Walmart plans for Asda hang in the balance

When Walmart splashed out close to £7bn on its purchase of Asda in 1999, UK supermarkets were panicked over the prospect of having to compete with the US retail titan on home turf.

But today as Walmart plots its retreat from Britain, the UK’s big four grocers are more worried about an altogether different import; Germany’s Aldi and Lidl.

Tesco, Sainsbury’s, Asda and Morrisons have been forced to work harder to keep hold of customers who are being lured by lower prices on offer at the discounters.

Meanwhile, changing consumer habits has seen a shift away from non-essential purchases toward spending on experiences.

This has culminated in a somewhat unfavourable trading environment for UK supermarkets, and one that Walmart is all too keen to exit.

Clive Black, analyst at Shore Capital, says: “For the grocery trade in the UK, the last six months have been a real grind.

“A number of processes have come together; low consumer confidence, customers switching out of goods into services, the rise of digital but also wellbeing and sustainability meaning people are buying less.

“We see a Walmart that is not over the moon with Asda.”

On Tuesday, the supermarket posted a 1.3pc fall in like-for-like sales excluding petrol for the the final three months of 2019 as customers tightened their belts over Christmas.

Roger Burnley, chief executive and president of Asda, said customers remained “highly budget conscious”.

“We know that our customers' mind sets during the quarter were cautious and whilst customers were enthusiastic for Christmas, they were more mindful in their spending – with many choosing to pare back gift lists and focus presents on kids rather than adults and extended family,” he said.

Posting its financial results for the same period, Walmart blamed Asda’s performance for dragging on the group’s international business.

“Concerns over Brexit in the UK and unrest in Chile negatively affected performance,” the company said.

With challenges in the UK showing no sign of letting up, Walmart has its own obstacles to overcome back in the US where Amazon’s foray into the grocery market appears to be an increasing threat.

Vincent Lee, analyst at Bernstein, says: “Walmart’s battle is back at home in the US against Amazon and they need cash as firepower for that battle.”

Walmart has already once tried and failed to get rid of Asda.

Last year Asda and its bigger rival Sainsbury’s were forced to abandon plans for a £7bn merger after regulators blocked the deal over competition concerns.

The US group is now being forced to explore alternative escape routes.

Black adds: “I think from a time and convenience perspective [a sale] would be their preferred route, I just don't know that there's a long list of potential suitors, bearing in mind that the UK grocery market is so highly regulated.”

Source: The Telegraph