A perfect storm to hit UK, forecasts Asda

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ASDA has warned of a “perfect storm” hitting the UK economy as consumers worry about losing their jobs at a time when petrol and food prices are rocketing and mortgage and utility bills are also on the increase.

The Leeds-based grocer warned of tougher times ahead, but said it is well placed to cope with the challenging market conditions.

“People are clearly worried about unemployment,” said Asda’s chief executive Andy Clarke.

“We will see a change in the public sector. Job security is right up there in customers’ minds. Confidence will change this year, it’s going to be even more challenging.”

He was speaking yesterday after Asda, which is owned by US retail giant Wal-Mart, reported a pick-up in sales growth in the final quarter of 2010.

Mr Clarke described 2010 as a year of two halves, negative in the first and positive in the second.

The pick-up is partly due to the £100m relaunch of the mid-tier Asda range as ‘Chosen By You’.

Some 2,000 products were introduced at the relaunch last September and this has been extended to 3,000 products.

A further 2,000 items will be launched this year in addition to some non-food lines.

“The ‘Chosen By You’ range has undoubtedly changed people’s perceptions,” said Mr Clarke. “Bakery sales are up six per cent, cakes are up 20 per cent and ready meals have risen 11 per cent.”

The upmarket Extra Special range was the fastest growing premium brand over Christmas, according to research by Kantar.

Asda reported a 1.6 per cent increase in like-for-like sales (excluding VAT) in the last quarter of 2010 and a 2.6 per cent increase if VAT is included.

This follows a 1.3 per cent increase in the third quarter (excluding VAT).

Asda said the performance had helped it outpace the wider British grocery market in the second half of the year.

It also grew its profits at a faster rate than its sales in 2010, enabling it to pay out a £2.9bn bonus to staff.

The company had lagged behind rivals for most of 2010, hit by a step up in promotions which it said clouded its low-price message.

It responded in April with a ‘price guarantee’ to be cheaper than rivals, which it extended last month into a pledge to be at least 10 per cent cheaper.

Mr Clarke said Asda’s price guarantee initiative had “ruffled” the feathers of rivals.

Since the switch last month to promise to sell groceries at least 10 per cent cheaper than its major rivals, the scheme has been used by 800,000 customers. “The renewed focus on everyday low pricing underpinned by the Asda Price Guarantee has got our rivals a little ruffled,” said Mr Clarke.

“We have enhanced the quality of our products at no extra cost to our customers.”

Asda was reprimanded for its original price guarantee adverts by the Advertising Standards Authority following complaints from rivals Bradford-based Morrisons and Tesco.

Morrisons and Tesco complained that the ads were misleading for suggesting that Asda was generally cheaper than themselves and Sainsbury’s argued that there were significant exclusions from the price comparison.

Mr Clarke said Asda should regain its position as the UK’s second biggest grocer behind Tesco, dismissing industry figures that showed its share of the grocery market was overtaken by Sainsbury’s in December as “a blip”.

“We are certainly back to being number two,” he said. “One challenge is we own less space than our rivals. We’ve outperformed the market and returned to growth.”

Asda said it will extend its drive into upmarket products with the launch of a premium homeware brand Elegant Living, which will be sourced with American parent company Wal-Mart and will be 30 per cent cheaper than its rivals.

Asda’s performance compares well with its ‘big four’ competitors over the Christmas season, with bigger rival Tesco reporting a sales rise of 0.6 per cent including VAT in its six-week festive period.

Sainsbury’s has been the fastest growing of the country’s top grocers in recent months.

It reported a 2.8 per cent rise in like-for-like sales, excluding fuel and adjusted for changes in VAT sales tax, in the 14 weeks to January 8.

British number four Morrisons delivered a one per cent rise in the six weeks to January 2.

Wal-Mart, the world’s biggest retailer, posted its seventh consecutive quarterly drop in sales at existing US stores.