Asda has warned that measures in the government’s budget will be a “big burden” for the supermarket chain, costing it £100m, and could prevent it from raising wages or hiring as many staff, as it struggles to turn around falling sales.
The company made the warning on Friday as other UK retailers’ share prices took a hit as stock market investors continued to digest the implications of the changes to employers’ national insurance contributions (NICs) announced in the Labour chancellor Rachel Reeves’s first budget.
Marks & Spencer (-4.8%), JD Sports (-2.6%) and Tesco (-1%) were among the fallers on the FTSE 100, pulling it down to a three-month low. On the FTSE 250 index of smaller companies, the share prices of the bakery chain Greggs (-6%) and the pub group Mitchells & Butlers (-7.7%) were also down.
The share price of the prison contractor Serco also fell nearly 10% on Friday, making it the biggest faller on the FTSE 250, after it told investors changes to employer NICs will cost it about £20m a year.
Serco’s share price was also affected by its announcement that it had a key contract with the Australian government’s Department of Home Affairs to provide onshore immigration detention facilities and services for detainees held there.
The Asda chair Stuart Rose, the former boss of Marks & Spencer and Topshop, said the increase in employers’ NICs and changes to tax thresholds would have “consequences” and meant it could not rule out some price increases.
“If you get presented with a bill unexpectedly for around £100m, even if you’re a business as big as us, that takes some digestion. So we’re looking at the consequences of that, but you cannot rule out the fact there will be some inflation,” Lord Rose told the Guardian.
Rose added that the changes in last week’s budget were “a big burden for the retail industry to carry” and meant that Asda would “have to look hard at every piece of expenditure”, including the annual pay increase for staff, and may limit how many workers it hires.
“We’ve seen an increase in national minimum wage,” he added. “We want to attract good staff, but we have to look very, very hard to affordability.”
Asda is struggling to turn around falling sales and loss of grocery market share. Total revenues, excluding fuel, slid by 2.5% to £5.3bn in the three months to the end of September, while like-for-like sales were 4.8% lower than the same quarter in 2023. However, this was a slight improvement on the previous quarter, when sales dipped by 6.4% between April and June.
The UK’s third-largest supermarket chain, which is coming under increasing pressure from the discounters such as Aldi, pledged to spend a further £13m to ensure more staff are on hand to help customers during the key run-up to Christmas. This comes on top of the £30m promised in August to invest in its stores to improve customer service and product availability.
Asda said the investment was “already making a difference” as customers noticed improved availability of products in stores and online between July and September.
Like-for-like sales of its George clothing range rose by 4.9% over the quarter, thanks to a record season before the start of the new academic year.
Asda’s warning about the cost of budget measures comes only days after it announced hundreds of head office job cuts and a restructuring in an attempt to turn around the business.
The retailer said it would slash 475 management roles in Leeds and Leicestershire to “remove duplication and simplify structures” amid a “challenging” market. The remaining staff have also been told they will be required to spend at least three days a week in the office from January.
Rose said in-office collaboration was needed: “We are a business that relies on teams working together. It’s not always as efficient with those teams working together in terms of online, in terms of Zoom calls.”
Asda, which was bought by the billionaire Issa brothers and private equity company TDR Capital in a debt-fuelled £6.8bn deal finalised in June 2021, has been battling high interest charges, a massive IT overhaul required to separate systems from the former owner Walmart, and a shift into convenience stores.
The chain has been without a chief executive since the co-owner Mohsin Issa stepped back from executive duties in September, leaving the retail veteran Rose leading the business alongside Rob Hattrell, another director on the supermarket’s board and a partner at its majority shareholder, TDR Capital.
Rose, who had previously called on Issa to step back, said he was “embarrassed” by Asda’s performance.
“I’d like to see the business flying again, so I stick by what I said,” Rose said. “We’re in here now with our heads together, we’ve got a good management team.”
Despite this, he said the company’s search for a new chief executive remains “active”.
Rose told the Guardian he wanted to continue running the business himself for “as little as possible”, adding: “We want the right person, square peg, square hole.”
