Asda's 1bn investment in lowering prices over the next five years is not the start of a price war, according to analyst Clive Black at Shore Capital.
Asda aims to extend collection points for online shoppers
The move might grab headlines, but was less sensational than first appeared, said Black. "Whilst not wishing to understate the message, we believe that this is a much less sensational statement than the headlines that may follow it," he stated in an analyst note.
"Indeed, it is really more of the same to our minds and does not represent an intent or commencement of a price war; wars are rarely announced five years in advance."
That said, he stressed work on perceptions of product quality would be vital for the retailer. "Indeed, with a UK economy set to recover, Asda's work on product quality may be more important than ever."
The retailer's ceo and president Andy Clarke made the price investment announcement as he unveiled its third quarter trading performance.
“We regard ourselves as the UK’s leading value retailer and it is against this backdrop that I have today set out our strategic priorities, which will improve, extend and expand the business over the next five years," said Clarke.
'Three major components'
"There are three major components to this approach which will redefine value. First, we will build on our heritage of low prices by rebasing our pricing to the tune of 1bn. Secondly, we will make a 250M investment in quality, style and design and thirdly, we will expand Asda to reach new customers in the UK, particularly London and the south east.”
Asda said the 1bn price investment was a deliberate strategy to widen the gap between it and its immediate rivals, top supermarkets Tesco, Sainsbury and Morrisons, and compete with ultra-low prices offered by discount chains.
It also enabled it to reinforce its traditional Every Day Low Prices (EDLP) strategy, it added.
The investment in lower prices fitted into a three-pronged business strategy: improving its core business; extending its reach and expanding its brand into new markets.
Allied to that strategy, Asda said it aimed to expand customers' physical access to its brand from 53% to 70% by 2018.
It said it would do this over the next five years by extending Click and Collect pick-up points for online shoppers from 218 to more than 1,000 and grow online sales to 3bn over the next five years.
Increased pressure
Conlumino consultant Greg Bromley commended its strategy, recognising it was facing increased pressure from other top supermarket chains and discounters.
But he added: "Nevertheless we believe that through sticking to its EDLP credentials, alongside improving products and stores, the grocer will be sufficiently prepared to defend itself from these threats, and will continue to move in the right direction."
The supermarket chain reported like-for-like sales up 0.3% for the 13 weeks to October 4, its twelfth consecutive quarter of growth.
“I’m pleased with our performance in the third quarter of this year," said Clarke. "The market conditions are tough, competition is fierce and our customers’ budgets are under intense pressure.
"We’ve continued to invest in lowering prices which has held them down for our customers while driving volume growth. This means we enter the crucial fourth quarter in a solid position.
