Asda’s surprise buy of Netto shows it means business and is determined to make good on its ambitions. But will more stores automatically mean success?
The move gives some clarity to why previous chief executive Andy Bond stepped up to chairman and how it could be so bold in its five-year strategy update at the beginning of the year.
When Bond set out Asda’s ambitions that it would become clear number two in food, and number one in non-food within five years, many commentators scoffed. And coupled with Asda’s difficult trading over the past few months – reporting its first drop in like-for-like sales for four years in its Q1, down 0.3% - many thought Asda had lost the plot.
But Bond clearly took the chairman role to work on deals like Netto. And the 193 stores in the deal will mean Asda is clear number two in one fell swoop. While it will take time to convert the stores, and build up the footfall in those areas which are largely secondary, Asda is convinced that it has the small stores format right now and Walmart would not go for such a deal without being convinced too.
Asda’s Pontefract store – a former Essentials – is one of its smaller formats. It aims to offer a full weekly shop, with some non-food and George clothing too. And this is what the Netto stores will be converted to.
Asda insists the maths stacks up to make these smaller stores profitable, and as they will be as cheap as Netto – but with a bigger range – they should be able to keep Netto’s existing customer base, plus pull in other shoppers from the local areas too.
It’s a bold move, and as much a property grab as a straight acquisition, and shows Asda means business on its ambitions. It also shows new chief executive Andy Clarke is not just a steady pair of hands, he can also step up when the slightly riskier decisions need to be made.
The next step would be for an acquisition in non-food. The rumours around a bid for Home Retail have been around for some time, and it would make a lot of sense. But that is surely not the only option on the table, with the likes of retailers such as Matalan also showing possibilities.
The deal does not mean that Asda is not without its problems. It still has to convince shoppers that they don’t need to look elsewhere for a loyalty card, as it will always be the lowest priced grocer, and still has to work on some of its ranges, with many seeing fresh foods as an area it could improve.
But the deal is an exciting one for the grocery sector, and Asda may well have something else up its sleeve.