Optimistic Asda vows to do better and cut gap to supermarket rivals

Finance director Judith McKenna said she is confident Asda's recent deal to buy Netto UK will boost sales and justify a price tag which some analysts have said looks expensive.

Shoppers are struggling with a surge in petrol prices that has led many to cut spending in other areas.

In addition, the emergency budget today is expected to raise taxes and cut public spending.

"The scale of public-sector cuts and increased taxation is, without doubt, a concern to customers," said Ms McKenna, sounding more cautious than Britain's No 1 retailer, Tesco, which believes a consumer recovery is under way.

"While we hope for better times ahead, we're certainly not planning on that basis," she said. "We strongly believe that customers in the second half of this year and into 2011 will be looking to make every penny count in their disposable income," she said.

Leeds-based Asda, which is owned by US group Wal-Mart, has lost market share to its main rivals this year, in part because it has been opening fewer new stores.

Underlying figures, which strip out openings, put Britain's top four grocers much closer together, with sales ranging from down 0.3 per cent to up 0.8 per cent in recent trading updates – with Asda at the bottom.

"In terms of our underlying performance, we're all roughly in the same place," said Ms McKenna. "That said, we're stone-cold certain that we can do better."

Asda has blamed its underperformance on getting sucked into a battle over promotions, which it says has confused shoppers used to the group's focus on everyday low prices.

"That period is over, and since the turn of the year we have been less promotional and begun to give customers a much more consistent picture on prices," said Ms McKenna.

"Is that work complete? No, but we're in much better shape and the price gap between us and our competitors, based on our internal measures, is now wider than it has been for some time."