Asda Executive Chair Calls for Government Intervention Amid Rising Costs
Allan Leighton, the executive chair of Asda, has issued a stark warning to the government, urging ministers to "stand up and start doing stuff" to support farmers and alleviate fuel costs. He predicts that food prices will inevitably increase as a result of the ongoing conflict in the Middle East, which is putting pressure on supply chains and commodity markets.
Farmers Under Pressure from Soaring Input Costs
Leighton highlighted that farmers are facing significant challenges due to higher costs for fertiliser, energy, and fuel. He noted that while Asda has received only a "trickle of requests" for cost price increases from suppliers so far, the situation is volatile and could lead to widespread inflation. "I do believe it will create inflation," he stated, emphasising that the pace of cost increases varies across different commodities.
Fuel Shortages and Price Hikes Loom
In addition to food price concerns, Leighton warned of "temporary shortages" at petrol stations, as supplies are squeezed by the Middle East conflict. The RAC reported that the average price of unleaded petrol in the UK has risen to 150p per litre. He accused the government of benefiting from £3 billion in fuel duty income as prices climb and called for a reduction in these duties or direct support for farmers on energy costs.
Asda's Financial Struggles and Turnaround Efforts
Leighton made these comments as Asda revealed its full-year underlying profits plunged by a third to £764 million, with non-fuel sales declining by 3.3% to £21 billion. Despite efforts to attract shoppers through price cuts and store refurbishments, sales have struggled. The supermarket chain did see its first month of underlying sales growth in stores in nearly two years in March, after resolving IT issues related to its transition away from Walmart services.
However, Leighton conceded that online grocery sales continue to fall due to a "clunky" website, but he expects improvements within the next three to four months and a return to profit "soon." He emphasised that turning around the business will take time, estimating three to five years for a full recovery.
Industry Context and Government Response
Leighton's warnings echo concerns from other retail leaders. Simon Wolfson, CEO of Next, suggested clothing prices could rise by 4% to 10% if the conflict persists, while H&M's CEO, Daniel Ervér, noted potential impacts on consumer spending and inflation. Asda, the UK's third-largest grocery chain with 579 supermarkets, faces competition from rivals like Aldi and struggles with debts from a £6.8 billion takeover in 2020.
A government spokesperson responded, stating that they have measures in place, including a £150 reduction in energy bills, a fuel duty cut frozen until September, and support for farmers facing higher costs. They added, "We're monitoring impacts on farmers and working to bring down food prices at the till."
Retail analyst Clive Black from Shore Capital commented that Asda's recent sales growth is a positive sign, indicating the chain may become a more stable player in the competitive supermarket sector.
