Asda sales growth slows as lower inflation takes toll

The retailer posted third quarter like-for-like sales, excluding petrol, of 5.6%, down from 7.2% in the second quarter.

The deceleration was attributed to lower food price inflation. Asda said it had increased market share from 16.9% to 17.3% and that profits are growing faster than sales.

Chief finance officer Judith McKenna said: “Asda continues to be in excellent health, with every part of the business – food, home and leisure, and clothing – all outperforming their respective markets. The slowdown in sales is due entirely to the reduction in food inflation.”

Asda said it is cutting the cost of Christmas by £150m for customers. The figure was calculated by comparing prices every week for the last six weeks at comparison site mysupermarket.co.uk. Had customers bought their shopping at a rival store, they would have spent nearly £50m more on their groceries according to Asda.

As Asda positioned itself on price for the festive season, arch-rival Tesco said it was saving shoppers £250m with cuts on goods ranging from Christmas food to toys.

Oriel analyst Jonathan Pritchard said Asda’s point about the impact of lower inflation was “fair enough” but added that, after a period of underperformance Tesco, the market leader, is returning to form.

He said: “We don’t think that Asda is losing market share by any stretch of the imagination but it is clear its lead over the industry leader is slipping.

“We think that Tesco is showing renewed form in like-for-like trading terms and that the mail-out of Clubcard vouchers will help further.”

McKenna said Asda is seeing its customers spending more time as a family at weekends, with its fastest growing areas in food were fresh meat and take away food from its in-store counters. She said: “That’s no surprise when you consider people are turning Saturday evenings into a real family affair. It’s just like the 1970s with the Generation Game and Morecambe and Wise. Now, nearly half of our customers are tuning in to Strictly and X-Factor each week.”

She said Asda is benefitting from the “X-Factor Factor” as shoppers stock up on party food and fresh pizzas.

Based on these figures, Asda predicts it will save its customers a total of £150m. Asda chief finance officer Judith McKenna said: “This year will be the most aggressive on price in a decade, which is good news for Asda shoppers. We are also enabling our customers to spread the cost of Christmas over a longer period of time, with tailored events and longer rollbacks on key items.”

This week Asda is also slashing the price of electrical items. Products include a Philips DVD player for £40, down from £50, a Fuji 10 Mega Pixel camera for £53, down from £73, and a selection of Blu-Ray DVDs available on a ‘2 for £20’ deal.

McKenna said previous events on other categories such as toys and clothing have been successful. She said the toy event was “a huge success” with its £35 dolls house selling out - over 30,000 items - in a few days.

On the VAT rise on January 1, McKenna said Asda “will do what we can to keep prices low”.