Asda has been 'slow to adapt' to declining demand for non-food products in its retail outlets, which is weighing on its performance, a leading retail analyst has said.
Thomas Brereton of GlobalData was commenting following a quarter in which the Walmart-owned grocer posted a 1.3% decline in like-for-like sales, citing "challenging market conditions – particularly in clothing".
Analyst View
As Brereton wrote in a briefing note, "For Asda, the problem remains that it needs a faster overhaul of its non-food offer. Its respectable food performance (which picked up numerous accolades over the quarter) will be bolstered in 2020 by recent partnership activity with pastry virtuoso Greggs (a five-store concession trial) and the gradual introduction of the new 1-hour Express Click & Collect.
"But the decline in supermarket non-food sales – brought on by the combination of falling volumes in non-food and the impressive performance of non-food specialists such as Amazon – is something that Asda has been slow to adapt to in comparison to its primary rivals. Asda must consider reducing in-store space dedicated to non-food – particularly as it looks to expand aforementioned concession partnerships."
The poor fourth quarter performance, however, takes away from the fact that Asda put in a relatively solid full year, Brereton added, "spending much of the year battling with Tesco to be the best performer of the Big Four.
"This should provide confidence in Asda’s ability as a standalone retailer as it looks to spin off from Walmart and IPO in 2021/22."
Capital Discipline
As Shore Capital's Clive Black noted, "capital discipline seems to be at the fore of Asda's strategy", with the retailer opening few new stores, and engaging in a store refurbishment programme.
"As with Sainsbury and Tesco, in particular, space repurposing also remains evident," he added, "Asda linking up with Claire's Accessories and Sushi Daily to occupy surplus footage, noting as we do the recent headline with respect to the commencement of a trial of five Greggs stores within the body of the superstores group's outlets."
Black also noted that Asda's performance further illustrates "the grind" of the UK supermarket sector in recent months.
"The consumers' mood has been mellow, albeit improving since the UK General Election," he said.
"As we outlined in our recent sector note, we see a collection of factors accounting for sluggish sales around the turn of the year; the shift from goods to services, digitisation, sustainability and well-being fusing and so more precise shopping."
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine
