Asda set to invest £1bn on cheaper shopping

Leeds-based Asda also announced plans to look at launching convenience stores later on in its five-year plan.

Now that Bradford-based rival Morrisons has started building up its convenience estate, Asda is the only one of the big four grocers to be left out of this sector, which is the fastest-growing channel in supermarket shopping.

Asda’s five-year plans were announced alongside slower sales growth in its third quarter, which it attributed to its focus on lower prices.

Like-for-like sales growth rose 0.3 per cent in the 13 weeks to October 4, down from a second quarter rise of 0.7 per cent.

The results imply it is trailing Sainsbury’s growth but beating Morrisons and Tesco.

Asda’s chief executive Andy Clarke said the £1bn investment would allow it to dominate the value sector of the market, making it cheaper than its three arch rivals Tesco, Sainsbury’s and Morrisons and closing the price gap with discounters Aldi and Lidl.

According to monthly data from market researcher Kantar Worldpanel, only upmarket grocers Sainsbury’s and Waitrose are immune to pressure from discounters Aldi and Lidl.

Asda criticised the use of vouchers by its rivals, saying that customers end up paying more in the long run.

Chief marketing officer Steve Smith said that Asda will not run any vouchers this year.

“Our rivals continue to raise prices to pay for their vouchers,” he said.

“We’ve won 20 of 21 weeks as the cheapest supermarket in the Grocer 33, if you add up the savings that’s £194, or £240 if you add up Waitrose.

“That’s worth 40 £5 vouchers. This price gap to us is sacred. Our competitors, they invest in gimmicks. We invest in price.

“Our competitors are proud to be matching each other’s prices. We’re 10 per cent cheaper.”

Mr Clarke said that the UK is seeing a two-track economy with growth rates in the southern half of the country twice as high as the north.

He added that the North East, Northern Ireland and south Wales are particularly challenged by the economy.

Asda is planning a major push into London and the southeast England where it has traditionally been under-represented.

At the moment only 53 per cent of the country has access to a physical Asda store and the firm plans to increase this figure to 70 per cent as part of its five-year goal.

It also wants to expand its ‘Click and Collect’ locations – where goods ordered online are collected at a store – to 1,000 from 218.

It is targeting online sales of £3bn by 2018. In addition to the investment in prices, Asda said it would spend £250m in product quality, style and design.

Analyst Clive Black, at Shore Capital, said: “What Asda is doing is sensible to our minds because ‘Asda Price’ is a key virtue of its brand equity.

“That said, the market knows that Asda has strong price credentials and yet the group is not winning market share.

“Accordingly, as Marks & Spencer, Sainsbury’s and Waitrose prove, price is not everything. These three relatively higher category retailers have been gaining market share for some time.”

Asda’s comments came a day after Sainsbury’s, which has just leapfrogged Asda to take the number two spot, showed its resilience to tough market conditions with a seven per cent rise in underlying first-half profit. This contrasts with a decline at market leader Tesco.

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