(Bloomberg) -- Asda Chairman Stuart Rose said the troubled supermarket has “slightly lost the plot” after revealing another quarter of disappointing results and warning of a £100 million ($130 million) hit from the UK’s tax hikes and rising minimum wage.
The privately-owned UK retailer’s like-for-like sales fell 4.8% in the three months ending Sept. 30, it said Friday. Rose blamed the decline on a failure to meet customers’ expectations in one of the world’s most competitive food markets.
Rose said Asda, Britain’s third-biggest grocer, would be put under more pressure after the Labour government’s budget last week unveiled more than £40 billion in tax increases.
“It’s a big burden for business to carry,” he said. “We will do everything we can to mitigate this cost but of course you can’t deny it’ll probably be inflationary to some degree.” Companies would find it hard to avoid passing the higher costs on to consumers, Rose added on a call with reporters.
His warning follows similar statements from retailers J Sainsbury Plc and Marks & Spencer Group Plc, pub chain JD Wetherspoon and telecoms giant BT Group Plc already this week.
From April, the rate of employers’ national insurance contributions — a payroll tax — will increase by 1.2 percentage points to 15%, while the wage threshold at which employers will begin paying contributions will fall from £9,100 to £5,000.
The added costs come as Asda tries to win back customers it has lost to rivals. Asda’s share of the UK grocery market fell from 14.3% to 12.6% over the year and a half to September, according to data company Kantar, narrowing its lead over German discounter Aldi.
Asda, which is majority owned by the private equity chain TDR Capital, is investing £13 million in the run up to Christmas.
“If you go and look at our stores, they’re not as nice as I’d like them to be in terms of the experience and the visuals,” said Rose. “They’re not as good as they should be in terms of the service we give our customers on availability.”
Issa Brothers
Asda has been through a tough period since it was bought by TDR and the billionaire brothers Mohsin and Zuber Issa. They bought the chain from Walmart Inc. in a £6.8 billion deal which left the US retailer with a 10% stake.
However, earlier this year Mohsin Issa stepped down from an executive role at the chain, and TDR took majority control. Rose and TDR partner Rob Hattrell are now attempting to reverse declining sales by investing in stores and improving the availability of goods on shelves.
“No supermarket, I think it’s fair to say, has been through so much change as we’ve been through,” said Rose. “We’re aware that the loyalty and trust of many of our customers has been perhaps tested.”
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