Asda’s bottom line hit as prices slashed in chains’ battle with discounters

Andy Clarke: Attacked rivals for short-term fixes such as 'unsustainable' voucher offers.
Andy Clarke: Attacked rivals for short-term fixes such as 'unsustainable' voucher offers.
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ASDA reported its worst sales fall in more than 20 years and said it can see no improvement in sight as shoppers switch to discount rivals Aldi and Lidl.

The Leeds-based supermarket chain blamed short term fixes by its main rivals for much of the decline as rival chains offer £5 off vouchers in a bid to win back shoppers.

Asda’s chief executive Andy Clarke said this approach is not sustainable.

“Vouchering is a gimmick, a short term play for three months or 12 months,” he said.

“Vouchering destroys trust in the long term. The customer in the end will vote with their feet.”

Asda, the UK’s second biggest grocer behind Tesco, said like-for-like sales fell 3.9 per cent in the 15 weeks to April 19.

The decline follows a 2.6 per cent fall in Asda’s fourth quarter and was its third quarterly fall in a row.

The decline was the worst out of the big four supermarkets and at a level not seen since the early 1990s when the business was in dire straits before the arrival of former boss Archie Norman.

Tesco reported a 1.2 per cent fall in like-for-like sales in the three months to the end of February, Sainsbury’s sales fell 1.9 per cent in the ten weeks to March 14 and Morrisons reported a 2.9 per cent fall in the 13 weeks to May 3.

​“It would be not transparent of me to say that 3.9​ per cent​ is a good performance​,” said Mr Clarke.​

​“​3.9 per cent is a challenging number for a chief executive to declare.”

He said that half the fall was due to deflation and the other half was due to fewer customers.

Asda was the first of the big four to lower prices, announcing plans in November 2013 to spend £1bn over five years to keep prices down.

Of the £1bn, £300m went on price cuts in 2014 with another £100m spent in the first quarter. In February, Asda said it would invest an additional £600m in expanding and improving stores this year.

Asda stopped issuing money off vouchers over a year ago, calling them short-sighted “gimmicks”.

“There are short term positions being taken by some retailers that are not long term sustainable. We are not prepared to take short term investments,” said Mr Clarke.

​“We won’t buy short-term sales at the expense of long term profitability.”

Research by Asda shows that the recession has had a lasting impact on spending and saving and 83 per cent of consumers are saving spare income rather than spending it.

The latest Asda Income Tracker showed the average family is £16 a week better off, but 43 per cent of people fell they have less money now than before the 2008 credit crunch.

Of those who feel they do have more money in their pockets, a third are spending it on activities with the family such as trips to the cinema and holidays.

​“Customers are not yet cash-confident, preferring to save rather than spend and, as expected, the market remains turbulent,” said Mr Clarke​.

Analyst Clive Black at Shore Capital said: “We suspect that there are a number of factors behind this disappointing performance for the group’s management.

“Clearly, overall market conditions in the large store supermarket segment of the UK have remained unfavourable with the discounters continuing to gain share whilst deflation has taken hold albeit input prices are weak. Additionally, the market leader, Tesco, is re-awakening, probably taking a little bit of share from just about everyone, given its scale, to our minds.”

​Asda’s results coincided with the news that ​Britain fell into deflation in April, for the first time since 1960.

Within this, food has experienced an unprecedented four-month run of deflation at around three per cent year-on-year.