Sales drop again but Asda chief confident of restoring fortunes

The Leeds-based group, the UK's biggest grocery chain after Tesco, said like-for-like sales in the three months to June 30 fell by 0.4 per cent, following a 0.3 per cent fall in the first three months.

That was the first fall since early 2006 and compares with a rise of 4.6 per cent in the final quarter of 2009.

"We'd recognise that the first and second quarters weren't great periods," said Mr Clarke. "Some of the things we were doing as a business were not as pro-customer as we should have been."

Following his promotion to chief executive in May, Mr Clarke has reduced bulk buy promotions by a third in order to focus on transparent every day low pricing. "We won't yo-yo on price," said Mr Clarke. "I believe customers want a more transparent approach."

In addition to cutting the price of everyday basics such as milk, bread and eggs, Asda plans to improve the quality of its food and will make a further announcement early next month.

"We are known for price, but now we have some really exciting and innovative ideas to improve our food credentials," said Mr Clarke.

Looking ahead he said the outlook to the end of 2010 remains challenging, with families facing the lowest level of disposable income in the final quarter in two years.

"These are increasingly uncertain times for millions of families across the UK," said Mr Clarke. "We are battling really hard to lower the weekly shop, but the economy is going to be tough. Our job is to stay focused on outstanding prices and better quality."

Consumers, worried by Government measures to rein in record debt with tax rises and public sector cuts, are becoming more wary in their spending.

Doug McMillon, chief executive of Asda's US parent company Wal-Mart, said: "Asda's customers are facing recently announced tax increases and cuts in Government spending. These are likely to cause our UK customers to face a challenging 12 to 18 months."

Asda said its total sales increased by a "low single digits" percentage, while gross profit margins rose year on year as it sold a higher proportion of George clothing and general merchandise which command higher margins than food.

"George is doing really well," said Mr Clarke. "We have a new 100 day quality guarantee and our customers like and trust that. Back to school is also doing really well."

Operating income grew faster than sales. Asda has also set out plans to become the UK's biggest non-food retailer within five years, helped by a rapid expansion of its standalone Asda Living stores.

Just a few weeks into the job, Mr Clarke announced the purchase of the 193-store Netto UK from its Danish owner for 778m.

He said Asda is awaiting OFT clearance for the deal and said he expects to be told to dispose of a "few" stores.

Research carried out on Asda's behalf by economists Cebr is forecasting that UK families' disposable income in December will be 172, 5 lower than 2009 and the same level as December 2008 when the UK economy entered recession.

The report said that unemployment is expected to drift up through 2010 as private sector job creation remains indecisive amid caution over the strength of a recovery.

Charles Davis, managing economist at Cebr, said; "We see things as pretty tough for the consumer. We are looking at really weak real income growth, and we expect that to continue in 2011."

In June, Tesco reported a 0.1 per cent rise in first-quarter like-for-like UK sales, its weakest performance for years, while Sainsbury's reported its smallest rise for over five years.

In May, Bradford-based Morrisons posted a steep drop in underlying sales growth, pegging back its long-standing outperformance of rivals.

Wal-Mart, the world's biggest retailer, posted a drop in US same-store sales and said it would focus on curbing expenses to help boost profits this year as consumer sentiment remains soft.

THE WORLD CUP WINNERS

Supermarkets Morrisons and Sainsbury's emerged as World Cup winners in July as bigger rivals Tesco and Asda lost ground, according to the latest Kantar Worldpanel figures.

The pair both added 0.2 percentage points to their share of the grocery market in the 12 weeks to August 8 against a year earlier – with Morrisons claiming 11.6 per cent and Sainsbury's 16.1 per cent.

Their performance contrasted with the UK's biggest grocer Tesco and number two Asda.

Tesco's share shrank from 31 per cent to 30.8 per cent, while Wal-Mart owned Asda's slice contracted from 17.2 per cent to 16.9 per cent.

Kantar Worldpanel spokesman Edward Garner said Bradford-based Morrisons – the UK's fourth biggest grocer was the stand-out performer.

He said: "Despite some commentators expecting the Morrisons growth to run out of steam, it still comfortably leads the top four in terms of year-on-year performance."