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Asda sees a tough year ahead

News, 05 January 2015
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LEEDS: Consolidation of the UK supermarket sector and the disappearance of some leading food brands are likely consequences of changing consumer preferences, the chief executive of Asda has warned.

Andy Clarke, head of one of the UK's "Big Four" supermarket chains, said the industry will be forced to adapt to the influence of online shopping, a growing trend for convenience over the traditional weekly shopping trip, as well as fierce competition from discount chains.

Speaking to the Telegraph, Clarke also predicted that larger stores would have to change how they use some of their space by teaming up with other retailers.

"I am sure there will be further consolidation," he said. "I do feel that will be driven by the restructuring that started in 2013 – principally the growth of online sales and the growth of the discount sector, which is growing at a phenomenal rate. That is going to have an impact on the overall consolidation of the market."

He went on to tell the BBC that he has never seen profitability fall so quickly in the UK supermarket sector and that 2015 could be every bit as challenging.

"The level of profitability decline in some retailers over the course of 2014 – we've never seen it before," he said. "It suggests 2015 is going to be equally as challenging."

One major challenge for the UK's major supermarket brands is how best to respond to the lure of the discounters, principally the German chains Aldi and Lidl.

Aldi, which plans to increase the number of its UK stores to 1,000 by 2022, was named as the UK's top brand in last year's YouGov BrandIndex mid-year rankings.

The company's former UK managing director, Paul Foley, told the BBC that discounters are likely to grow their market share to 20% and that "the golden age of food retail profits by big, very successful, very well run businesses is over". Discounters are the "disrupters", he added.

However, the broader outlook for the UK retail sector appeared more upbeat after the British Retail Consortium, the industry's trade body, revealed that more than three-quarters (76%) of UK retailers expect sales to improve this year.

Furthermore, 78% said they expect to employ more staff and just over two-thirds plan to increase their level of investment.

Data sourced from Telegraph, BBC, Reuters; additional content by Warc staff

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