ANDY BOND, chief executive of Asda, said yesterday that the supermarket was “operationally failing” and that its fresh food was “not good enough” as he announced plans to step up the pace of change.

In a frank briefing to City analysts, Mr Bond added that Asda would be more “aggressive” with price cuts this coming year as he recognised that rivals such as Tesco and Wm Morrison were closing in on its low price territory.

“There has been a lot of convergence in the market. All the supermarkets look more and more alike compared to ten years ago and that is bad for Asda,” he said. “We have relatively few sites and we need people to drive past Tesco to come to us.”

Mr Bond said that it would take 18 months to two years to revive Asda, which is expected to miss sales and profits forecasts for the year.

A five-point plan for the turnaround involves cutting prices, improving Asda’s fresh food, reinvigorating the George brand, improving customer service, particularly the availability of merchandise on its shelves, and expanding into new formats.

Asda intends to lower its prices but by asking suppliers for better deals and by keeping a tight rein on costs.

Mr Bond said that he was confident that despite the rising cost of fuel, rates and wages, Asda would be able to make an investment equivalent to a higher proportion of sales in price cuts this year and widen the gap with its rivals again. “We are challenging ourselves that this will be cost neutral,” he said.

J Sainsbury, the UK’s third-largest supermarket, is expected to leapfrog Asda into second place early next year if both chains continue their current rate of growth.

Asda’s market share — 16.6 per cent — is gradually being eroded, according to figures from TNS, the market research group. This erosion is largely to the benefit of Tesco and, more recently, of a resurgent Sainsbury’s — which now holds 15.7 per cent of the market. Tesco is almost twice as large at 30.2 per cent.

Mr Bond said that Sainsbury’s was growing faster than Asda because it had impressed customers with the pace of its change programme.

He said that Asda’s customers were being put off more by concerns about the supermarket’s service rather than its prices. “A one-dimensional strategy of being the lowest price retailer will not be a winning formula in future,” he said.

However, Mr Bond said that the economics of Asda’s business were “not broken” as he stressed that the chain still had higher sales densities and profitability than its nearest rivals.

Mr Bond said that he wanted to increase the price gap between Asda, which is owned by Wal-Mart, the giant American retailer, and Tesco, Britain’s largest grocer. “Asda has always been about being the lowest-priced retail brand and I’m going to be more aggressive next year,” he said.

“But I can’t predict how the other retailers and Tesco in particular will react.”

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