UK retailer Asda yesterday (16 August) booked an increase in second-quarter sales but sales slowed in the most recent three months of its financial year. CEO Andy Clarke said he was “proud” of the retailer’s performance in the quarter, but analysts generally gave a mixed view of the performance.
Kantar Retail analyst Bryan Roberts:
“They are a thoroughly acceptable set of figures in the context that the market has become brutally competitive, even more than it was already. There is obviously a lot of noisy competitor activity in terms of promotions, including those linked to petrol, which I think is top of mind for shoppers at the moment. There was obviously a slowdown as we progressed through into Q2, but I think even the relatively modest Q2 growth will actually stand up pretty well against some of the competitors when their equivalent quarters are revealed.
“Asda are very keen to play-up to the simplicity of their EDLP proposition but they are reasonably promotional themselves through roll-backs, so even though these promotions are probably more gentle and longer than a lot of the high profile promotions of other retailers, they still have the promotions in place. A lot of the other retailers will be claiming their promotional mechanisms are successful, but I do sympathise with Asda’s point of view that some of their competitors are effectively buying market share at the moment rather than earning it.”
Conlumino analyst Joseph Robinson:
“Asda’s performance reflects a more difficult phase of growth for the food & grocery sector more generally. Competitive pressure in the market are intensifying, in no small part to a marked increase in the level of depth of promotional activity being employed by rivals – and in particular Tesco. Elsewhere, in addition to continued weakness in consumer discretionary income, easing food inflation has also had the inevitable impact on growth rates.
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“Looking ahead, the recent resurgence in the performance of Tesco will inevitably be of some concern for Asda. While the current level of promotional activity recently employed by Tesco can be viewed as unsustainable in the long term – particularly as it is running concurrently to the grocer’s significant investment into renewing its store portfolio – we do believe that it will continue to act aggressively on this front until its performance has caught up with rivals.”
“Q2 at Asda was a little bit slower than Q1. The market data does suggest they have had some market share gains, but I think Asda’s outperformance has reduced a little bit on that point. It is hard at the moment trying to understand what the weather impacts are, as well as the Olympics and Jubilee. It does feel like there is generally quite a lot of smoke and mirrors around the industry as a whole.
“One thing from Kantar data implied there was a bounce-back in trading, although we think that food inflation might go up again, so from a longer-term outlook I wouldn’t necessarily say so. The Kantar data means there will be a prolonged bounce-back in trading and that inflation could have a bad effect on volumes going forward.”