Asda delivers strong sales after customer traffic hits record highs

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Asda attracted more than 18 million customers a week for the first time in its 44-year history, but falling food inflation pegged back its recent powerful sales growth.

The Wal-Mart-owned grocer posted underlying sales, excluding fuel, up by 7.2 per cent in the three months to 30 June, down from 8.4 per cent in the previous quarter.

Judith McKenna, the chief financial officer at the UK's second-biggest grocer, attributed the dip in sales to the "lowest food price inflation for two years", adding that the price decline had continued into the current quarter.

However, she pointed out that Asda had carried on growing its sales volumes. "We continue to outperform the market and our own expectations."

Asda has emerged as one of the big winners in the grocery sector during the recession, with a growing number of customers across the social spectrum flocking to its stores, although its growth has dipped behind rival Morrisons recently.

For the 12 weeks to 13 July, Morrisons delivered sales up 9.5 per cent, compared to Asda's 8.1 per cent, Waitrose's 8.2 per cent, Sainsbury's 7.7 per cent and Tesco's 5.7 per cent, according to TNS Worldpanel.

Ms McKenna said that Asda had benefited from its low-price message at a time when consumers are shopping around for value. She said: "Undoubtedly customers are more promiscuous than they were a few years ago, but they are definitely trying us for the first time and staying with us."

In particular, she cited strong sales of fresh meat and frozen food, which had been boosted by the trend of more customers cooking from scratch at home, and minimising the amount of waste, during the downturn.

While Ms McKenna did not comment on current trading, she said that the recent wet weather had driven sales of more unseasonal food. "We have seen things such as soups and cold weather food, so comfort eating seems to have been a trend."

But she said that, like other grocers, Asda's organic food sales growth had declined. "We have not trimmed back the ranges on organic. We have still got healthy sales, but they are not as strong as they were 12 months ago."

In clothing, Ms McKenna said that its George range had continued to "outperform the market strongly". More specifically, Asda said that its 100-day guarantee on back-to-school clothing had been a hit with customers. However, the grocer has scaled back the opening programme for Asda Living, its non-food format of which it has 22 stores. Previously, the grocer had planned to open five Asda Living stores this financial year, but this will now just be three.

Ms McKenna warned that next year will be a "challenging" one for the retail industry, saying that consumers will continue to pay down debt and, therefore, be more "cautious" on spending. "It is not going to be straight line recovery. There will be twists and turns in it and 2010 will be a challenging year for our customers."

Yesterday, parent Wal-Mart delivered second-quarter profits of $3.4bn, compared with $3.45bn in the same period last year.

Asda shows its rival Tesco a clean pair of heels

Back in 2005, Tesco was giving Wal-Mart-owned Asda a good kicking. By the admission of Andy Bond, Asda's chief executive who took the helm that year, its store standards were not up to scratch and its product offer needed to be sharper.

Skip forward four years and the game has changed. In fact, Asda's sales growth has outstripped its much bigger rival for more than a year, and there is a feeling that the Leeds-based grocer has real momentum. Yesterday, Asda delivered further evidence that it is on a roll, with underling sales up by 7.2 per cent for the second-quarter to the end of June. Granted, its growth has eased back over the period – attributed to falling inflation – and has fallen behind that of Morrisons.

But Asda was growing before the credit crunch reared its ugly head and it has positively thrived during the recession. While a growing number of shoppers have been attracted to its aggressive price promotions over the past year, new customers, often from the AB socio-demographic class, have kept coming back for affordable, quality food.

In other areas, Asda – with 367 food stores and 22 non-food formats – has also taken the battle to Tesco by expanding its non-food offer, bolstered by the powerful George clothing brand, both in store and online, as well as expanding its home shopping grocery coverage.

The only problem for Asda is that its chances of catching Tesco, whose 2,282 stores and market share of 30.8 per cent dwarfs Asda's 17 per cent, are remote to say the least. The difference in size is the main reason why Asda is so keen for the Government to bring in a competition test to limit Tesco's growth. While this may be a forlon hope, Asda looks set to score among hard-pressed customers for some time to come.