With dwindling customers and mounting debts Asda looked ready to close its doors. Now almost five years later it is very much open for business, with a management team that claims to listen to the needs of both customers and staff.
When Archie Norman was invited to become chief executive of the Asda superstore chain in late 1991, customers were dwindling, the share price was plummeting, the stores were falling into disrepair and the staff into despair. Effectively bankrupt, the group had been limping along with £1 billion-worth of debt and without a chief executive for several months; and the commentators were dubious that anyone of merit would take on the unenviable job of trying to rescue this run-down also-ran.
Norman saw matters differently. He had by then played his transforming role at Woolworths, which had been metamorphosed into Kingfisher under his and Geoff Mulcahy's leadership. His prime interest, he says, was (and remains) effecting 'major change in substantial companies'. He was still only 37 and, to him, the invitation seemed like a golden opportunity: 'You don't get many chances like Asda. It was a very big company, a company with a heart; and if we could make a success of it, that would be good for very many people.' He joined in December that year and Asda's achievements thus far have won him adulation in the City and have made Archie Norman a household name - not least because the company's dynamic PR department has uniquely among supermarket companies targeted the tabloid papers rather than the broadsheets. It has supplied them with a constant stream of news items, from accounts of Singles Night in the Asda aisles, to protests at the Chancellor's threat to tax the share options of Asda check-out operators; from campaigns as the self-styled customer's friend to smash the Net Book Agreement to bringing down the price of vitamin and headache pills.
Norman - or Archie, as everyone at Asda calls him - is sitting in the spacious and imaginatively ordered open-plan office at Asda head office. In the background his youthful colleagues are to be seen striding purposefully or holding earnest discussions in quiet corners or behind glass, in one of the many available meeting-rooms. Norman himself has no executive suite of his own, only a large, scrupulously clear desk, complete with one of the famous Asda baseball caps - to be donned when people signal their need for two hours' uninterrupted thinking time. Norman apparently never wears his, preferring to be accessible to his colleagues at work, and to do his concentrated thinking at home.
He does not look like your typical chief executive, since he is wearing a lumberjack shirt, new blue jeans and sturdy black boots; he is fresh-faced, with penetrating eyes, and a slight awkwardness of manner. This last impression may be the result of those heavy boots, for it turns out that this is not his everyday working attire: today is 'Thank George it's Friday', when all at head office sport clothes from the George (Davies) collection, one of the major lines at the Asda superstores. Or it may be that he is most at ease in group discussions - he and his closely knit management team (finance director Phil Cox, trading director Tony Campbell and deputy chief executive Allan Leighton, who is tipped by many in the industry to take over the reins one day) believe in a 'collegiate' style of management, sharing information and responsibilities and an Asda vocabulary. Cox as finance director, for example, is as likely to talk about retailing 'theatre' as about strictly financial matters.
One colleague - the term used to denote both managers and staff at Asda in a conscientious attempt to bridge the usual, demotivating gap between the two - comments too that Norman's focus on Asda is 'intense, even passionate', and remarks that he 'really comes alive in the stores'. Here, refreshingly, is a retailing chief executive who knows all his store managers (some 200-odd) and, it goes without saying, knows them by first name as they know him; who is au fait with all the store layouts, with what product lines are selling best, and which are being stolen most - the Wonderbra is a particular favourite, it appears.
Norman's belief is that Asda is a store-based company, whose real life is in the stores, and that head office - drastically reduced in numbers since he took over, from over 2,000 to around 1,350 - exists only to support that life. 'My dream,' he says, gesturing towards the surrounding office, 'is that there would be nobody here - everybody would be out in the stores.' He and his team have introduced a number of ways of encouraging managers out into that real world, such as holding Asda's monthly board meetings in the stores, followed by lunch in the store canteen, and expecting board members to talk to about 30 or 40 people, both customers and colleagues, during their visit. Finance director Cox reports with a grin, 'I was asked by one of our insititutional investors recently about the burning issues currently under discussion at board level; and I had to reply that these were such matters as the shelf life of yoghurt and the price of oranges.' This remark is, of course, slightly disingenuous, in that the Asda management team is as aware as any of industry trends, economic forecasts and stategic planning. Norman, in particular, a partner at McKinsey before he joined Kingfisher, has a clear-eyed view of industry prospects and of Asda's position in the market - which is less than ideal, being number three (after Sainsbury and Tesco) or number four, if Safeway's discount stores are included.
'However,' says Norman bluntly, 'food retailing is not a management consultant's business. It's not necessary to create something highly original. You have to be able to recognise good ideas (drawn from colleagues in the widely popular "Tell Archie" suggestion scheme; from the likes of Julian Richer, the acknowledged master of customer service, whose hi-fi stores achieve sales of an astonishing £17,000 per sq.ft; from his own inspiration; indeed, from anywhere at all) and to harness people's potential. Retailing is not nuclear science - it's not technical: the management of Asda has to do with good general management adapted to a fast-moving business.' Of the UK food retailing industry overall, Norman remarks that his comments of three years ago on the structural change it was undergoing, which were described at the time as doom-mongering, have now won general acceptance. 'There's a tendency among big British companies to talk things up. I'm a professional businessman: I tell them as it is.' And the facts at the moment are that 'There's progressively more competition every year, in relation to demand which is not growing. It's not an industry falling off a cliff - indeed the industry will have a better year in 1995-6 - but in five years' time, margins will be lower rather than higher.' This outlook, he points out, is in contrast with the long heyday through the 1980s and early 1990s, when a bountiful supply of new store sites and productive changes in the supply chain made it 'easy to grow profits'.
This retrospective view of the last decade makes one wonder, if it was that easy to grow profits, what exactly Asda had been doing wrong to have missed out on this great tide of profitable growth? Norman rejects the word 'wrong' - 'You can't motivate people by going round saying everything's wrong' - and substitutes the more positive notion of 'change'. Having made this verbal correction, however, his implicit indictment of the old Asda is sweeping: 'We wanted to change everything, apart from the location: we like being in Yorkshire.' Asda in 1992 was an organisation in 'comprehensive disrepair': it needed change 'across every dimension of the business' - the way people work, and how they work together; how the organisation communicates, and motivates, and pays; its structure, and its trading and financial strategies.
'For five years, Asda had been trying to become like Sainsbury and Tesco,' comments Cox. This was theoretically a good idea, since Sainsbury and Tesco had been encroaching on Asda's traditional territory in the north, but it had proved disastrous in practice. The move upmarket - a wider range, own-label products, the designer hand of Rodney Fitch (that icon of the '80s) in the stores, new layers of management to support new activities, and so on - had pushed up costs, which had to be recouped by higher prices. This, however, had meant that many Asda customers in the second half of the 1980s had simply walked away, to find cheaper goods elsewhere. 'Our customers absolutely demand value for money,' Cox points out, explaining that three-quarters of Asda stores are in catchment areas whose population comes home with only average and below-average UK earnings. 'If we're not the cheapest, we lose customers.' In what the group now calls the 'Doom Loop', prices had be to pushed up further to maintain turnover, and so on.
The new trading strategy, termed the 'Virtuous Circle', was to restore the traditional Asda price differential of 5-7% below its competitors, thereby selling bigger volumes; to increase traffic-sensitive purchases; to reduce fixed costs as a proportion of sales; to benefit from the higher sales volumes through being able to strike better deals with suppliers; to push up store productivity and push on a newly focused product range; and so to keep prices down. 'Our attitude to gross margins is that they should come down each year, so we can provide better value; and at the same time, we should grow profits by selling more,' says Norman.
Financially, the new strategy can also be simply described. The previous management had paid out £700 million for the Gateway chain in 1989, choosing to borrow rather than to place a rights issue for the purpose. This, combined with previous splurges on MFI and Allied Maples, had led to that gaping £1 billion debt, which flagging profits from both the stores side of the business and the 'related' furniture and carpets side had done little to remedy. Indeed, even after a £357 million rights issue in October 1991, the company was still bankrupt. Says Cox, who joined Norman in January 1992: 'Our initial reaction was: "We knew it was bad, but not that bad." We were about to breach our banking covenant.' The new financial strategy aimed, quite simply, at restoring financial stability to the business. This was achieved by selling off what were now seen as 'peripheral' rather than 'related' businesses; selling some property, and some large stores to the competition; withdrawing the Gazeley arm of the business from speculative property development and returning it to its more modest role of property management; and revaluing the superstores conservatively and realistically on the balance sheet. Within six months, the team had announced its renewal programme. Within a year it was under way, debt had been reduced, and it seemed permissible to return to shareholders for a second rights issue. This raised £347 million - allowing the renewal programme to proceed on a sound financial footing.
The other changes Norman outlines - in the way people work together and communicate with each other - are more complex. The company's goal is to become a genuine leader in fresh foods and clothing - making the George brand a 'real brand', second in the UK to Marks & Spencer's St Michael - and also to create an 'organisation which is the preferred place to work', offering customer service 'with a personality derived from the heart of the company'. One change has, accordingly, been in the approach to recruitment, which now aims to seek out people for the stores who really do want to serve the customers and who genuinely like selling.
There is no point, he remarks, in employing people who won't like the 'Asda Way of Working'. This is the name given to the new approach, intended to transform the old culture, which had grown autocratic and slow-moving, to one where all members of Asda feel involved in improving the business - the equivalent, within the context of a corporation, of market-stallholders, who run their own show, and who engage actively with their customers.
This new culture is being nurtured in a host of ways. Since July there have been the much publicised share options, available to all members of staff on the same terms as to the top executives - and now taken up by 36,000 out of a total of 68,000 employees. There have been changes in organisational structure, not only in eliminating layers of management, 'getting rid of the treacle', as trading director Tony Campbell puts it, and thus shortening the line between head office and the stores, but also in the way departments are now organised. Thus, for example, each in-store bakery or fishmonger's department is a team effort with its own profit and loss account. At head office, meanwhile, Campbell's own trading department is divided into business units (for meat, drink, clothing, gifts, and the like), each of which in turn is split into categories: spirits, wines, soft drinks and beer, for example. In each category the head of marketing and buyers work with the category managers, to develop their category business and to 'deliver the Asda proposition in their particular way'. In this fast-moving super-store business, comments Campbell, 'you've got to move quickly to invent the next thing': the team-based approach is one way of speeding things up.
More generally, he explains, 'We aspire to an "inform and involve" culture, rather than one of "command and control" as in the old days. This takes a variety of forms. There are listening groups on current issues, and 'We're listening' surveys that collect opinions on areas such working conditions and pay. Backstage at the stores, communication boards record achievements in cutting down on waste. Instead of the old-style weekly managers' meetings, there are now twice-daily 'huddles' between managers and their working teams in the stores, to plan ahead for the practicalities of the day's and evening's trading. There is the 'Tell Archie' suggestion scheme, which has attracted 14,000 suggestions in the first 18 months: the ideas have won their originators anything from a 'Tell Archie' pen to a weekend in Paris. There are also monthly 'Colleague Circles', to stimulate the flow of ideas.
The style of senior management now combines a high degree of approachability (symbolised by rolled-up shirt sleeves) with the readiness to take decisions. Colleagues are expected to challenge management decisions, and to take decisions of their own: although the term 'empowerment' is happily used sparingly at Asda, the concept is embodied in the new ways of working. Thus, all managers in the stores have now been on management information systems courses: 'We know how to get into the computer, and how to use it.' They have also, for example, been trained in the art of appearing on television, and are actively encouraged to act as company spokespeople to the media. They are also encouraged to move between functions - between trading and administration, for example, or customer services and provisions so as to gain an understanding of the wider business as a whole.
If all this sounds abstract or only too familiar from the management textbooks, look again at that open-plan head office, which could serve as one emblem of the new Asda approach. Communication is encouraged in all sorts of ways - by an abundance of news-sheets, charts of prices, how Asda Price matches up to the competition, and printouts of customer compliments displayed on the walls; by little gestures like the notice which invites comments on the drinks machine on trial, or on women's experience at work; by the ample number of inviting meeting rooms, which make discussion congenial. High-tech research companies have long known that a pleasing, open working environment, with plenty of opportunity for informal meeting, stimulates creativity and sparks off ideas; the same applies here. Ideas leap across boundaries and narrow functions: it was the PR department, for example, which thought up the notion of 24-hour trading in the run-up to Christmas, and whose members helped to serve at the check-outs, when the idea was adopted.
Outside, the only reserved parking space is for the company Jaguar, which does not belong to the chairman or chief executive or any other such VIP, but, for a month, to the winner of the VPI - volume-producing items - scheme, whose efforts have brought about an outstanding increase in sales. Inside, there are no executive suites or corporate status symbols, in what aims to be a single-status company. The culture change is not complete, of course, given the huge number of employees, but the new approach is palpable. So, too, are the results of the change in strategy and culture, with Asda back in the black - and an increase in customers of 30% since Norman arrived. 'Two million people have voted with their feet,' he says decisively. Like-for-like sales rose by 8.4% over the last financial year, outperforming all the company's competitors.
There is, however, still plenty of scope for further growth from the existing stores; and there are savings in time and money to be made through the introduction of computerised labour-scheduling and sales-based ordering. 'At the moment there are some basic things our competitors have that we have to manage around,' comments Cox. There are new products to be dreamt up - this year sees the launch of 2,000 new lines, double the score of the last. There is the Asda own-brand, which is also scheduled for enhancement. There is the ambition to be best in its chosen fields of fresh foods, clothing, and home and leisure. And, says Norman, there is the Asda philosophy, to sustain the continuing programme: 'We don't believe in self-imposed limits.'
1995 (£m) 1994 (£m) 1993 (£m) 1992 (£m) 1991 (£m)
Turnover 5,285.3 4,822.2 4,613.8 4,529.1 4,468.1
profit 253.8 198.0 191.2 182.1 258.3
Net interest (7.6) (15.0) (50.8) (95.3) (90.0)
items (11.0) (308.9) 65.2 (451.6) -
before tax 257.2 (125.9) 187.4 (364.8) 168.3
share(p) 2.20 1.76 1.60 2.10 4.80
Net assets 1,493.2 1,376.4 1,567.7 1,107.3 1,136.9.