Asda, the U.K. supermarket chain owned by Wal-Mart Stores Inc. (WMT:US), will invest 1.25 billion pounds ($2 billion) over the next five years to help stave off discounters and upscale grocers.
The retailer will spend 1 billion pounds through 2018 on closing “the price gap” to budget stores such as Aldi and Lidl, while keeping the pressure on main competitors Tesco Plc (TSCO), J Sainsbury Plc (SBRY) and William Morrison Supermarkets Plc, (MRW) Chief Executive Officer Andy Clarke told reporters in London today.
Asda will also invest 250 million pounds on improving the quality, style and design of its products, Clarke said. The grocer plans to expand its reach to 70 percent of the U.K. population by 2018, up from 53 percent now, pushing particularly into the more affluent south east and London.
“We would be cautious about overplaying the impact of such a move,” Citigroup Inc. analyst Al Johnston said in a note. “Asda and other U.K. grocers have frequently made eye-catching price investment pledges that have little or no discernible impact.”
Asda is struggling to maintain its position as the U.K.’s second-largest grocer behind Tesco as more shoppers favor discounters and upscale stores. Sainsbury had four-week sales that exceeded Asda’s for the first time in more than a decade, Barclays analyst James Anstead said in an Oct. 22 note, citing figures supplied by researcher Kantar Worldpanel.
Asda today reported a slowdown in same-store sales growth to 0.3 percent in the third quarter from 0.7 percent in the previous period.
About 400 million pounds of the 1 billion-pound price investment is new as the grocer had already planned on spending about 600 million pounds to keep its so-called Every Day Low Prices pledge to be 10 percent cheaper than its main rivals, Chief Financial Officer Richard Mayfield said.
Asda, which operates mainly large supermarkets and hypermarkets, may also explore the option of opening convenience outlets, Clarke said, having until now been absent from one of the fastest-growing areas of grocery retailing.
The grocer forecast that online revenue will approximately triple to 3 billion pounds annually by 2018.
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