Asda’s chief executive is getting ready to fight off a revived Tesco.

Asda boss Andy Clarke is locked in retail combat with his Tesco counterpart Phil Clarke to offer customers the best deals

Andy Clarke must feel like Steve Ovett used to. The harder the chief executive works to prove Asda is the best-performing grocer, the more he is asked about his old foe – in Asda’s case, Tesco and his old namesake there.

But all rivals – such as former middle-distance runners Ovett and Lord Coe – need each other to thrive and Asda’s battle with Tesco in 2012 is enthralling.

Asda last week reported a 0.7% increase in like-for-like sales in the 13 weeks to June 30, a slower rate of growth than the 2.2% recorded in the first quarter, but still a performance of which Clarke is “proud”.

Analysts welcomed the result amid a difficult period that included the wettest quarter for 100 years, a highly competitive market and disruption to trading because of extra bank holidays.

Asda has kept up momentum since Clarke declared that it had “won” last Christmas. Kantar Worldpanel data for the 12 weeks to August 5 revealed that Asda had grown 6.2%, the strongest performance of the big four.

Phil Clarke

Phil Clarke

However, four-week Kantar data to August 5 showed that Tesco notched up the strongest growth at 5.1%, ahead of Asda which recorded 4.9%. Tesco’s showing followed a strong performance as evidenced by Nielsen data the previous week.

Clarke doesn’t discount suggestions that Tesco is starting the long road to recovery. “It’s pretty clear. Kantar is reporting numbers that tend to show what’s happening in the market,” he says. But he maintains: “We are driving continued sustainable growth.”

Tesco is in the middle of a comeback campaign, including making its stores “warmer” and drafting in more staff to help customers. Once complete, it hopes its stores will rival competitors on key metrics including fresh food and store standards.

Planet Retail analyst Natalie Berg observes: “The one thing keeping Leeds [where Asda is headquartered] awake at night is the prospect of a revived Tesco.

“Asda has gone from strength to strength over the past couple of years and, while a lot of this has been down to a well-executed strategy, there’s no doubt that it has been able to exploit Tesco’s recent frailties.

“It will take a good 12 to 18 months before Tesco’s turnaround plan really begins to take hold. It has lost trust with its shoppers and you can’t rebuild credibility overnight.”

Needle match

Asda’s relative quarterly performance is difficult to measure in some respects. It was the first of the big four to report its second quarter and analysts believe it will record a similar rate of growth to Tesco, behind Sainsbury’s and ahead of Morrisons.

Moreover, Asda’s £778m acquisition of Netto will begin to annualise over the next few months so any significant changes in market share in the coming period will be organic.

But the battle between the Clarkes – Asda’s and Tesco chief executive Phil – shows no signs of losing its needle-match quality. The Asda boss last week again fired off a broadside against his rival. “Anybody can buy sales,” he argues, referring to a Tesco deal on money off fuel that required a £50 spend including 10 commonly bought items.

And Asda finance director Rob McWilliam says customers were being forced to “play basket bingo” by Tesco. “There have been an enormous number of gimmicks to disguise a weak pricing position,” says McWilliam.

He adds that competitors’ deals have become increasingly specific and observes: “Where is it going to go next? If you spend enough will you get enough petrol to go to Mars and you can take the kids with you?

“We do not follow this, it’s about giving customers enough to live sustainably day in, day out.”

In a market of declining sales volumes and unprecedented budgeting by consumers, the fight among supermarket groups to prove the best value remains hotly contested.

Asda has employed an everyday low price (EDLP) strategy to offer low-priced goods year-round, combined with price promotions. However, the grocer has not completely distanced itself from deals, offering £5 off £40 of spend vouchers at key times, including prior to the Jubilee.

EDLP focus

The grocery market has been dominated by vouchers this year. IGD data released last week revealed that 59% of shoppers expect to use more vouchers this year and Morrisons is rolling out its new ‘coupon at till’ scheme.

But Clarke says: “We are on a very clear plan to focus on EDLP. We do have promotional content but proportionally EDLP is the most important measure. Anybody can buy sales.”

Bryan Roberts, retail insights director at Kantar Retail, has some sympathy with Clarke’s view. He says: “It’s not rocket science, but those fuel deals are not easy to navigate. Tesco said when it introduced the Big Price Drop last year that it wanted to make it easy for people to navigate promotions, but it can still be difficult for shoppers to know if they are getting the best value navigating bogofs, Price Drop, fuel deals and Clubcard deals.

“Yes, Asda does have vouchers and the Price Guarantee, but it is the easiest to discern whether you have value for money.”

Berg, who co-authored a book on Asda parent Walmart with Roberts, thinks the UK retailer may be hamstrung to some extent by its US owner. She says: “There’s mounting pressure from [Walmart’s base] Bentonville for Asda to stick to an EDLP approach. However, in highly promotional markets such as the UK, Brazil and South Africa, the reality is often very different.

“The Asda Price Guarantee enabled it to deliver a strong and consistent value message without getting embroiled in nasty price wars. It has been able to capitalise on the trend towards price transparency and, crucially, build trust with shoppers, which is really the foundation of EDLP.”

She adds: “Although EDLP can be a bit restricting at times, Asda is well positioned to cater to the trend towards honest pricing. Many shoppers are getting fed up with gimmicky promotions. They don’t want to buy two products to get one free.”

Investing in quality

News this week that Ocado is running a trial in Manchester offering a guarantee it will be cheaper than others on a basket of goods has sparked fears there will be a grocery price war.

With Ocado’s investment in price perhaps limited by the investment that it is making in its second distribution centre, it is likely to ultimately be left to traditional foes Asda and Tesco to fight it out on price – on which Morrisons also competes – while Sainsbury’s, Ocado and Waitrose match certain sized baskets.

Asda is benefiting from the global buying power of Walmart, as well as efficiencies in fast fashion gained by its acquisition of the sourcing arm of Turkish supplier GAAT in March.

Asda has invested £113m to improve the quality of its food over the past two years as it seeks to balance its price and quality proposition. Although premium grocers such as Marks & Spencer and Waitrose are unlikely to be concerned they will lose shoppers looking for top-end food to Asda, the latter’s tie-up with cookery school Leiths has given its offer more credence.

In the past two years Asda has improved its SmartPrice brand, launched the mid-level Chosen By You proposition and teamed up with Leiths on its Extra Special range.

Conlumino analyst Joe Robinson says: “Traditionally benefiting from strong value credentials, there is a very real danger that a failure to evolve traditionally weak consumer perceptions regarding quality will leave it susceptible once the economy starts to recover. However, Asda has been pro-active in its attempts to prevent this.”

Berg adds: “There’s still room for improvement but Andy Clarke has done a fantastic job transitioning Asda from being purely price-led to offering genuine value for money.”

Spaced out?

Andy Clarke remains cagey about the future of Asda’s store estate as the industry debate over the future of the hypermarket continues.

Sainsbury’s and Asda have downplayed how many large stores they have, and Asda’s Clarke would not be drawn on plans for his largest stores although Tesco has admitted some of its stores do not need to be as big because of the migration online of non-food sales.

“That’s not something for today,” says Clarke in response to the suggestion Asda may follow Wickes in renting out space to other retailers – in the latter’s case to Pets at Home. Analysts have also suggested the grocers could rent out space to services such as dry cleaning and car maintenance.

Asda Living store openings have been slower than originally forecast

Asda Living store openings have been slower than originally forecast

Ambitions for the Asda Living fascia have also been scaled back – only 30 of the 100 stores originally planned to open by 2015 have been launched. “The market has been tough for non-food, whether it is general merchandise or clothing,” says Clarke.

But Clarke and McWilliam were exultant about the opening of a new Asda in Inverness earlier this year.

Traditionally known as a ‘Tesco town’ because there are four of the market leader’s stores there, Asda claims to have been a hit, bringing lower petrol prices to the town.

Asda is also stepping up its multi­channel efforts. Online sales are growing at a rate of 20%, fuelled by large gains in mobile. Its grocery home shopping hubs in Leeds and Enfield are also performing well and two further hubs are planned. Asda is also researching options for mobile payment in stores.

Ultimately, gaining traction in a market Roberts describes as “extremely cutthroat” is no easy feat. The flurry of promotional vouchers is likely to continue while tight consumer conditions show few signs of abating. Grocery inflation has been easing in recent months, although Clarke says Asda is closely monitoring the difficulties in US agriculture, which could negate investments in price.

Asda has so far positioned itself well in a market dominated by unprecedented budgeting. Andy Clarke will now have to wait to see whether his namesake has any further punches to throw.

Nick Bubb: The Spin Cycle

Nick Bubb

Nick Bubb

Most businesses would say that performance is more important than PR spin, but last week the formidable Asda PR machine was in full flow.

It’s hard to say where this relentlessly positive approach comes from, as the likes of former Asda boss Andy Bond and chief executive Andy Clarke seem relatively laid-back characters, but it is very ‘American’. It is, no doubt, not a coincidence that Asda has a US parent, although the tone of Walmart’s own statements is quite restrained.

Clearly, it’s not easy for Asda, which was a PLC before 1999, being a minor offshoot of the international division of Walmart and being constrained by its reporting and disclosure standards. But it can sometimes be an advantage that Asda doesn’t have to report to the City every quarter on the minutiae of its profit performance and can carry on ‘getting its message across’ without too much scrutiny.

And Asda isn’t the only big food retailer with a big PR department, as Sainsbury’s and Tesco are no slouches in emphasising the positive.

To be fair, it’s not all one-way traffic with Asda, as it gives a lot back via the useful surveys that it sponsors and makes available: the Income Tracker produced by CEBR and the Mumdex.

Nick Bubb is a UK retail analyst and founder member of the KPMG/Ipsos Retail Think-Tank.