The old analogy of two drunk men propping each other up at a bar has been used in the past to describe retail mergers.
The combination of struggling electricals chains Dixons and Carphone Warehouse was one of the most recent to garner such unwelcome comparisons.
While drawing such parallels may be something of a stretch when it comes to the Sainsbury’s-Asda tie-up, the latter’s results, published today, illustrate its need for a more stable shoulder to lean on.
According to documents filed at Companies House, Asda’s pre-tax profit slipped 10% to £712.6m in 2017.
The decline followed an 18.8% slump the previous year.
“Asda will not be Walmart chief Doug McMillon’s top priority amid the considerable noise of its 27 other international markets”
Asda’s like-for-like sales did edge back into positive territory in 2017, but its 0.5% growth came against an extremely favourable comparable – the 5.7% slump it suffered the previous year.
The supermarket giant’s boss, Roger Burnley, insisted the full-year accounts represented “solid performance” by what he described as a “strong” business that was building “momentum”.
Indeed, the latest grocery sales barometer from Kantar Worldpanel suggested Asda’s 2.8% growth during the 12 weeks to May 20 was bettered only by Morrisons, the discounters and online rival Ocado.
But given the depths of despair Asda has dragged itself from – like-for-likes tumbled 7.5% in the three months to June 2016 – there is an argument that its investments in price, quality and product innovation should be bearing more fruit.
Sources close to the business insist 2017’s results were “in line with plan” and tell “a story of progress”.
The need for speed
Undoubtedly progress is being made, but there is plenty more work to do in the key areas of service, availability, price and product quality if Asda is to wrestle more customers back from its big four rivals and the discounters. Under Walmart’s ownership, it is simply not moving quick enough.
By Burnley’s own admission, the merger with Sainsbury’s will allow Asda to “accelerate” its existing strategy.
The worry is where that leaves Asda between now and the second half of 2019, when that tie-up is expected to complete.
“Asda, ultimately, has been a small fish in a big pond and has not received the support it deserves and has needed”
Walmart hasn’t invested heavily in Asda down the years and it would be no surprise to see it tighten those purse strings further, in the knowledge that it plans to reduce its exposure to the UK market through the merger.
Word is that Asda’s US parent remains committed to investing in store refits, systems, product development and new store openings.
But Asda will certainly not be Walmart chief Doug McMillon’s top priority amid the considerable noise of the 27 other international markets it operates in.
Arguably that has been the case for the duration of Walmart’s ownership of the supermarket chain, with the US firm draining more cash and personnel than it has put in.
Asda, ultimately, has been a small fish in a big pond and has not received the support it deserves and has needed, over the past five years in particular.
Sainsbury’s growing tech expertise, its fast fulfilment options and its relationship with Argos could all be leveraged by Asda – and genuinely allow it to put pedal to the metal in its recovery plan.
For those in Asda House, the opportunity to benefit from their bedfellows cannot come soon enough.