Asda Vows to Continue to Drive Down Prices as Sales Slow

Asda, the U.K. supermarket chain owned by Wal-Mart Stores Inc., said it will continue to reduce prices on basic food products such as bread, milk and eggs to lure cash-starved shoppers away from discount rivals.

“The family purse continues to be squeezed” as inflation outpaces wage growth, Asda Chief Executive Officer Andy Clarke told reporters in London today. The company invested 100 million pounds ($153 million) last year to lower the prices of “essentials,” he said.

While the strategy has helped drive volume growth it also damped sales in the fourth quarter, when revenue at stores open at least a year advanced 0.1 percent, lower than a 0.3 percent gain in the previous quarter, Chief Financial Officer Richard Mayfield said.

The U.K’s second-largest grocer is struggling to maintain market share as an economic slump and the prospect of rising inflation is curbing household spending, prompting shoppers to turn to discounters Aldi and Lidl. Asda, which has more than 500 stores in the U.K., is also facing a reviving Tesco Plc.

Clarke declined to say whether the cost of lower prices in the current year will match last year’s figure, though the CEO said the amount would be “significant.” Expansion

Asda said today it will expand the delivery capability of its clothing retailer to 24 countries, including Spain, France and Denmark. The company will also open more franchise stores in the Middle East, making the brand available in 35 countries, it said in a statement.

The slight sales gain in the 14-week fourth quarter ended Jan. 5, at stores open at least a year and excluding fuel, compares with 1 percent gain for the fiscal year. Asda’s market share slipped to 16.7 percent in the 12 weeks to Feb. 2 from 17.1 percent a year earlier, according to Nielsen data released on Feb. 13.

Even so, Asda’s operating income grew faster than sales in the fourth quarter, Doug McMillon, Wal-Mart CEO of international operations, said on a call with investors.

Wal-Mart, the world’s largest retailer, said today that its fourth-quarter profit rose 8.6 percent, topping analysts’ estimates, as a wider variety of merchandise and lower prices drew shoppers. The company also projected first-quarter profit that trailed some analysts’ estimates.

Net income increased to $5.61 billion, or $1.67 a share, from $5.16 billion, or $1.50, a year earlier, the Bentonville, Arkansas-based company said today in a statement. The average of 22 analysts’ estimates compiled by Bloomberg was $1.57.

Spending Pressure

U.K. retail sales unexpectedly fell in January as cold weather kept consumers at home and incomes remained under pressure, hurting spending on food, household goods and fuel, the Office of National Statistics said Feb. 15. Food sales fell to their lowest level since April 2004 in January, declining 1.6 percent on the month and 2.6 percent from a year earlier, the statistics office said.

Asda, along with most other U.K. supermarkets, was also forced to withdraw mislabeled beef products that contained horse meat, in a food scandal that has now spread across Europe.

Pressure on consumers may continue after some of the U.K.’s biggest utilities raised gas and electricity prices. Inflation, which was at 2.7 percent last month, may accelerate in the near term and remain above the Bank of England’s 2 percent goal for two years, the central bank said Feb. 13. By comparison, annual wage growth was 1.4 percent in the quarter through November, ONS data show.

“It’s been a tough year economically,” CFO Mayfield told reporters in London. “Inflation went up faster than wage growth and we don’t see much improvement for customers this year.”

(Updates with CEO comment in second paragraph.)
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