Asda sales growth hit by falling food prices quarter

Asda warns this season will the 'most aggressive on price for a decade'

Asda said falling food price inflation was "entirely" to blame for a slowdown in its underlying sales growth in the third-quarter, as it forecast this Christmas will be the most cut-throat on price for a decade.

But the Wal-Mart-owned grocer stressed that its sales volumes had grown, helped by families gathering around the TV watching X Factor on Saturday nights.

The UK supermarket delivered like-for-like sales, excluding fuel and VAT, up by 5.6 per cent over the three months to 30 September, down from 7.2 per cent in the second-quarter.

Judith McKenna, the finance director at Asda, said: "It is down entirely to a further fall in inflation. Sales volumes are up, profits are up and prices are down." Food inflation has been falling since early 2009 and on Wednesday Justin King, the chief executive of Sainsbury's, warned it would continue to dampen underlying sales in the grocery sector in the months ahead.

All of the big four grocers are performing strongly, according to TNS Worldpanel. Morrisons led the pack with growth of 8.5 per cent in the 12 weeks to 1 November, followed by Asda's 6.6 per cent, Sainsbury's 5.6 per cent and Tesco's 4.7 per cent. But Tesco is fighting back, boosted by a massive £350m investment into its Clubcard loyalty programme since May, including a double reward points offer mailed out to customers ahead of Christmas.

Greg Lawless, the European retail analyst at Collins Stewart, said: "All the big four are growing above the market and are all converging. Tesco is back in the pack and Clubcard 2 is having an impact." Tesco has grown its share of the grocery market for the first time in two years to 30.7 per cent, from 30.6 per cent a year ago, said TNS Worldpanel.

Ms McKenna said: "Asda continues to be in excellent health with every part of the business – food, home and leisure, and clothing – all performing well."

With food, she said that Asda – which has 17.3 per cent of the grocery market – delivered a further "acceleration" in volumes in the third quarter. Its fastest growing categories were fresh meat and take-away food from its in-store counters. These food sales have been boosted by families spending their Saturday night watching ITV's X Factor and the BBC's Strictly Come Dancing. Ms McKenna said: "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."

In non-food lines, Asda, Tesco and Sainsbury's are competing on price on toys, electricals and computer games to entice shoppers. Ms McKenna said: "This year will be the most aggressive on price in a decade." This week, Asda says it has been cutting back the price on 50 electricals and accessories products, including a Philips Blu-Ray DVD player for £97.

Asked about why Wal-Mart had "sold" Asda for £6.9bn to a Leeds-based investment vehicle called Corinth Services in August, Ms McKenna said: "It was tidying up the administration of the 30 companies we have. We have pulled them together into two companies." She added it was about having a "more efficient" financial structure for Asda, but stressed this was not about paying less tax in the UK.

Price war? The grocers do battle

In that time honoured grocery tradition, Tesco's PR machine yesterday trumpeted £250m of pre-Christmas offers around the same time Asda said it was on track to save customers £150m. Cue countless headlines of "Christmas price war".

In its defence, Asda said that it had used product data from Mysupermarket.com over the past six weeks and its expected volumes over the next six weeks, while Tesco did not provide a benchmark. But industry experts doubt how much of this is actually new money. Bryan Roberts, the global research director at Planet Retail, said: "Retailers will sacrifice margins from one area of a store to recoup them from other areas. They will not do anything to damage their overall profitability." He added they also sell "loss leaders", such as half-price toys, to generate higher footfall.