Asda’s nightmarish Q2 update was good news for its rivals, not just because the 7.5% LFL tumble was further evidence of how far it lags its peers.
But also because it refrained from firing the starting gun on further price investment.
A large-scale investment in this area, which was expected by many, would have led to chatter about a renewed price war, and that would have been unhelpful for the UK’s listed grocers’ share prices, to say the least.
Instead, Walmart boss Doug McMillon said its UK arm would focus on “retail basics”.
“We are simplifying and strengthening our offering through improved availability and assortment discipline, reducing costs and driving sales through strategic price investments,” he said.
“[Walmart] is outlining a rational plan within existing price parameters. We believe that this is good news for sector sentiment, particularly for the UK listed supermarket groups”
Clive Black, grocery analyst
Asda had already pledged to invest £1.5bn over five years from 2013, and grocery analyst Clive Black was among those pleased to see that the supermarket giant did not reveal plans to expand that.
“There has been much market speculation about what Asda may or may not do to solve its trading woes, with some suggestions that a form of retail Armageddon was about to strike the UK,” said Black. “Indeed, such views have unnecessarily weighed upon sector sentiment to our minds.
“Today, we believe that Walmart dispels such a possible expectation; that it is outlining a rational plan within existing price parameters. We believe that this is good news for sector sentiment, particularly for the UK listed supermarket groups.”
Quality and service
Price of course is no magic bullet, particularly for a grocer that already prides itself on affordability through its everyday low prices proposition.
It is something that will not have been lost on new Asda boss Sean Clarke, and all eyes will be on him in the coming months to see which levers he intends to pull so the grocer starts bringing home the bacon once more.
Certainly the change in rhetoric from the business is a step in the right direction. Walmart has gone from justifying sales slumps by highlighting protected margins to using words such as “turnaround”, and reassuring shareholders that the retail giant is “addressing this with urgency”.
And given Asda’s downward sales trajectory, urgency is paramount.
Kantar figures today showed Asda’s total sales declined 5.5% in the 12 weeks to August 16. That compares with a 0.4% slide at Tesco, Sainsbury’s 0.6% drop and Morrisons’ fall of 1.8%. The Walmart-owned grocer has a huge mountain to climb to turn that around, and price alone won’t do.
- Nicola Harrison is content editor at Retail Week