Asda admits VAT increase will force up price of some products

Supermarket giant Asda said it is working hard to mitigate the effect of the forthcoming VAT rise on its customers but admitted that prices would be forced to rise in some areas in the New Year.

Speaking to the Yorkshire Post during a visit to the company's Chapeltown store in Sheffield, chief executive Andy Clarke, said the firm was driving down its costs down to manage the increase.

"In the majority of cases, customers won't see a difference but there are some areas where, unfortunately, it's inevitable," he said. "There are added pressures such as commodity price inflation on things like wheat, which is also challenging a number of different areas."

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Mr Clarke, who was promoted to chief executive in May this year, said as well as negotiating with suppliers, increasing the use of technology such as self-scanners was helping to drive down costs, although he insisted that checkout staff were being diverted into other roles rather than being made redundant.

The challenge for Asda, along with other businesses, in the run-up to Christmas has been the negotiating of its stock flow in the heavy snow.

"The weather's affected different parts of the country at different times so we have to make sure that we're ahead of what's happening," said Mr Clarke, "If anything, we've probably flowed stock into stores in the last 10 days sooner than we would normally so that it's there, ready, rather than sticking to a just-in-time principal which is how we would normally do it."

He added: "December 23 would normally be our peak day but we're seeing business coming forward and spreading across the course of the week. People have spread the cost of Christmas, which makes it a smoother Christmas for us, even with all the weather disruption."

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Asda has introduced a number of measures this month in a bid to help shoppers and boost sales. These include assigning a member of staff to monitor the check-out queues and flag up available tills to customers. Other staff have been named Go-Getters with the job of running to fetch items off the shelves for forgetful customers at the checkouts.

"Simple ideas are often the best," said Mr Clarke. "They don't cost much to do and we are growing business at the same time."

But while customers are in a festive frenzy, the focus for Mr Clarke is firmly on 2011. "We are still going to be hugely focused on price but we're turning the dial up on the breadth of our range," he said. "We think of it in terms of good, better and best ranges. We're already enhancing our offering and it's starting to pay off."

Asda has seen a return to positive sales growth thanks to record online sales, the relaunch of its own brand label and the introduction of everyday low prices.

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The supermarket is investing 100m on the relaunch of its mid-tier own brand label after admitting the previous range had become "invisible". The 'Chosen by you' range, which was launched in September, followed an intense nine months of testing and reformulating products to improve their quality.

Some 40,000 consumers have taken part in 200,000 blind taste tests across the UK to produce the new range, which is being rolled out in stages until the end of next year. Around 1,200 products have been rebranded already.

Mr Clarke said: "It's a big investment and one we felt we needed to make if we were going to make the step forward on our private label brands that we needed to."

Earlier this year, Mr Clarke admitted that Asda had lost focus on a number of areas, which was affecting its performance. But in December its market share stabilised for the first time in 2010, at 17 per cent, following a series of small losses.

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"The biggest effect on us was space," said Mr Clarke. "We weren't growing space as fast as our competitors. We opened fewer stores than all three of our competitors last year so that's always going to put a business under pressure."

He added: "Recently, we've seen steady positive momentum and that's because we're focusing on the things that our customers tell us they worry about."

Mr Clarke has reduced bulk buy promotions by a third in order to focus on everyday low pricing. He also introduced dozens of new products to its upmarket Extra Special range ahead of the Christmas trading period.

Asda plans to open 10-15 new stores in 2011, in line with previous years, and extend five others.

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It has also set out plans to become the UK's biggest non-food retailer within five years, helped by a rapid expansion of its Asda Living stores. It currently has 26 Asda Living stores, over 175,000 employees and 383 stores.

Tucking in to the big dinner

By the time everyone sits down for their Christmas dinner, Asda stores in Yorkshire expect to have sold:

n 972,000 pigs in blankets.

n 192,745 mince pies (sales of mincemeat have also risen by seven per cent for the home bakers in the region).

n 69,993 Christmas puddings.

n Over 42,000 turkeys.

Nationally, the supermarket will sell 4,000 tonnes of carrots during December, with shoppers at Asda in Pudsey, Leeds, expected to buy up to 23,000 kg of the vegetable alone.