UPDATE 2-UK's Asda says stems loss of shoppers to discounters

Thu May 15, 2014 12:05pm EDT

* Q1 like-for-like sales ex fuel up 0.1 pct

* Total sales up 1.3 pct

* Says price-cutting strategy paying off

* Says winning customers from Morrison, Tesco, Sainsbury (Recasts, adds detail, background, CEO comments)

By James Davey

LONDON, May 15 (Reuters) - Supermarket chain Asda, the British arm of the world's biggest retailer Wal-Mart, said a strategy to cut prices had stemmed a loss of customers to discounters and attracted them from its three big rivals.

In common with market leader Tesco, Sainsbury and Morrison, Asda has been hit by the rapid rise of the "hard" discounters Aldi and Lidl in the UK.

Asda, based in Leeds, northern England and whose slogan is "saving you money every day", said in November it had identified structural change in the market and would spend 1 billion pounds ($1.7 billion) on lowering prices over the next five years.

"Our strategy is working, we are certainly performing ahead of Morrisons, Tesco and Sainsbury's and the losses that we were seeing to the discount market are very clearly mitigated," Asda Chief Executive Andy Clarke told reporters on Thursday.

Asda, whose everyday low-price deals include a loaf of Warburtons bread for 1 pound, said sales at stores open more than a year, excluding fuel, rose 0.1 percent in the 15 weeks to April 20, its fiscal first quarter, compared with the same period last year, returning to growth after a 0.1 percent decline in its previous Christmas quarter. Total sales rose 1.3 percent.

Pledges to cut prices have also come from Tesco and Morrisons, while Sainsbury has vowed to remain competitive, raising analysts' concerns about a possible price war hitting margins and earnings across the industry.

Asked if a grocery price war was being waged, Clarke said: "Not from my perspective ... We are in control of our agenda and not knee-jerking and reacting to what others may decide to do."

Chief Financial Officer Alex Russo said Asda's price cuts in the first quarter had narrowed the gap with discounters and widened the gap versus its three big rivals.

SLOWEST RATE

Data from market researcher Kantar Worldpanel last week showed UK grocery sales growing at their slowest rate for at least 11 years over the past three months, reflecting price cuts and easing food price inflation.

That data showed the 579-store Asda was the best performing of Britain's big four grocers.

Last week Morrison, which issued a profit warning in March, posted a 7.1 percent slump in first quarter like-for-like sales.

Asda set out its strategic priorities for the next five years last November. The firm wants to improve its core business and increase its reach and access though the development of its online offer and the opening of more stores, particularly in London and the southeast of England, where it is relatively under represented.

The grocer also said on Thursday it planned a new store management structure that removes some department manager roles and creates new deputy manager, trading manager and section manager roles and additional section leader roles.

The proposals, which are subject to worker consultation, involve around 4,100 managers but will create 5,000 roles, it said. Asda declined to comment on projected cost savings from the move.

Wal-Mart on Thursday reported a 5 percent drop in quarterly profit as a severe winter in the United States kept shoppers from its stores. ($1 = 0.5960 British Pounds) (Additional reporting by Paul Sandle; Editing by Erica Billingham and David Holmes)

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