Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

What's worse than a nadir?

Clearly, Asda's latest same-store sales. They fell by 7.5 percent in its second quarter, the most dismal performance in its more than 50-year history.

A year ago, when same-store sales fell 4.7 percent, former chief executive Andy Clarke said that was the bottom and that trading was about to perk up. He was wrong, and that's probably why he was ousted in June.

Worst Ever
Asda's sales are getting hit by food price deflation and intense competition
Source: Bloomberg, company reports

Things have only gotten worse. Over the past year, German discount supermarkets Aldi and Lidl have continued to win customers. Tesco and Morrisons are fighting back, with lower prices and improvements to stores.

The pain at Asda is all the more stark given the performance of its parent, giant Wal-Mart Stores, which reported its eighth straight quarter of same-store sales growth in its U.S. home market on Thursday. In fact, the world's biggest retailer increased its annual earnings forecast.

Down, Down, Down
More than two years of food-price deflation have taken their toll on Wal-Mart's U.K. grocer, Asda
Source: U.K. Office for National Statistics

 

Given the dire performance, it stands to reason that Asda would launch a fresh price assault. There was little mention of this on Thursday. That doesn't mean it's not coming.

New chief executive Sean Clarke is likely to try to remedy other problems first before launching a price offensive. That would echo the approach taken by Dave Lewis, when he became chief executive of Tesco in 2014. There's no point in trumpeting great prices if stores are scruffy and products aren’t on the shelf.

As Gafly has argued, there's a lot at stake. It's time for Wal-Mart to step up or ship out of Britain.

Asda's rivals and their investors are right to be nervous about its next move. If its last stand means another price war, rival U.K. grocers need to brace themselves for collateral damage.

--With assistance from Gadfly's Shelly Banjo in New York

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net