ASDA Group plc - Company Profile, Information, Business Description, History, Background Information on ASDA Group plc

ASDA House
Great Wilson Street
Leeds LS11 5AD
United Kingdom

Company Perspectives:

Our mission is to be Britain's best value fresh food and clothing superstore, meeting the weekly shopping needs of ordinary working people and their families who demand value.

History of ASDA Group plc

In the late 20th-century race to fill Great Britain with large, brightly decorated supermarkets, ASDA Group plc has the unique distinction of being both an innovator and a latecomer to the field. ASDA introduced the concept of the "superstore' as early as 1965 and has never operated anything but these behemoths of the food-retailing world (a superstore is defined as one with 25,000 square feet or more of selling area). But it was not until the mid-1980s that ASDA began upgrading its warehouse stores to meet the standards of design appeal and fresh-food selection set by its major competitors. By the late 1990s the group had approximately 220 superstores, with the average size of these units on the increase as ASDA moved toward new, larger formats--Market Hall superstores and hypermarkets. ASDA by that time had also completed a 70-year metamorphosis from dairy cooperative to supermarket giant--the United Kingdom's third largest food retailer on a market share basis. But in early 1999 ASDA and Kingfisher plc--a major European multicategory retailer, based in the United Kingdom--announced that the two companies would merge, an event that would bring to a close ASDA's existence as an independent firm.

Dairy Origins

The origins of the ASDA Group are to be found in the efforts of English dairy farmers to protect themselves from falling milk prices after World War I. When wartime price controls were lifted and England began once again to import large quantities of European dairy products, local milk prices fell sharply and showed every sign of continuing to do so. Various legislative remedies were devised, but in the meantime a Yorkshire dairy farmer named J.W. Hindell led a number of his fellows in the creation of Hindell's Dairy Farmers Limited, a 1920 partnership whose purpose was to acquire or build both wholesale and retail outlets for their milk, in that way securing for themselves a steady market and a floor price.

During the next 25 years, Hindell's assembled a wide variety of dairy businesses, founding or purchasing a total of nine operating companies involved in everything from the raising of dairy cattle to the processing and distribution of milk and milk products, as well as the promotion of numerous cafés, retail milk shops, and bakeries.

By the time of World War II, Hindell's, headquartered in Leeds, had extended its interests across the Midlands and diversified as far as meatpacking and even the quarrying of lime. The partnership became a public company in March 1949, as Associated Dairies and Farm Stores Limited, which included some 26 farms, three dairies, two bakeries, 42 retail shops, and pork-butchering facilities. With 1,200 employees, Associated was already an important part of the relatively quiet economy of northern England.

Entered Retailing in 1965

The next 20 years saw a veritable blizzard of further acquisitions by Associated. Dairies and creameries too numerous to mention became part of the rapidly growing northern conglomerate, but beyond expanding profits, little changed at the company until 1965, when Associated created a subsidiary called ASDA Stores Limited. In that year, the parent company, by then known as Associated Dairies Limited, with sales of £13.5 million, was highly profitable and probably did not much concern itself with the tiny food-stores division, which at best could be expected to fill one more niche in the company's overall business plan.

As it turned out, however, the stores were an immediate and immense success. Associated had come up with a merchandising concept entirely new to England, and well-tailored to the working-class cities in which it chiefly operated: the company opened extremely large, rather spartan stores in abandoned warehouses or mills, offering to the public a limited selection of goods at the lowest possible prices. These "edge-of-town' stores depended for their success on the rapid proliferation of the automobile in Great Britain and the accompanying decline in local consumer loyalties. As in the United States, the British public soon decided that it cared less about neighborhood vendors than low prices, and the automobile allowed them to act on their preference. Associated's warehouse stores were an enormous success, and the company quickly set about the program of expansion that would make it one of the leading retailers in the country.

The company thus found itself milking two kinds of cows, dairy and cash, and the latter naturally proved the more attractive as time went on. Associated continued to add to its dairy holdings, but it was apparent by the early 1970s that the ASDA Stores division would soon dwarf its parent. At that time, the stores were still operated in a rudimentary fashion, with little centralized administration, primitive marketing, and no attempt at attractive floor displays. But ASDA had pioneered not one but two new ideas in British food retailing, the edge-of-town location and the superstore size, and for a long time had the market to itself.

The company opened stores in Scotland and Wales, and began casting about for opportunities to invest its growing cash reserves. In 1972 ASDA entered the travel agency business, in 1977 it had a go at furniture with its purchase of the Wade's stores, and at various times in the decade it tried its hand at a number of other diversions, none of them successful and all of them eventually disposed of. But longtime chairman Noel Stockdale could hardly be concerned about these minor setbacks; quite reasonably, he did not try to fix what was not broken, but continued building more superstores across the northern half of the country. By 1978 ASDA had 60 of these, and two years later they passed the £1 billion sales mark.

Increased Competition Led to Mid-1980s Overhaul

However, the rest of the marketplace had not stood still in the meantime. With ASDA's runaway success as a model, the established grocery chains began building similar superstores at out-of-town locations, while London-area stores discovered that low prices were not enough to please more sophisticated shoppers. These shoppers wanted pleasant surroundings as well as low prices, and they soon got both in the more luxurious superstores opened by ASDA's rivals. As a result, by the early 1980s the ASDA format of high volume, low price, and no frills had come to seem dated and unappealing. Customer loyalty, never strong in the economy store sector, shifted away from ASDA toward the chains more in tune with the new wave of unabashed materialism in Thatcher's England, leaving the Yorkshire firm in danger of an early death. In a period when everyone had a superstore, ASDA's were decidedly less "super' than the rest.

Such, at any rate, was the diagnosis of John Hardman when he became managing director of stores in June 1984. Though the company was in the midst of a profitable, £1.76 billion sales year, Hardman understood that the market had moved ahead of ASDA and would soon leave ASDA floundering in its wake. Hardman therefore proposed a radical repositioning of the ASDA chain, to include several improvements. First, ASDA would adopt a completely new look for all of the stores, replacing their stacked-carton, industrial brown decor with a new, appetizing green palette, dramatic lighting, dropped ceilings, and imaginative display racks. Second, the chain would introduce its own "ASDA Brand" line of foods, since private-label merchandising generally yields substantially higher gross margins. Third, the stores would install an EPOS system--electronic point of sale registers&mdashø provide more efficient records and inventory control. Fourth, the company would build a centralized network of distribution warehouses, eliminating the scores of trucks that arrived each day at store loading docks. Fifth and last, ASDA would push toward the more affluent population in southern England and the London area, where relatively few superstores had as yet been built.

Around the same time Hardman was revamping its stores, ASDA made its largest acquisition to date. In 1985 the company purchased the leading retailer of furniture in the United Kingdom, a company known as MFI, which had sales of about £300 million a year. Company spokesmen at the time pointed to the two concerns' similar positions in the marketplace, since MFI also operated large, edge-of-town stores that sold low-price goods; but financial analysts from the beginning doubted the wisdom of the merger, and in this case they were correct. After only two years of an up-and-down marriage, ASDA sold its partner in the largest management buyout in British history, receiving £453 million in cash plus 25 percent of the newly formed "Maxirace."

Indeed, ASDA decided at that time to sell practically everything: under Hardman, now chairman, the company realized that its future resided in superstores and nothing but superstores, and therefore sold off not only MFI but also Associated Fresh Foods, the modest dairy company which at one time had been Hindell's Dairy Farmers Limited--that is, ASDA's own parent. ASDA would henceforth focus solely on its newly revamped and expanded line of food stores, with the single exception of Allied, a chain of carpet and drapery stores that the Group was unable to sell.

The superstore facelift and expansion program succeeded, at least initially. ASDA stores became known in the late 1980s for their innovative design, large selection of fresh foods, and equally extensive nonfood offerings, the latter accounting for some 25 percent of total store sales. Profits in the new and redecorated stores were significantly higher than in the older ones, due in part to the ever-increasing number of ASDA brand items on the shelves and the more efficient distribution system. The company continued its southern assault, opening an average of 12 to 15 new superstores each year, many of them in the crowded urban areas of the south. And, in the most dramatic proof yet of its commitment to the grocery business, ASDA in 1989 acquired 62 of rival Gateway's superstores for £705 million. This mammoth purchase, in a single stroke, increased ASDA's selling area by 50 percent, from five million to 7.5 million square feet, and further solidified its position as the largest operator of superstores in the United Kingdom.

Near-Collapse in Early 1990s, Then Turnaround

Unfortunately, as the company would later admit, it had paid too much for Gateway. Even worse, ASDA had funded the purchase by borrowing heavily, with its debt load ballooning to £1 billion. Compounding the situation was ASDA's move upmarket in the later 1980s, which had pushed up costs and thereby prices, resulting in the loss of many customers. With profits flagging and the company needing to service its burdensome debt, ASDA verged on bankruptcy by 1991. In June of that year Hardman was forced out by the company board, replaced as chairman by Patrick Gillam. In October 1991 ASDA appointed Archie Norman, age 37 at the time, as chief executive. Norman had been group finance director at U.K. retailer Kingfisher plc. In November 1991 ASDA completed a rights issue that raised £357 million (US$629.7 million) and cut debt to £668 million, but ASDA remained on the brink.

The new leadership at ASDA quickly began a three-year turnaround program. Prices were restored to the company's traditional five to seven percent below the competition. Costs were slashed, including the elimination of 500 management positions, a move announced in May 1992. ASDA stores' bolstered their selections of fresh foods and clothing. The clothing lines were sold under the George brand, which ASDA gained full control of in 1995 when it bought out its joint venture partner. To improve the company balance sheet, ASDA sold off additional peripheral businesses, including the Allied chain, which was sold to Carpetland in 1993, with ASDA gaining a 40 percent stake in the resulting company. ASDA also sold some property and large stores to its competition and returned its Gazeley Properties subsidiary to a more conservative role of property management, rather than the speculative property development it had ventured into. The company was also able to complete a second rights issue that raised an additional £347 million. By fiscal 1995 ASDA had returned to the black, posting pretax profits of £246.2 million on sales of £5.29 billion. The company's debt situation was finally under control. Results continued to improve, through fiscal 1998, when pretax profits hit £404.9 million (US$676.4 million) on sales of £7.62 billion (US$12.73 billion). In late 1996 with the turnaround complete, Gillam retired, Norman was named chairman, and Norman's deputy, Allan Leighton, became chief executive.

By the end of the 1990s ASDA began experimenting with new, larger formats, including the Market Hall superstores which featured more than 40,000 square feet of selling space and increased selections of fresh food and a larger area for the George clothing line. Thirty-five percent of the chain's units, at the close of fiscal 1998, were in the Market Hall format. ASDA also established a Hypermarkets division, which soon had 15 stores that exceeded 50,000 square feet. In 1998 the company tested the addition of small pharmacies to some of its stores and at its Canterbury unit opened the first hot and cold takeout restaurant in a U.K. superstore.

Meantime, ASDA was much in the news. Merger discussions between ASDA and Safeway in late 1997 and between ASDA and Kingfisher in the spring of 1998 both collapsed without an agreement being reached. A year later, however, ASDA and Kingfisher reached an agreement on a £5.4 billion merger that would create the largest multicategory retailer in the United Kingdom and one of the top ten retailers in the world. Kingfisher operated a number of chains in Europe, including variety shops, hardware centers, drug stores, electronics outlets, and music, video, book, and multimedia stores. Combining ASDA's strength in food, clothing, and household goods with Kingfisher's many areas of retailing experience would enable the combined company to create hypermarkets throughout Europe selling all manner of goods under one very large roof. It thus appeared likely that the 1990s trend toward ever-larger stores would lead to the end of ASDA's independent existence.

Principal Subsidiaries: ASDA Stores Limited; Gazeley Properties Limited; McLagan Investments Limited; The Burwood House Group Plc.

Additional Details

Further Reference

Blackwell, David, "Asda and Kingfisher End Talks," Financial Times, May 18, 1998, p. 21.Davidson, Andrew, "Allan Leighton," Management Today, September 1997, pp. 38--40, 42.Edgecliffe-Johnson, Andrew, and Peggy Hollinger," Financial Times, April 20, 1999, p. 21.Hollinger, Peggy, "Asda/Kingfisher Could Save up to £100m a Year," Financial Times, April 19, 1999, p. 24.Hunt, Julian, "If--Or When?," Grocer, November 29, 1997, p. 14.Kellaway, Lucy, "The Boss Who Calls His Workers 'Colleagues,"' Financial Times, September 25, 1998, p. 13."The Norman Conquests," Marketing, January 4, 1996, p. 13.Parker-Pope, Tara, "Asda, Back from Brink of Bankruptcy, Continues Drive Against Fixed Pricing," Financial Times, November 27, 1995, p. B7D.Price, Christopher, "Norman to Become Asda Chairman," Financial Times, August 28, 1996, p. 19.Pring, Andrew, "The Best Chain We Never Had"," Grocer, October 4, 1997, pp. 32--34.Thornhill, John, "Realism Impresses More Than Magic," Financial Times, January 16, 1992, p. 23.Van de Vliet, Anita, "Asda's Open Plan," Management Today, December 1995, pp. 50--54.Wighton, David, "Asda Boss Set to Speak His Mind," Financial Times, September 21, 1996, p. 6.

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