UK's economic recovery fragile, warns Asda boss

LONDON Thu Feb 20, 2014 11:32am 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 economic recovery is fragile, with huge regional variations, the head of Asda supermarkets said on Thursday as the company reported flat sales over the key Christmas quarter.

Andy Clarke, chief executive of the British arm of U.S. retailer Wal-Mart Stores (WMT.N), said he did not expect the regional disparities to change dramatically in 2014.

"The economy is still fragile and so customers still feel very fragile," he told reporters.

He said levels of disposable income were hugely dependent on which part of the country consumers lived in.

"If you live in London and the south east and you've got 10 percent housing value growth then it feels very different than if you are in the northeast or Northern Ireland, where unemployment is still a big challenge," he said, noting an unexpected rise in UK joblessness in data published on Wednesday.

Clarke was speaking after British finance minister George Osborne warned on Thursday that Britain's economic recovery was not secure.

Asda, battling with J Sainsbury (SBRY.L) to be Britain's No. 2 grocery chain, said sales at stores open over a year, excluding fuel and VAT sales tax, fell 0.1 percent year on year for the 13 weeks to January 3, its fiscal fourth quarter, although it kept its gross margin steady.

The sales performance represented a slowdown from like-for-like growth of 0.3 percent in the third quarter, further illustrating how tough Christmas was for Britain's major grocers.

The UK's so called "top four" grocers, which also include market leader Tesco (TSCO.L) and No. 4 Morrisons (MRW.L), are struggling to hold their ground in the face of competition from hard discounters Aldi ALDIEI.UL and Lidl LIDUK.UL and upmarket players Waitrose JLP.UL and Marks & Spencer (MKS.L).

Monthly data published last week by Kantar Worldpanel showed the slowest industry growth since 2005. Household incomes remain under pressure because inflation is still outstripping pay rises.

Tesco and Morrisons both reported underlying sales falls for the Christmas period, while Sainsbury's eked out a small rise.

Asda said in November it would spend over 1 billion pounds ($1.67 billion) on price cuts and product innovation and 250 million pounds on product quality, style and design over the next five years.

"We're under no illusions as to the structural changes facing our sector and that is why we took early action to look at how we need to move our business forward," said Clarke.

He said the firm "invested" over 60 million pounds in the fourth quarter to cut prices on basic items. In 2014, Asda plans to set aside 200 million pounds for price cuts and invest 750 million pounds in store openings, extensions and refurbishment.

In 2013 Asda removed all short-term vouchering activity to focus more on price.

"On all customers' minds is value and it is that value equation - it's not just about price at any cost, it's the combination of price and quality," said chief merchandising officer Barry Williams.

"And they're becoming, in my experience, less and less interested in gimmicks."

Wal-Mart on Thursday reported lower profit for the holiday quarter as comparable U.S. sales fell again.

(Reporting by James Davey; editing by Neil Maidment and Tom Pfeiffer)