Sean Clarke would do well to ignore Mike Coupe’s price war advice

Relax, Sean Clarke. Last week you started at Asda, the toughest job in UK grocery retail. You’re in a pickle. But Sainsbury’s boss Mike Coupe has offered you some advice.

Coupe says don’t slash prices whatever you do, because that would be illogical. And it’s very generous of him to help out, seeing as he is busy buying Argos, selling Netto, scrapping promotions and introducing streaming media services, all logical moves for a big supermarket to be making.

No, wait. Oh, argue that among yourselves. At the same time, Coupe doubted whether Asda would even bother to try and cut prices, despite Walmart International CEO David Cheesewright’s claim last month that Asda would do exactly that.

The only question over Cheesewright’s claim is what took him so long? Slashing prices with intent so punters start shopping at Asda again should have been done three years ago. Instead, its market share has been hacked away and it’s lost its number two spot to Sainsbury’s.

Gimmicks like the 10% APG, or its Price Lock promotion, haven’t worked. A tiny fraction of shoppers use the APG and sales show Price Lock never resonated with customers because it didn’t go hard enough. And Asda’s persistent claim that EDLP was part of its DNA was ultimately exposed by Aldi and Lidl, who really meant it. So a renewed attempt to cut prices would be an entirely logical thing for Asda to do.

Clearly, Coupe’s concern is not for the fate of Asda – his closest rival in terms of market share – but for his own margins. A price war won’t be good for anyone’s profits, it will drag everyone down. But Asda has conceded defeat on that front, for now. It needs to go ballistic on price because grocery is a volume business and it needs to win back the customers it lost to the discounters.

Still, Coupe suggested Asda’s immediate priority should be to improve store standards and customer service. “If I was thinking about how I might go about fixing that business, I’d start there,” he said.

If we take him seriously, it’s fortunate for Asda that Coupe is not in charge. Anyone who’s been to Asda lately knows it needs to work on store standards and customer service, but no one ever went to Asda for store standards and customer service. They went there for the prices.

If UK shoppers want store standards and customer service they go to M&S or Waitrose, because they can afford not to care about the prices. It was only recently that Aldi and Lidl even started to care about store standards and customer service, and they could only afford to do so because so many people started shopping there – because of the prices.

So though it’s true Asda needs to improve standards and service (it could start by trying to repair morale among its once famously cheery staff) it needs to kick-start Clarke’s tenure by telling UK grocery shoppers that a chunky basket of basics can beat the discounters on price.

That will be very expensive. The real question is not whether Asda should try, but how many millions (or billions) it will cost it to do it effectively over the long term. Which, as all three are privately owned, raises the intriguing potential for this to turn into a family war, where the Waltons, the Albrechts and the Schwarzes all slap their wallets on the table and compare bulges.

As the Grocer Rich List showed in 2014, The Walton family make their German counterparts look skint. But recent history shows Aldi and Lidl are prepared to take a bigger hit to play the long game.

We won’t know what will happen until Asda makes its move. But we can predict a negative knock-on effect on the other grocery players if it does. HSBC analyst Dave McCarthy has suggested “almost all industry profitability” would be wiped out should the price war erupt to a new level, which verges on the hyperbolic. And McCarthy has always relished the prospect of a price war. But that doesn’t mean he’s wrong. And Coupe knows it.

Over to you, Sean Clarke.