Asda Lifts Goal for Smaller Stores as It Adds Netto

(Corrects to show Asda sales growth slowed in 7th paragraph.)

Wal-Mart Stores Inc. (WMT)’s U.K. supermarket chain Asda raised its target for smaller-format shops to 250 as it integrates the purchase of the 147-store Netto chain and opens more outlets, Chief Executive Officer Andy Clarke said.

“There’s a gap in the market,” Clarke said at a press conference at a supermarket in South Harrow, London today. The stores, which are between 5,000 and 25,000 square feet, are smaller than the company’s so-called Supercenters and offer a range of items broad enough that customers can buy all the groceries they need for a week at the same prices as at a larger shop. Last April, Asda said it expected to open 100 such outlets in five years.

Asda, which spent 778 million pounds ($1.3 billion) last year on the purchase of the Netto discount chain, was forced to find buyers for 47 of the stores after the U.K. Office of Fair Trading voiced competition concerns. The retailer is opening 8 smaller stores a week and has converted 61 Netto outlets so far, with its 100th supermarket opening next week and aims for 180 of the format, which it refers to as supermarkets, by year-end.

“We’re bringing back old-fashioned supermarkets where you can get everything you want,” said Karen Hubbard, Asda’s operations director of supermarkets. The average basket size at the existing smaller stores is 15 pounds and shows there is opportunity for the full-weekly shop in smaller stores, she said.

Baby Sleepers

In the 8,500 square-foot South Harrow store in west London, the retailer has 8,600 product lines including fresh produce, a bakery and roast chicken counter. It also has a selection of non-food items like the George brand of children’s socks and baby sleeper suits.

“Part of it was Netto and part of it was confidence in the proposition,” Hubbard said of the increased rollout. Sales at the converted stores are in excess of 50 percent more than they were at old Netto stores. Asda’s other formats include Supercenters, which are about 85,000 square feet, and Asda Superstores, about 46,500 square feet.

The U.K.’s second-largest supermarket chain’s combined share of the grocery market including Netto slipped from 17.5 percent to 17 percent in the 12 weeks through July 10, according to Kantar Worldpanel data. Clarke is betting fuel discounts and a pledge to sell groceries at least 10 percent cheaper than major competitors will help to reverse the slowdown in the pace of sales growth.

Leeds, England-based Asda reports second-quarter sales tomorrow. Revenue growth slowed in the first quarter of the year to 0.8 percent on a same-store basis excluding value-added tax, as customers faced rising inflation, higher taxes and record gasoline prices. That compares to growth of 1.6 percent in the fourth quarter.

Iceland Foods

“It’s going to be a tough second half,” Clarke said. He will continue to push prices lower. The retailer said customers are nine pounds a week worse off than a year ago according to its monthly income tracker survey.

On Iceland Foods Ltd. Clarke said he is only interested in individual stores if they become available. Landsbanki Islands Hf, which owns a majority of the grocer, has begun a process to sell a stake in the business.

“A lot of those stores are below 5,000 square feet and that discounts us,” he said.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

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