Asda is to invest “a pretty significant war chest” in cutting prices and putting more staff on the shop floor as the supermarket chain battles a decline in sales and market share.

Allan Leighton, the chair of the privately owned group that runs more 580 supermarkets, almost 500 convenience stores and 769 petrol forecourts, said there would be a “material reduction in our profit” for the year ahead as the group aimed to invest in order to regain its crown as the UK’s lowest-price traditional supermarket.

“This is an investment warning, not a profit warning,” said Leighton, who returned to Asda in November after a two-decade gap to attempt a second turnaround of the chain where he was previously chief executive. “It is not because we are doing badly but investment for the mid and long term and that’s going to cost.

“The only way we have got to rebuild profit is through sales growth.”

On Friday, Asda revealed that sales fell about 1% to £21.7bn last year, despite food price inflation of more than 3% for most of the year. Underlying profits rose almost 6% to £1.1bn, but that excludes the impact of debt repayments, which were expected to rise.

The Leeds-based grocer has lost more than a percentage point of market share in the past year, according to the industry analyst Kantar, a figure which represents millions of pounds worth of sales.

Asda has faced heavy competition from its bigger rivals Tesco and Sainsbury’s as well as from fast-growing discounters Aldi and Lidl.

Leighton said the business needed to address price, gaps on shelves and its product range, to ensure it had the right balance of budget and premium products for shoppers.

After ditching a price-matching scheme with Aldi and Lidl this year, the group plans to return to offering everyday low prices under the banner Asda Price by the end of next year rather than a plethora of cut-price offers.

The group is also spending £43m on putting more staff on to the shop floor, adding about 5.9m more hours across the estate.

“We are dealing with the basics,” Leighton said, adding that the job to do was “not dissimilar” to his previous turnaround effort, which ended in a sale to Walmart, the US retail group which continues to hold a 10% stake in Asda today.

He admitted that it could take the whole of this year to complete a process of separating Asda’s IT systems from its previous owner, Walmart, which was set to be finished last month. The IT problems have partly been blamed for gaps on shelves.

The transfer has already cost more than £800m, and Leighton said Asda continued to pay Walmart for part of the work as well as its own contractors. About 200 roles, most linked to that project, are being cut, and Leighton said more tech workers would go later this year as their contracted work completed.

Leighton reiterated that it would take up to five years to turn around the supermarket group which has been struggling since a £6.8bn buyout by the Blackburn billionaires the Issa brothers and private equity firm TDR Capital in 2021. TDR now controls the business after buying out one brother, Zuber, while the other, Mohsin, stepped back from effectively running the retailer last year but retains a 22.5% stake.

Leighton had previously said that hiring a chief executive was a priority, but the group has now decided to “take our time” as Leighton said he wanted to be sure of the kind of person required. “It’s not through lack of really good applicants, it’s our choice,” he said.

The retailer, who previously headed up The Co-op and Royal Mail, said Asda had £800m of cash on the balance sheet and £9bn of assets. It had no current plans for major asset sales to pay down Asda’s £3.8bn of debts, excluding lease liabilities. The group is selling off a handful of carparks and land near stores, but Leighton said this was part of everyday business.

He said the fall in interest rates was “not unhelpful” to the group’s plans as high levels of debt repayments – estimated at £470m last year – are seen to have hindered Asda’s ability to compete with rivals.