Asda saw its like-for-like sales increase 2.8% in its third quarter to 30 September – a sharp slowdown from growth of 9.6% in the previous three-month period and well behind its key rivals.
Food sales were slightly better, increasing by 3.2%, helped by the strong performance of its ‘Just Essentials’ value range, which saw sales climb 21% in the second year since its launch. However, clothing and general merchandise sales were impacted by the unseasonal weather across the period and fell 3.4% on a like-for-like basis.
Earlier this month, Sainsbury’s revealed that like-for-like sales across its supermarkets and Argos chain had risen 6.6% during the quarter to 16 September. Tesco reported an 8.4% rise in the quarter to 26 August, whilst recent industry data confirms that Aldi and Lidl are still gaining market share.
Asda highlighted that it ran two separate price drop campaigns during the period to support cash-strapped consumers. It lowered the prices on over 600 everyday products by an average of 10%, taking the total amount the chain has invested in lowering prices this year to £130m. It also gave £73m back to shoppers through its Rewards loyalty app.
“Throughout the quarter we have been focussed on helping customers save money whenever they shop with us, and this remains our key focus,” said Asda’s co-owner, Mohsin Issa. “This means keeping prices low on the products they buy the most, putting money back in their pockets via the Asda Rewards app and passing on savings whenever there is an opportunity to do so.”
Meanwhile, Asda noted that it had repaid a £200m facility used to acquire the Co-op’s forecourts business last year. Having been lumbered with huge debts from the takeover by the Issa brothers and TDR Capital, the retailer noted that the Co-op repayment had reduced the company’s total debt leverage to 3.8x.
“Asda has a sustainable capital structure, strong cash generation and clear strategy to deleverage over time, as the early repayment of the loan facility used to acquire the Co-op business demonstrates,” said CFO Michael Gleeson.
Last month, Asda completed the acquisition of EG Group’s UK business, five months after announcing the £2.1bn deal aimed at accelerating its growth in the convenience and foodservice channels.
Asda is now focused on converting the acquired EG and Co-op forecourts stores to its Express convenience format. The 100th Express store is set to open this week, and Asda stated that it expects to complete the conversion programme in the first half of next year.
Commenting on the results statement, Joe Dawson, retail Analyst at GlobalData, said: “The chinks in Asda’s armour are beginning to show. After strong growth in the first two quarters of the year, retail sales growth collapsed in Q3 despite still persistent inflation.”
He noted that the business was weakened by poor availability, with the transition from branded to more own-label products leaving gaps on the shelf as the grocer struggled to keep up with consumer demand for low prices on food.
Dawson concluded: “The retailer has recently made changes in its leadership, with a new marketing director and chief customer officer starting in recent months, but still lacks a CEO, something that will be a handicap to efficient management of the company. Ultimately, it is important that the retailer does not lose focus of the core business going into the golden quarter and must seek to improve its shopkeeping to avoid losing out on sales due to poor availability and lack of range.”
NAM Implications:
- Much depends on stakeholders’ appetite for risk in uncertain times.
- Especially in times of unpredictable interest rates.
- And with it, some suppliers can be wary re extent of credit given.
- Otherwise, slowly improving…
