At the beginning of the 1980s, most large companies in food retailing were regional operators with portfolios of stores mainly located in city centres. Stores were often smaller than 10,000 square feet and mainly displayed grocery produce. Economies of scale at the store and group levels meant that small chains with a network of small stores had a high cost structure. The price campaign of 1978 weakened the competitive position of many of these companies. In the early 1980s, a new recession hit the UK and price was still an important variable for competitors and shoppers. In 1982, Tesco launched a new price campaign-“Checkout 82”. This sparked off a new price war in the GRI. ASDA, whose volumes had also been going down, launched a strong advertising campaign stressing the competitiveness of its offer. The advertising campaign brought the desired results and in following years, ASDA continued to perform successfully.
However, the nature of competition in the GRI was changing. Since the mid-1970s, other companies had successfully experimented with edge-of-town superstores.
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Superstores offered a flexible solution to the problem of obtaining planning permission for city centre stores that had characterised the industry over the 1970s. Tesco and Sainsbury were particularly active in opening new larger units. Since 1978, Tesco had been busy in replacing small city centre stores with large edge-of-town outlets. The objective was to have a network of 400 large superstores, sized over 40,000 square feet. At the same time, Tesco was trying to improve its market position: new stores displayed nice outfitting, wide aisles, a large variety of quality food and non-food produce, and enabled the company to provide better customer services. Sainsbury had also been replacing smaller stores with larger supermarkets since the beginning of the 1970s, and in 1979, its management announced its intention to increase its expansion plans to open around 15 large supermarkets a year. Whilst replacing city centre stores with larger edge-of-town units, the two companies were also slowly expanding the geographical scope of operations.
Increasing expansion by some retailers was accompanied by increasing consolidation in the industry. Low profits, resulting from price competition and the recession, and a changing scenario (requiring high investments and the acquisition of new competencies) provided a fertile ground for increasing consolidation. Argyll and Gateway were particularly active in buying small regional companies. Within few years, they became significant players in the industry. Gateway with its rapid acquisition programme became the third largest company in the GRI, it overtook ASDA in terms of market share. Changes in the industry structure were accompanied by changes in consumer priorities. Among consumers, price was an important variable but quality, product ranges and store environment were becoming increasingly important elements for consumers choice of where to shop.
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In this evolving environment, little changed at ASDA. The company continued to expand its operations by opening stores, mainly in south England. By 1984, ASDA was operating 95 superstores, with an average sales area of 33,600 square feet. Although fewer stores than competition were opened, the increase in the sales area was keeping pace with the competition. At the operating level, ASDA’s focus was mainly on price competitiveness. Some of the older stores had been refurbished and new stores had in store bakeries, fruit and vegetable departments. At the same time, customer services were being improved. However, the superstore business operated in the same rudimentary fashion of the mid-1970s. The company had strong buying but very small marketing and merchandising functions. Only branded goods were on sale and were displayed by the manufacturers sales forces. There was little information technology and no centralised distribution system. Changes in the industry and in the consumer markets threatened the long-term prospects of ASDA in grocery retailing. The expansion by other major retailers in edge-of-town sites meant that the competitive advantage given by economies of scale at the store level could soon be lost. Further, the expansion by Tesco and Sainsbury in the north and by ASDA in the south was putting these companies in direct competition with each other. However, the superstore business continued to perform successfully, sales and profits continued to grow, with operating margins of the superstore business achieving the record level of 4.96% by 1984. In May 1984, John Fletcher, managing director of ASDA Stores since 1980, was ousted in a boardroom fight. Fletcher had opposed the development of an own-label brand for ASDA. The argument was that it was too late, as other retailers had successfully done that years before. His strategy to increase profits had been to increase gross margins. However, higher margins meant higher prices for customers, who had
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started to shop around for better convenience. John Hardman, finance director of the superstore business since 1980, was appointed as new managing director of the superstore business.
Other Group’s Activities
At the group level, other businesses did not perform as well as the superstore business. Acquisitions of the furniture retailers, at the end of the 1970s, had been made with the objective of balancing the portfolio. The management at group level was worried of increasing saturation in the GRI. In 1980, the activities and administration of Wades and Williams were merged. However, the performance of the non-food businesses was poor. In 1981, ten UKAY furniture superstores were sold to Harris Queensway and two were closed in 1982, completing the disposal of the business. In January 1985, Wades, the department stores business, was sold for £19 million. Allied Carpets also performed badly in the early 1980s, but by 1984, profitability was improving.
In April 1984, two small dairy businesses, Hexam Dairy and Lakeland Creamery, were acquired at a cost of £ 420,000 to strengthen the fresh food division, which performed well but whose importance at the group level had been decreasing over time.
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