Asda reveals expansion plans after difficult year

Asda is to invest £600m opening 17 new supermarkets and revamping 62 more, despite undergoing a tough 12 months of flatlining sales and profits.

This year’s expansion plans are in sharp contrast to Asda’s major rival Tesco, which is shutting stores and selling off development sites. Sainsbury’s and Morrisons have also reined in expansion.

Asda plans to open six large superstores, 11 supermarkets and 36 petrol station outlets in the year ahead as well as adding more than 150 new locations where shoppers can pick up groceries ordered online.

“Whether they are 50,000 sq ft or 10,000 sq ft, the majority of customers still want to come and do their shop in a store,” said Andy Clarke, Asda’s chief executive. “We have fewer large stores and an opportunity to open more supermarkets than some of our competitors.” He said Asda was particularly keen on opening stores in the south of England and London.

The supermarket is also reworking its logo, introducing a sunshine element and the slogan “Save money. Live better” – which is used by its parent company, Walmart. The new company slogan replaces Asda’s “saving you money every day” line which has been in place for six years.

In a tough market that Clarke said was going through “one of its most challenging and changeable periods in history”, Asda said total sales rose 0.5% for the year to 4 January after it opened 17 new stores. Profits rose by about the same amount. But underlying sales, which exclude new store openings, fell by 1% – the first annual decline since 2008.

The figures were dragged down by a difficult final three months of the year when sales at established stores fell 2.6%. Asda blamed heavy use of discount vouchers for a significant step-down in performance from the 1.6% fall it recorded in the previous quarter.

For the key Christmas period, that put Asda ahead of Morrisons, where sales fell by 3.1% in the six weeks to 4 January, but behind Tesco where sales fell 0.3% over almost exactly the same period and Sainsbury’s where sales fell 1.7% in the three months to 3 January.

“I am pleased with a solid performance in an incredibly difficult market,” said Clarke. “The pace of change accelerated in 2014 and will continue in 2015 which will be a very challenging year.”
Clarke said the step-down in performance was a result of Asda’s refusal to follow its rivals by sending out thousands of discount vouchers and reflected “a competitive market where retailers took a decision to drive unprofitable sales”.

He said this year, and potentially next, would continue to be very tough for grocery retailers. But Clarke said he would not be diverted by “kneejerk short-term decisions” and “gimmicks”.

Analysts said Asda’s performance was disappointing and it was losing market share, as Tesco and Morrisons appeared to be undergoing a revival. “With both of its key competitors regrouping, Asda may find the going quite challenging in the year ahead,” said Clive Black of Shore Capital.

Asda cut prices by £300m last year and plans to invest at least £700m in more cuts over the next four years. The supermarket claims it is now at least 8% cheaper than its “big four” rivals and has halved the price gap with discounters to 10% over the last two years.