Ministers should ‘start doing stuff’ to help farmers and cut fuel costs, says Asda boss | Asda

Asda’s chief executive has warned that food prices will inevitably rise as a result of conflict in the Middle East, calling on the government to “stand up and start doing something” to support farmers and ease fuel prices.

Allan Leighton said farmers were under pressure but the supermarket had so far received “a trickle, not an avalanche” of demands for cost price increases from its suppliers as they were under pressure from high fertiliser, energy and fuel costs.

“I believe this will create inflation,” he said, adding that the pace of cost increases is variable and quite different among various commodities.

Leighton also warned that there could be “temporary shortages” at gas stations due to tight supply due to conflicts in the Middle East. The average price of unleaded petrol in the UK has risen to 150p per litre, the RAC reported on Friday.

Leighton accused the government of making £3 billion in revenue from fuel taxes due to rising prices, and said those taxes should be eased or farmers given support on energy or other costs.

“The government has to stand up and start doing things to help people,” he said. He added that the tax from the fuel tax should be redistributed to “support farmers in some way.”

Leighton, who returned to revitalize Asda 20 years after his first executive role at the supermarket chain, said consumer confidence, measured by surveys each week, had “clearly fallen” as a result of the conflict.

The Asda boss’ comments on inflation come after Simon Wolfson, chief executive of fashion and homewares retailer Next, suggested clothing prices could rise by 4% to 10% if conflict in the Middle East spills into the autumn and factories are hit by higher fuel and fabric costs.

Wolfson said Next has seen little disruption to its supply chain so far and does not expect prices to increase at all until the summer at the earliest.

Daniel Ervér, chief executive of Swedish fashion chain H&M, also said a prolonged conflict could have a significant impact on consumer spending and cause inflation.

The Asda chairman said the George clothing and homewares business was also not disrupted, but transport costs had increased.

He made the comments as he revealed the supermarket’s underlying profits fell by a third to £764 million last year, while non-fuel sales fell 3.3% to £21 billion.

Despite efforts to win over shoppers with price cuts and renovated stores, sales have lagged.

Asda achieved its first month of major sales growth in stores in almost two years in March after it finally resolved IT issues linked to a move away from services offered by former owner Walmart.

Leighton acknowledged that the chain’s online grocery sales continue to decline due to a “clunky” website. He said the struggling retailer was “moving forward” and expected to improve its website over the next three or four months and return to profit “soon”.

He said he now has the entire leadership team in place and expects to eventually select a manager from the group.

“We’ve got good momentum in the business,” he said, adding that he still believes it will take three to five years to achieve a turnaround. “These things don’t get better overnight.”

With 579 supermarkets, 517 Express markets and 29 Asda Living general goods and fashion stores, Asda, the UK’s third largest grocery chain, is on track to overtake its fast-growing rival Aldi.

Asda has been struggling with debt and IT problems since its highly leveraged £6.8bn buyout by the billionaire Issa brothers and private equity firm TDR Capital in 2020. TDR now controls the group after acquiring one of the brothers, Zuber Issa, while Mohsin Issa holds a 22.5% stake.

On Friday, Asda said net debt fell by £500 million to £3.1 billion last year and ended the year with £1.3 billion in cash, which Leighton said gave the group a “huge option”. Asda has sold and leased back stores and warehouses to reduce debt and fund price cuts in a bid to win back shoppers.

Shore Capital retail analyst Clive Black said Asda’s return to sales growth since the end of the year was a “very welcome change”.

“Asda will be a more stable player [this year] and therefore not an easy source of share gains for the rest of the trade in a sector that is competitive but still rational for us.”