On the money: Price strategy paying off, insists Asda

Asda CEO Andy Clarke has insisted the retailer's moves to lower prices on "essential" products are working despite sales slowing in the last three months of its financial year.

The UK's second-largest retailer invested GBP100m in the price of products including bread and milk in the second half of the year, which it said hit its revenue in the final part of the year.

Like-for-like sales, excluding fuel, inched up 0.1% in the 14 weeks to 5 January. Asda's share of grocery sales dipped from 17.5% to 17.3% year-on-year. Over the 12 months as a whole, Asda's underlying sales were up 1%.

However, speaking to reporters yesterday (21 February), Clarke said Asda made a "conscious decision" to "hold back inflation" and increase volumes. Recent Nielsen data, he insisted, showed Asda had made the right move.

"We've made decisions that we think are decisions for the long term in terms of investment. Customers continue to tell us that the investment we have made in essentials is important to them. The way we have started this year and the share data we've seen has given us confidence we made the right decision no matter what the rest of the market did," Clarke said.

In a note published after the media conference, Conlumino analyst George Scott said Asda had "under-performed main rivals Tesco and Sainsbury's". He added: "As we move further into 2013, Asda will be concerned about the impact of a resurgent Tesco, which is investing heavily in its own price credentials," Scott said.

CFO Richard Mayfield said Asda had seen its volumes rise in recent weeks. "Ever since we started to make that investment, the volume trend has turned positive and for this year to date our like-for-like volumes are in positive territory," he said. Reflecting on the decline in grocery volumes seen in the UK in recent years, Mayfield insisted Asda's volume performance was a "very positive story for us".

Looking at the macro-economic environment, Asda said 2013 would be similar to what was a "tough" 2012. Clarke said the year would be "very tough" for consumers. Asda, he said, would continue to invest in the prices of "essentials" to help shoppers manage their budgets.

"There will be continued investment, supporting essentials investment, investing in these key categories. We'll continue investing in EDLP strategy. That's the way we do business. It's in our DNA," he said.

The UK arm of Wal-Mart Stores did not publish profit figures but Mayfield said Asda was "pleased with its profit performance". The retailer's work to "step up our energy" on sourcing, including through IPL fresh foods arm, had helped it manage its costs. "We've seen profits grow and grow slightly faster than sales," Mayfield said.