Asda IT upgrade costs soar past £1 billion amidst challenges

In the UK, Asda’s troubled IT upgrade has escalated to costs nearing £1 billion. The supermarket, which was acquired by TDR Capital and the Issa brothers in 2021 for £6.8 billion, is now under pressure due to the financial implications associated with the project, referred to internally as Project Future. Asda's management has signaled that a further £175 million will be invested in the separation of technology systems from its former owner, Walmart, as they inform bondholders about their fiscal commitments. This ongoing transformation has raised concerns about debt levels and overall performance amid an increasingly challenging retail environment. Since the start of the initiative, which began after the 2021 acquisition when Walmart retained a 10% stake, the company has allocated around £900 million towards separating its IT infrastructure from Walmart, with the initial budget estimated at £189 million. Executives communicated last year that they initially estimated total costs at £800 million, but due to various delays and extensions of operational agreements with Walmart, the financial forecast now extends into calendar Q3 of 2025, placing completion of the project further behind schedule than originally planned. The financial strain of the ongoing project has led to substantial staff reductions, including the cutting of 200 IT positions in an effort to realign resources during a critical restructuring phase. Project Future encompasses numerous aspects such as integrating new enterprise resource planning (ERP) and human resources (HR) systems, bolstered by investments aimed at enhancing security and store operations. The transformation was designed to disentangle Asda from Walmart's SAP ERP system while transitioning to a new S/4HANA instance hosted on Microsoft Azure. Following the major uproar surrounding store conversions during peak trading seasons, Asda has since shifted its focus to the gradual conversion of IT across various store formats, specifically targeting small supermarkets and Asda Express outlets in their strategic roll-out plan. Asda aims to complete the project by the end of 2024, with a spokesperson stating that costs would significantly decrease as the program concludes this year. However, delays brought forth concerns about the timing of retiring joint operational technology systems, indicating that critical components will remain active until the latter half of the upcoming year. This prolonged transition phase raises questions regarding Asda's ability to improve financial performance and foothold in a competitive grocery landscape, while still managing the effects of sustained operational delays and rising costs.