Comment: Asda still leads the big four despite its sales decline

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Asda’s 1.6% fall in like-for-likes indicates just how challenging the British supermarket scene has become.

That falling like-for-like for Asda actually represents out-performance of its big four competitors and management stated Asda gained nine basis points of market share taking it to 17.3%.

Asda’s strategy has been sensible and ahead of the curve compared to its big four peers. Management identified the need to simply its offer with a stronger base pricing, albeit promotional participation remains high.

To its credit it reduced couponing and vouchering and, we sense, de-emphasised its Price Guarantee, not least because we believe that Brand Matching, Price Promising and Price Guaranteeing reflect activities of an out-of-touch superstore industry.

Indeed, it is no coincidence that the fastest growing grocers in the UK had low promotional activity, no loyalty cards and no price matching schemes.

Grocery discounters’ free lunch ending

Significantly, Asda also makes direct reference to the limited assortment discounters (LADs). The importance to us of this is that the big four have been somewhat in denial about the LADs until now.

We have said for some time that the ‘free lunch’ that the grocery discounters lunch have enjoyed will come to an end and we see growing evidence of this.

Asda is overtly talking about setting sights on the discounters, pointing to a further narrowing of price differentials. And pointedly, Asda is outlining that it has 10 times the choice of the LADs.

We believe that with more effective pricing strategies each of the big four can start to better sell their assortments versus the grocery discounters.

Sainsbury’s has responded in this respect with its own targeted price cuts, £150m annualised, including under-cutting Aldi on private label nappies, whilst it has also entered the LAD’s space with its joint venture trial with Dansk through the Netto fascia.

Morrison’s has introduced price comparison into its ‘Match & More’ programme, seemingly much to the amusement of Lidl and chagrin of Aldi; we find Aldi’s somewhat nasty advertisement mocking ‘Match & More’ as an interesting cultural sign - arrogance and/or hubris maybe?

The whole UK food chain awaits the announcement of Dave Lewis’ strategy for Tesco, which is expected‎ by us in Spring 2015. Whilst not seeking to pre-judge any change in Tesco’s proposition, we cannot believe that it is going to make the competitive environment any easier.

Asda’s cost-cutting

The drive to greater price competitiveness by Asda has been part funded by internal initiatives such as a cut in central and store overheads. Additionally, in its Q3 update Asda’s management has sought to give prominence to its in-house food procurement business, which it states has delivered £190m of savings from eight years.

‎Asda is performing soundly in a demonstrably tough and changing British grocery market. We would expect the group to continue to make progress in grocery, online and George.

There was scant mention of the apparel retailer’s performance in the update albeit we would have expected the warm autumn to have compressed sales.

With capital discipline and tight cost control we would expect Asda to make further progress in 2015. However, with its big three competitors in various phases of fight back, we expect the customer to benefit most of all from the increasingly competitive scene.

For the LADs we ‎expect them to continue to make progress, perhaps more driven by new space than like-for-likes. It may be 2016 before the dust truly settles for the British grocers.