* Retailer will up investment on price cuts by 40 pct over
* Will consider opening convenience stores to grow market
* Q3 like-for-like sales up 0.3 pct
By James Davey and Paul Sandle
LONDON, Nov 14 Supermarket chain Asda, the
British arm of Wal-Mart Stores Inc, said it would spend
over 1 billion pounds ($1.6 billion) on price cuts and product
innovation as it seeks to expand its share of the UK grocery
Asda, which runs behind market leader Tesco Plc by
annual sales and is battling to fend off a challenge for
Britain's No. 2 place from a resurgent J Sainsbury Plc,
said it would spend the sum to keep prices below inflation over
the next five years.
Setting out its strategic priorities on Thursday under its
new slogan "You're better off at Asda", it also said it would
invest 250 million pounds in product quality, style and design.
Chief Executive Andy Clarke said that he wanted to set Asda
clearly apart from the other three of the "Big Four" retailers,
which also include Morrisons, in terms of value.
"We are going to invest 1 billion pounds in retail pricing
over the next five years," he said. "You can work out the maths
for what that means for our competitors."
He said the company was already increasingly cheaper against
its three big rivals and closing the gap with discounter
"Our (pricing) gap is already widening versus Tesco,
Morrisons and Sainsbury's and narrowing against Aldi."
Asda's price-cutting promise is the latest example of
British supermarket operators promoting their money-saving
Asda said it was cutting prices on regularly bought staples
such as fresh produce, milk and bread, but did not give specific
Analyst Clive Black at Shore Capital said Asda's move was
sensible because 'Asda Price' was a key virtue of the retailer,
but it did not signal the start of a price war.
"We believe that the market should take Asda's message here
in its stride, perhaps placing the greatest concern with respect
to the implications of its re-statement of price value upon its
value-based competitor, Wm. Morrison," he said.
Asda's comments came a day after Sainsbury showed its
resilience to tough market conditions with a 7 percent rise in
underlying first-half profit, contrasting with a decline at
market leader Tesco Plc.
It also said it aimed to improve its core business and reach
new customers in Britain, particularly in London and southeast
England where it has traditionally been weak.
Chief Executive Andy Clarke told reporters the company was
looking at smaller convenience store formats, the
fastest-growing channel in the UK grocery sector.
OPPORTUNITY FOR CONVENIENCE
"In the next five years, and towards the end of that time
horizon, we will explore the opportunity for convenience, the
sub 3,000 square foot retail space that we don't currently
trade," he said.
Tesco and Sainsbury have long established convenience
businesses and are still investing heavily. Morrisons was slow
to enter the market but is now moving aggressively, targeting
100 stores by the end of 2013 and 200 by the end of 2014.
Asda has previously rejected opening convenience stores
because it wanted to keep its single pricing model. Tesco and
Sainsbury's often charge more in their smaller stores, where
overheads can be higher.
Clarke said that Asda would not risk compromising its value
credentials if it expanded into convenience stores.
According to monthly data from market researcher Kantar
Worldpanel, only Sainsbury and John Lewis's Waitrose
among Britain's top six grocers are currently resisting pressure
from discounters Aldi and Lidl to expand their market
In addition, Asda wants to grow the number of its "Click and
Collect" locations - where goods ordered online are collected at
a store - to 1,000 from 218. It is targeting online sales of 3
billion pounds by 2018.
The group said on Thursday its sales growth had slowed a
touch in its third quarter. Sales from stores open more than a
year, excluding fuel and VAT sales tax, rose 0.3 percent in the
13 weeks to Oct. 4.
Though that was a 12th straight quarter of growth, it
compares with a second quarter rise of 0.7 percent.
"The market conditions are tough, competition is fierce and
our customers' budgets are under intense pressure," Clarke said.
Its parent Wal-Mart Stores forecast a disappointing profit
for the holiday season after reporting its third straight
quarterly decline in U.S. comparable sales because of fewer
shopper visits on Thursday.