Asda the weakest of UK top 4 grocers

This week’s results from UK supermarket retailer Asda show it is currently the weakest performer amongst the market’s Big Four.

Like-for-like sales fell 4.5 per cent in the third quarter, a very marginal improvement on the 4.7 per cent fall in the second quarter, which was a record low in the company’s history. Last week rival Sainsbury’s posted interim sales down 1.6 per cent and leader Tesco reported a 1.1 per cent fall at its interim update in October.

All those falls reinforce the persistent price deflation and intense competition that has come to characterise the UK grocery market, observes Sophie McCarthy, a consultant at retail research house Conlumino.

In response to recent trading pressures, CEO Andy Clarke announced the launch of Project Renewal last month – an 18-month plan designed to reinforce and strengthen elements of Asda’s five year strategy. The plan focuses around several key elements including pricing and stores.

Firstly it aims to further lower everyday prices, having already invested £300 million into price cuts in the first quarter of this year. Secondly, it plans to slow down small format expansion in London and instead focus on improvements at 95 of its larger footprint stores. It will also halt plans to open more non-store click & collect locations, a wise move given the noted ‘halo purchasing’ effect that occurs when consumers collect purchases in- store and pick up other items whilst they are there.

Thirdly, Asda, a subsidiary of Walmart, wants to better reflect the changing consumer mindset and simplify its offer by delivering a 10 per cent range reduction whilst maintaining choice.

“Out of the Big Four, Asda is arguably the most exposed to the rise of German discounters, Aldi and Lidl, and to the general merchandisers, such as B&M and Poundland, as its value-led customer has been tempted away by even lower prices elsewhere,” observes McCarthy.

“To its credit, Asda has recognised that and is responding to these challenges, by concentrating not only on price but also on ‘range, service and quality’ to broaden its positioning and improve its value-for-money reputation.”

In its last update, CFO Alex Russo stressed the importance of maintaining a positive balance sheet in a turbulent market and, although no profit figures were released in this week’s update, Asda does appear to be continuing with that strategy.

“It recently announced plans to bow out of Black Friday, one of the most eagerly anticipated discounting events of the year, saying that it has instead decided to plough investment into lowering everyday prices. This is a brave move and perhaps reflective of further financial pressures below the surface,” says McCarthy.

Andy Clarke renounced Asda’s second quarter 4.7 per cent slide in like-for-like sales as a ‘nadir’, saying the company expects performance to turn around in the second half of the year.

“It is unlikely that a 0.2ppt improvement in LFL sales will be heralded as a turnaround, but it may provide some confidence that an upwards trajectory lies ahead, although it is likely to be a long-time yet before performance returns to even level territory,” concludes McCarthy.

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