The result followed the retailer’s biggest sales fall on record – 5.8% sales drop posted in the previous quarter.
Asda has not registered like-for-like sales slumps in four consecutive quarters. It ended last year with a drop of 4.7% in like-for-like sales compared with 2014.
The supermarket’s US owner Wal-Mart acknowledged the tough competitive environment. “The UK continues to struggle, due primarily to fierce competition,” it said in a statement.
“Improvements in price and product availability throughout the quarter were not enough to overcome traffic and food volume declines in our large format stores.”
But the firm’s Project Renewal aimed to simplify and strengthen the customer offer, reduce costs and drive sales, it added. The project’s cost analytics programme was said to have made good progress and was delivering savings for re-invesment in the business. In addition to cutting costs, the retailer was modernising its 95 largest stores.
Research firm Kantar Worldpanel placed Asda behind Tesco and Sainsbury in the list of Britain’s big four supermarket, ahead of Morrisons.
‘Not done enough’
Verdict Retail described the results as “alarming”. Its analyst Duygu Hardman said: “While Asda is certainly on the right track, with its EDLP [everyday low prices] strategy and recent price investments aiming to close the gap with discounters, it has not done enough to broaden its appeal beyond price.”
The analyst agreed Project Renewal was critical to strengthening its customer offer in order to drive shoppers to “its rather functional supermarkets”. A brand refresh – with large store modernisation, instore service improvements and effective marketing of its premium Extra Special label – should help achieve that.
“While Asda has traditionally attributed this suffering market position among the Big Four to the short-term tactics of its competitors, this is no longer the case with the focus shifting to value rather than price,” said Hardman.
Asda needed to achieve the right balance of price, quality and service, if it wanted to better serve the fast-changing needs of shoppers, he added.
‘Pressing a nuclear price button’
Shore Capital analysts Clive Black and Darren Shirley dismissed suggestions that Asda’s troubles would prompt catastrophic price cuts. “There is much chatter in the market about Asda being a disruptive force that will reach a point of pressing a nuclear price button at some stage that is going to blow industry margins to smithereens,” they said.
“Looking at Asda and Wal-Mart historically, we struggle to reach such analysis, albeit we may yet be proved wrong.”
Instead the retailer will continue “chipping away at trying to improve the reality and perception of its pricing proposition”, they predicted. A particular focus will be the retailer’s position relative to both the limited assortment discounters (LADS) and the value based superstores.
“The output of this work is clearly not yet resonating with many British shoppers in recent times, which is a real problem for Asda,” said Black and Shirley.
“One senses that the group cannot cut itself to a better customer proposition, nor a pricing point that is more effective against the LADS, a particularly critical axis for Asda to our minds.”
Asda needed a broader package of measures that embraced its marketing, merchandising and selling skills, as much as base pricing, they advised.
Meanwhile, Walmart also posted falling profits. The retail giant’s net income for the first quarter fell by 7.8% to £2.1bn ($3.08bn).