi and Lidl.
What has transpired at the Asda?
By expanding their convenience stores, competitors Tesco and Sainsbury’s “managed to insulate themselves a little bit” against discount retailers, according to Mr. Gleeson.
He further stated, “I believe that was a gap that we needed to fill, and that is precisely what we’ve been doing for the past eighteen months; we now have just under 500 convenience stores.” Asda has been working on this.
In recent years, Asda has acquired fuel forecourts from EG Group and Co-op, thereby facilitating its expansion into the convenience store sector.
Three years ago, Mohsin and Zuber Issa, who were brothers, collaborated with TDR Capital, a private equity firm, to acquire Asda.
TDR holds the remaining ownership stake, while US grocery behemoth Walmart controls 10% and they own 45% of the company.
As a result, Asda was obligated to make interest payments of at least £30 million beginning in February, when the billionaire brothers’ loans utilised to finance their £6.8 billion acquisition of the supermarket matured.
The acquisition of Asda from Walmart, which was financed with substantial debt, attracted censure from Members of Parliament and labour unions.
Bloomberg has reported that Zuber Issa is making arrangements to divest his ownership interest in the company to TDR.
