Asda suffered its worst Christmas on record with a dismal 5.8 per cent slump in underlying sales and blamed short term price cuts by rivals for its poor performance.
The decline during the three months to January 1 was the Leeds-based grocer’s worst ever quarterly performance and will put pressure on chief executive Andy Clarke who had previously described the 4.7 per cent sales crash in spring last year as the grocer’s “nadir”.
Mr Clarke defended the grocer’s decision not to join in its rivals’ pre-Christmas price cutting by saying that the actions of its competitors are not sustainable.
“Of course Q4 was softer than we thought. That was about the market not our strategy,” he said.
“We are a business in control not in crisis.”
He added that the recovery of the market leader Tesco in the fourth quarter had surprised everyone.
“They certainly shaped up in the last quarter,” he added.
Asda also called into question Morrisons’ deep price cuts on alcohol ahead of the festive season.
“In food we were surprised that the volume of short term promotions were as deep, especially in beer, wine and spirits.
“Will it lock in customers? I doubt it.”
At a time when arch rivals Bradford-based Morrisons and Tesco are enduring profit slumps in a bid to woo back customers by cutting prices, Asda has insisted that its profits are more important than underlying sales.
Commenting on Asda’s performance analyst Clive Black at Shore Capital said: “This is much worse than we anticipated. Such a performance, coming as it does on top of the 4.5 per cent fall in same-store sales reported for the third quarter, is clearly a disappointment for Asda’s CEO and president, Andy Clarke.
“We have a lot of time for Mr Clarke. He has earned our respect through his effective reading of the market - of the Big Four superstore players he called and adjusted first to the challenges of the limited assortment discounters - his candid assessment of Asda’s market position and the broad direction that he has taken the business.
“We believe Mr Clarke may be leading a team where a lot of its best and most talented players have been transferred to Wal-Mart in the US, leaving a hard-working but still depleted UK team to cope with the challenges of the tough market.“
Asda’s like-for-like sales fell 4.7 per cent in 2015 as it continues to lose shoppers to discounters Aldi and Lidl.
Asda warned that it does not expect 2016 to get any better although it plans to narrow the gap with the discounters to five per cent. Two years ago there was a 20 per cent price gap between the discounters and Asda and the gap now stands at 11 per cent.
“While I am cautiously optimistic that our sales will gradually improve, it won’t happen overnight given that 2016 is likely to be another tough and competitive year for the sector as a whole,” said Mr Clarke.
Asda also announced more details of its turnaround strategy after announcing it would invest £500m in price cuts last month.
It said the first phase of the price cuts would come into force on Thursday through its ‘Pocket More‘ scheme, which aims to make Asda cheaper than Tesco, Sainsbury’s and Morrisons on 1,600 lines.
It also confirmed that it would use the investment to step up its battle against discounters like German rivals Aldi and Lidl.
Mr Clarke described Asda’s performance as “commendably stable” as some of its rivals had suffered “severe falls in profitability”.
“We have steered a careful course through this very turbulent period for the industry and through a complex set of challenges,” he said.
Asda’s update comes as Morrisons posted a 0.2 per cent rise in like-for-like sales in the nine weeks to January 3, while Tesco reported a 1.3 per cent rise in like-for-like sales over the six weeks to January 9.
Sainsbury’s posted a 0.4 like-for-like sales fall in the 15 weeks to January 9, although this was for a longer period.
The Big Four supermarkets have come under increased pressure from German discounters Aldi and Lidl, which have carved out a slice of the UK grocery market and sparked a supermarket price war that has seen prices fall for more than a year.
Asda announced in January it would cut hundreds of jobs at its Leeds head office in its latest move to strengthen its competitive position.
It comes after it announced an 18-month overhaul in October which will see it slow store expansion in London, ease up on plans to build more stand-alone petrol stations across the UK and scale back the roll-out of its ‘’click and collect’’ scheme as it seeks to cut costs.