Analysis: What does Asda's performance mean for the market?

Chief executive Andy Clarke has been quick to state that Asda “has momentum” and, a year after the £778m acquisition of Netto, it’s hard to argue against the statement.

Clarke said Asda won the battle for Christmas grocery spend and the increasing number of online checks for its Asda Price Guarantee (APG) – the grocer reported 500,000 online checks per week in the first quarter – would seemingly dispel Sainsbury’s boss Justin King’s assertions that people do not want to go to the effort of going online and entering their receipt to save money. King argues Sainsbury’s Brand Match saves this effort.

But Asda chief financial officer Rob McWilliam believes the exertion required only proves the increasing popularity of the tactic. He told Retail Week: “It shows the level of engagement people have with our brand that they do put that they bit more effort in ensure great value.”

Conlumino analyst Matt Piner says: “Asda has also benefitted from its focus on value, with gloomy consumers once more looking to make savings when shopping for essentials. This is reflected in its particular success in core grocery and children’s apparel, as hard pressed shoppers look to slash their weekly bills for food and clothing.”

So where does it sit in the grocery market? The two buzz words in grocery this year (aside from ‘profit’ and ‘warning’) have been ‘fresh’ and ‘service’.

On the first, McWilliam believes Asda is now reaping the benefits of investing in quality – through its tie up with Leith’s Cookery School and the grocer appears to have made the difficult shift from offering low price to offering quality low priced goods without alienating its core market, something commentators have warned Morrisons could risk doing with its more upmarket own label offer.

In terms of service, Asda has used extra staff to help customers find products more easily and get through the checkouts more quickly – two of customers’ biggest bugbears.

At its rivals, Sainsbury’s is investing in training its counter staff, Morrisons has benefitted from small changes such as opening up its counters later to give the fresh offer the authenticity of setting up in front of shoppers and Tesco has launched its much vaunted £1bn plan to bring extra staff in store and improve the shopping experience.

The Netto acquisition has given Asda a record market share but Sainsbury’s has also made gains to record its strongest share since 2005 as Tesco and The Co-operative have leaked market share.

Direct first quarter comparatives between the grocers are difficult – Morrisons reported a Q1 like-for-like slip of 1%but blamed it on strong Royal Wedding comparative and the weather – while Asda’s first quarter runs to the end of March including excellent early spring weather.

All eyes will be on the next set of Kantar data, to see whether Tesco has arrested its slide and whether Asda can translate its on song performance to further organic market gains.

But it remains clear that the middle ground in the grocery market is as tight as it’s ever been. Constant fuel cuts, price matching and similar promotions paint a picture of a market where everything is being thrown at the consumer just to get them to walk through the door while wallet remain tight. Asda appears to have been one of the main beneficieries, with customer numbers up 2.9% like-for-like in the first quarter.

So where are Asda’s customers coming from and how long will this belt-tightening last? McWilliam concludes: “We do not care where they come from. Consumer conditions could go either way. The celebrations could prove to be the catalyst for consumer confidence to open up for the summer.”