Supermarket chain Asda was transformed during the 1990s from one of the UK's drabbest retailers into a real powerhouse, nibbling at the heels of top dogs Tesco and Sainsbury. That process was capped by its acquisition in 1999 by US goliath Walmart. It is now that group's biggest international subsidiary, and the UK's third largest supermarket business. It overtook the then-ailing Sainsbury in 2003, and retained that lead for more than a decade, successfully widening its offering with enormously successful clothing brand George. However, top-ranked retailer Tesco remained beyond Asda's reach, though the acquisition of smaller rival Netto in 2010 helped to close the gap a little. The brutal competition on prices against discounters Aldi and Lidl took its toll on Asda more even than on its competitors in 2015, and towards the end of the year it finally surrendered the #2 position back to a resurgent Sainsbury. Asda spent the next few years trying unsuccessfully to regain the #2 position from Sainsbury's, before finally accepting a deal in April 2018 to be acquired by the rival chain. The proposed merger of the two supermarkets will now be considered by UK competition regulators.
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Adbrands Weekly Update 3rd May 2018: Competition regulators will be kept busy in the coming months by a startling deal announced over the weekend: the proposed acquisition by what is now the UK's #2 supermarket Sainsbury's of its closest rival Asda, which is also Walmart's largest international subsidiary. However, Asda has struggled with weak performance for the past couple of years in face of brutal competition across the sector on pricing. It overtook then-ailing Sainsbury's in 2003 to become the #2 store behind Tesco, but lost that position almost three years ago, and has failed to recover ground despite a series of marketing reboots. Meanwhile, Sainsbury's appears to be going from strength to strength under its new CEO Mike Coupe, expanding its corporate footprint with the acquisition of general retailer Argos two years ago. Clearly, Walmart decided it could no longer regain lost ground in the UK on its own, and talks between the two groups began in earnest almost a year ago.
Under the proposed arrangement, Walmart would transfer Asda to Sainsbury's in return for £2bn in cash and a 42% investment stake in the merged company, but just under 30% of voting shares. That would value Asda at around £7.3bn. On a proforma basis, the combination of Sainsbury's and Asda would create a new #1 in UK groceries, with over 31% share of the market, ahead of Tesco on around 28%. However, the two brands would continue to co-exist, at least for the immediate future. Asda will operate as a separate chain still led from its current HQ in Leeds, Yorkshire. Yet even with that proviso, and the promise of further investments in jobs and technology, the merger is unlikely to get an unconditional green light from regulators. Though Sainsbury's and Asda argue there is little overlap between their current respective retail footprints, most observers expect, at best, that they will be required to divest as many as 100 stores between them.
Separately, AMV BBDO will have been popping champagne corks over their capture of creative duties for Asda, their return to the supermarket segment following the loss of Sainsbury's two years ago. The euphoria may have been tempered slightly by the news over the weekend that Asda would be acquired by Sainsbury's.
Adbrands Weekly Update 25th Jan 2018: Hard-pressed UK supermarket Asda called a review of its creative and media business. This could pose a significant threat to Publicis Groupe, who took over the business in 2016 following the arrival at Asda of US exec Andy Murray, a former head of retail marketing agency Saatchi & Saatchi X. He shifted the business into Saatchi UK and Blue 449, but Asda has made little headway since then in regaining the #2 position in UK groceries. Clearly a new approach is needed. "We have been fortunate to have world class partners over this past year help us make great adverts, digital content, press and point of sale," said Murray. "We couldn't have achieved the turnabout in results in 2017 without their help. But we need to fundamentally change the way our ecosystem works to reach and engage customers differently than we do today."
Adbrands Weekly Update 24th Aug 2016: Walmart's UK subsidiary Asda suffered the sharpest quarterly sales decline in its history, with like-for-like sales to June falling 7.5%, a slump described by Retail Remedy analyst Paul Thomas as "apocalyptic... it could be no worse". Asda's sales have declined for eight consecutive months. The company blamed "fierce competition and food deflation". The supermarket chain lost its long-held #2 market position to Sainsbury towards the end of last year, and shows little sign of reclaiming it any time soon. Walmart's Chinese subsidiary also fared poorly, though the recent partnership with etailer JD.com is seen as a potential fix for those troubles. The UK and China performance cast a cloud over an otherwise solid performance by Walmart.
Adbrands Weekly Update 9th Jun 2016: Asda CEO Andy Clarke has announced plans to step down, as the chain struggles to regain its lead over longtime rival Sainsbury's, which replaced it as the local #2 supermarket in October last year. He will be succeeded in July by Sean Clarke, previously head of Walmart China.
Adbrands Weekly Update 14th Apr 2016: In a surprise development, Walmart's UK subsidiary Asda transferred its creative account back to Saatchi & Saatchi without a review, after three years at VCCP. At the same time, Carat was stripped of local media after a 20-year run in favour of Publicis-owned Blue 449, the former Walker Media. The decision follows the arrival of US executive Andy Murray - former founder of Saatchi & Saatchi's shopper marketing division X - to oversee marketing at the hard-pressed business, which recently surrendered its long-held position as #2 supermarket to rival Sainsbury's. Insiders said the coup by Publicis agencies proves the case for that group's move to encourage closer cooperation between its agencies by eliminating silos. According to Brand Republic, Asda's creative and media will be managed from the same office. A source told them, "Asda has bought an integrated proposition. Physical proximity between creative and media teams is what the client is looking for."
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Free for all users | see full profile for current activities: Associated Dairies was originally established in the late 1940s from the amalgamation of various regional British dairy farmers, and provided a direct outlet for their milk, butter and other farm products through various counter-service shops operating under the Craven and Farm Stores banners. In 1965, Associated Dairies was approached by Peter and Fred Asquith, who had acquired an old cinema in Castleford, West Yorkshire with the intention of substantially enlarging their family butchers' business. The result was the first self-service Asda supermarket, under the joint control of the Asquiths and Associated Dairies' Noel Stockdale. In keeping with both families' cost-conscious Yorkshire mindset, Asda set out from inception to offer the lowest possible prices. Several other outlets followed, including two huge refurbished warehouses acquired from American retailer GEM. But as other supermarkets moved upmarket during the 1970s and 1980s, Asda stores remained cheap, and also drab and charmless.
Meanwhile Associated Dairies diversified, buying Allied Carpets, and then furniture retailer MFI in 1985. The company changed its name to Asda-MFI, but the new business never really fitted in. Two years later, MFI managers bought that business out in what was then the biggest ever British MBO, and the dairy manufacturing business was spun off as Associated Fresh Foods (later becoming what is now Arla Foods), leaving Asda to stand alone. But the supermarket business was decidedly shaky. The group tried to widen its product offering - first step was an exclusive deal with George Davies to distribute his new George clothing line. Davies had himself been ousted from his clothing company Next when the chain, formerly the retail miracle store of the 1980s, fell on hard times. But the new line, introduced in 1990, got off to a slow start.
The purchase of 60 Gateway supermarket stores in 1989 left Asda with crippling debts of almost £1bn, and as the recession began to bite in 1991, Asda struggled on the brink of collapse. The appointment of Archie Norman as chief executive in 1991 changed all that. Formerly a finance director of rival retailer Kingfisher as well as partner at McKinsey, he introduced an unconventional sleeves-rolled-up management style, combined with extremely aggressive marketing tactics to back up the store's pledge of "low prices forever". With the support of commercial director Allan Leighton, Norman's hands-on approach to company procedures and to the quality of goods effectively reinvented the business. At the same time, the George clothing line finally began to find its market. In 1993, Asda sold Allied Carpets to Carpetland, and bought control of the George line two years later. Asda repeatedly went head-to-head with manufacturers and other retailers over a series of price-cutting exercises, which began in 1995 with vitamins, and were later extended to products as varied as painkillers, books, petrol, make-up and Levi's jeans. Sometimes, Asda got away with its price-cutting; at other times it was stopped by injunction.
These tactics annoyed manufacturers but worked with consumers. Sales and profits boomed and Asda had become the UK's #3 supermarket group by 1995. Unlike other chains which expanded their operations beyond the UK, Asda stayed at home and concentrated instead on building its range. Its George clothing competed directly with Marks & Spencer, and the Group gradually became the UK's fourth largest music retailer, as well as one of the biggest non-traditional book and news sellers.
In 1997, Norman moved from chief executive to chairman of Asda in order to allow time for a political career. He became Conservative MP for Tunbridge Wells in Kent, and was later appointed chief executive of the Conservative party. His right-hand man Allan Leighton took over as CEO, maintaining the group's aggressive expansion. The following year, Asda announced it would launch a chain of 60 fast-food restaurants inside existing stores, selling own-brand curries, fish and chips and pizzas. The group also announced an internet and cable TV-based home shopping service in the South East targeting areas not currently served by Asda stores, and also selling foods and entertainment products. Asda's financial results for 1999 demonstrated the group's continuing strength. Profits grew to £423m on sales up to £8.2bn. The company promised further development of the George clothing brand, which saw its own sales climb some 15% over the year.
Since the mid-1990s, the group had been repeatedly involved in talks to take over other retailers. During 1997, Asda looked at a bid for newsagent WH Smith and tried to buy Granada's chain of Welcome Break motorway service stations. But in April 1999, after merger talks that had rumbled on and off for more than a year, the supermarket chain agreed plans to join forces with Kingfisher to create what would have been the UK's largest retail group by value. But it was not to be. Days before that merger was due to be approved by Asda's board, the company received an even better offer. Talks with Walmart had already rumbled on and off for several years, reaching an apparent high point in October 1998 before stalling. The Kingfisher merger plan renewed the American company's interest. Just as the all-British deal seemed to have been finalised, Walmart made a cash offer to acquire Asda outright for £6.7bn, a significant premium over the £5.6bn all-share offer from Kingfisher.
It was an undeniably neat fit, especially since much of Asda's management style and keen pricing policy had already been inspired by the US giant. The arrival of Walmart in the UK sent shockwaves through the sector as rival retailers shuddered at the thought of the US company's phenomenal buying power being brought to bear in the UK. Post-deal, Asda wasted little time in putting the squeeze on its rivals, mounting a series of aggressive price cuts during the summer of 1999.
Towards the end of the year Archie Norman announced his resignation as chairman to concentrate on other interests. At the same time, the company unveiled plans for a line of non-food hypermarkets in the UK, selling goods ranging from books to tableware. Asda said it would use Walmart's massive buying power to attack four main segments: books, newsagents, kitchenware/homeware and home entertainment. Meanwhile the company announced plans to start selling its George clothing line through selected Walmart stores in the US.
In 2000, an Asda hypermarket near Bristol was refurbished to become the UK's first jointly branded Asda Walmart superstore. However at the end of the year, chief executive Allan Leighton announced his resignation to take on other projects. He was followed a few months later by George Davies, whose clothing lines had done much to build the store's UK presence, and a string of other senior executives. The company attempted to win back some ground by claiming it had overtaken Sainsbury's to become the UK's #2 supermarket; however these claims were based on packs sold rather than by revenues. Asda's sales growth began to slow during 2000 and 2001, but an even sharper decline at Sainsbury's allowed Asda to overtake its rival for the first time in summer 2003. All 134,000 employees were given a day off with full pay in celebration. See full profile for current activities
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