As part of its revised strategy under the EG Group, Asda is targeting the convenience channel as a new route to market via roadside (On the Move) and neighbourhood (Asda Express) formats. The first Asda Express store is set to open in Sutton Coldfield before Christmas 2022, followed by a store in Tottenham Hale in December this year. The news comes at a time when UK food and grocery inflation is at its all-time high and is set to climb up even further in the coming months. GlobalData estimates it to reach c.11.7% by the end of 2022. Although this move may appear to be untimely, given the intense competition amid growing inflation, it will provide some respite to the retailer and prevent it from losing more shares to discounters.
With 30 neighbourhood stores to be rolled out across 2023, the move will strengthen the company’s position in the growing UK convenience market, which has been facing tough comparatives over the last two years, as well as the ongoing cost-of-living crisis. Historically, convenience retail has outperformed the total UK food and grocery market due to rapid store openings and rising consumer demand for ease and accessibility when shopping. The channel is expected to grow at a CAGR of 2.4% (2021-2026) as growth in the channel will gradually pick up from 2023, with the market expected to reach £42.7bn in 2026 – up 12.5% in 2021, equating to an extra £4.7bn*.
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While the group’s knowledge of forecourt retailing and the acquisition of 132 stores from the Co-op will aid its expansion into the channel, range planning, store flow, and price points must be meticulously researched as customer purchasing decisions, and shopping missions will be very different to Asda’s core store format and online. ASDA reported mediocre results for the 2021 financial year, with revenue ex-fuel rising to 0.5%. – underperforming the total market and leading to share declines. Expansion in the new channel will provide new customer acquisition opportunities for the retailer as Asda will be one of the most affected grocers falling victim to downtrading due to its younger and less affluent target demographic. Asda will need to test the waters with a phased rollout to understand the needs of its consumers and focus on creating a value proposition and delivering a clear message on value and quality, which will be crucial in creating customer loyalty.
The focus needs to be on providing a range of products at affordable prices as consumers battle the cost-of-living crisis. According to Mohsin Issa, Asda’s co-owner, “The stores have been designed to cater for a broad range of customer needs – whether that’s popping in for a pint of milk, grabbing a spot of lunch on the go, or buying the fresh ingredients to cook dinner from scratch”. On-the-go ranges are likely to see an uptick in demand over H2 2022 and 2023 as consumers shift their spending from hospitality and leisure to at-home consumption, supporting the performance of alcoholic beverages, hot drinks, and premium meal options that offer a more affordable alternative to eating out or takeaways. As such, newness and range expansion will be essential to capturing new customers, while innovation and freshness will be important to compete with the more established players.
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