Asda’s prolonged sales slump has reached a new record low after a poor performance over Christmas.
Andy Clarke, the chief executive of the UK’s third-largest supermarket, denied the retailer was in crisis as sales at established stores fell 5.8% in the 13 weeks to 1 January, compared with a 4.5% decline in the previous quarter and a 4.7% slide before that – previously the worst performance in Asda’s 50-year history.
The sixth consecutive quarter of declining sales confirms Asda endured the worst sales performance of all the major grocers over Christmas as it lost out to discounters Aldi and Lidl as well as major rivals Tesco, Morrisons and Sainsbury’s.
Clarke, who previously described the 4.7% sales slide as a “nadir” for Asda, admitted that the supermarket’s sales performance had been worse than expected.
But he insisted Asda had enjoyed a successful Christmas because it had met its strategic objectives in reducing discounting, keeping profits stable and selling out its seasonal products. “This is a business in financial control and in charge of the decisions we are making not a business in crisis,” Clarke said.
He warned that Asda was likely to see continuing falls in underlying sales this year at it steps up price cuts and steers clear of heavy discounts in its bid to win over shoppers.
Clarke added: “Short-term tactics taken by some businesses are going to tempt some shoppers to take advantage of those [offers] but we have got a long term sustainable strategy of investing in price and executing [improvements in stores].”
The Asda boss said the grocery market had become increasingly challenging in the past three months of 2015 as rivals had stepped up promotional activity. Asda lost customers as it withdrew from the Black Friday discounting frenzy in November and was affected by widespread price cuts for clothing and alcohol by rivals. Other major supermarkets enjoyed a better than expected performance, thanks to soaring sales of sparkling wine, beer and gin at bargain prices.
About 2 percentage points of Asda’s fall in sales was the result of its own price cuts, a further 0.4 percentage points were due to withdrawing from Black Friday and much of the rest down to shoppers choosing to buy elsewhere.
Clarke said Asda would not be getting involved in Black Friday this year as he believed “the customer is looking for broader appeal than one day of excitement”.
“Competition in our sector has been fierce and our market share has come under pressure. In that context, our results for the year have been commendably stable, balancing investment in our customers with disciplined financial management in a period when many of our competitors have suffered severe falls in profitability,” he said.
“In the long run we will win in this market. The fourth quarter was softer than we thought but that was about change in the market not about our strategy.”
The poor sales performance ramps up pressure on the Asda boss ahead of the arrival of Roger Burnley, the Sainsbury’s director, in October. Burnley is widely seen as a successor to Clarke, but the timing of the likely handover is not yet clear.
For now, Asda is to plough ahead with further price cuts as part of a plan to invest £500m this year. It has launched a new advertising slogan – “Pocket More” – under which it said it would ensure it had the lowest price on a further 1,600 product lines compared to Tesco, Sainsbury’s and Morrisons.
“We will continue to invest in pricing. We have a clear ambition to narrow the price gap to the discounters to 5%,” he said. According to Clarke, Asda was currently about 11% more expensive than the discounters and 8% cheaper than its traditional rivals. Two years ago Asda was 23% more expensive than the discounters, according to Clarke.
The cuts will be supported by £250m worth of productivity improvements and cost cuts this year. Asda is in talks with suppliers in a bid to get better deals and persuade them to “invest” millions of pounds in promotional activity and other measures to help win back shoppers.
It has also cut 200 jobs at head office and is considering axing up to 1,000 jobs in stores, as well as staff perks such as free tea and toast as Clarke seeks the funds to take on the discounters on price.
George Scott, senior analyst at consultancy Verdict Retail, said Asda’s latest slide in sales showed the retailer had not done enough to broaden its appeal beyond price in the face of heavy competition from Aldi and Lidl.
“Away from price, Asda has a relatively weak reputation for quality, with its more upmarket Extra Special label needing greater product coverage and marketing communications,” he said.
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