Asda says horse meat scandal could mean higher prices

LONDON Thu Feb 21, 2013 11:48am EST

A sign for the ASDA supermarket chain stands outside a store in London, January 23, 2012. REUTERS/Finbarr O'Reilly

A sign for the ASDA supermarket chain stands outside a store in London, January 23, 2012.

Credit: Reuters/Finbarr O'Reilly

LONDON (Reuters) - Britain's cash-strapped shoppers may have to bear some of the cost of a more rigorous food testing and policing regime in the wake of a scandal over the discovery of horse meat in beef products, the boss of the country's second-biggest grocer said.

"Can I say that nothing will be passed on (to consumers)? No I can't," Andy Clarke, chief executive of Asda, the British arm of U.S. retailer Wal-Mart, told reporters on Thursday.

He said it was, however, his intention that shoppers would not face higher prices as a result of the scandal that has spread across Europe since tests in Ireland last month revealed some beef products sold there and in Britain contained equine DNA.

Last week Philip Clarke, CEO of British market leader Tesco, was adamant raising standards "doesn't mean more expensive food.

Asda was drawn into the scandal last week when it found horse DNA in a beef bolognese sauce. It withdrew the product from sale, along with three other beef-based products supplied by Greencore.

Asda's Clarke said he had been "shocked" by that discovery and the wider scandal.

"There's no excuse for something criminal happening in the network. That's just fundamentally wrong," he said, adding Asda would "leave no stone unturned" in addressing issues in its supply chain.

The CEO said it was too early to say how much this would cost: "It will be whatever it needs to be to make sure we have the most rigorous testing in place."

Clarke said the impact of the scandal on overall sales had not been significant though shoppers had been switching to vegetable ready meals and meat-free products.

SALES GROWTH SLOWS

Clarke was speaking after Asda said underlying sales growth had slowed in the fourth quarter of its financial year.

The firm said sales at stores open for more than a year, excluding fuel, were up 0.1 percent in the 14 weeks to January 5, having been up 0.3 percent in the third quarter.

The CEO said the fourth-quarter slowdown reflected a move to further back its "every day low prices" (EDLP) strategy with 100 million pounds ($153 million) of extra investment in the prices of essential products such as milk, bread, eggs and sugar.

"We took a very conscious decision as an organisation ... that meant that we were going to hold back inflation to grow volume," said Clarke.

Chief Financial Officer Richard Mayfield said that decision had driven positive like-for-like sales volumes so far in 2013.

"After three years of volume decline across the industry (that) is a significant positive story for us," he said.

Britain's grocers are finding growth hard to come by, despite their focus on essential goods, as consumers fret over job security and a squeeze on incomes.

Last month Tesco posted a 1.8 percent rise in like-for-like sales for the six weeks to January 5, against a weak figure in the previous year. Sainsbury's, the No. 3 grocer, reported a 0.9 percent rise in like-for-like sales for its third quarter to January 5, while No. 4 player Morrisons saw like-for-like sales fall 2.5 percent in the six weeks to December 30.

Asda does not expect consumers to be better off in 2013.

Clarke said its research of Britain's mothers found that 60 percent of them could not afford to keep the heating on for as long as they needed to, while a quarter said they were unable to buy the food they needed to feed their family a healthy diet.

Asda's sales update was released as parent Wal-Mart, the world's largest retailer, posted a higher quarterly profit and raised its dividend.

($1 = 0.6535 British pounds)

(Reporting by James Davey and Neil Maidment; Editing by David Goodman and Mark Potter)

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