Sales slump ends Asda's run of rises

• Asda blamed consumer caution for a sales slowdown but the Wal-Mart owned group also suffered against its rivals. Picture: TSPL

The group, which is owned by US heavyweight Wal-Mart, suffered a 0.3 per cent drop in same-store sales in the first three months of the year, excluding VAT and petrol.

Chairman Andy Bond called the results "disappointing" even by the chain's "own high standards".

He added: "The market has slowed down significantly since the turn of the year, and I expect conditions to remain tough for some time."

The UK grocery market has been hit by lower food price inflation since the beginning of the year, but Bond warned that households are also tightening their belts in anticipation of tax rises as the new coalition government embarks upon its quest to reduce the budget deficit.

Consumers are also counting the cost of high petrol prices, Bond said.

However, market research from Kantar shows that Asda has been falling behind its chief rivals Tesco, Sainsbury's and Morrisons. Earlier this month, Morrisons reported a 0.8 per cent rise in underlying sales for the 13 weeks to 2 May.

Kantar suggests that shoppers are treating themselves after a long and depressing recession, which does not sit well with Asda's focus on low prices.

The group reported yesterday that first-quarter profit grew ahead of sales and beat internal targets, although it did not release detailed figures. However, it did announce a 12 million investment in "frontline" services to reduce queues and assist customers. It is also creating 300 jobs through the creation of a new home shopping centre in north London.

Last month, Asda announced that it intended to cement its position as Britain's second-biggest food retailer and become the country's biggest non-food retailer over the next five years by opening a further 100 supermarkets and 150 "Asda Living" general merchandise stores.

The drive will be led by Andy Clarke, formerly chief operating officer, who last week stepped up to fill the chief executive role left vacant by Bond when he became chairman.

Asda's latest sales update was unveiled on the same day that parent company Wal-Mart reported forecast-beating first quarter revenues, driven by strong growth at its overseas operations. Income in the first three months of Wal-Mart's financial year grew 10 per cent, although the retail giant warned that trading conditions remain tough.

Chief executive Mike Duke said: "Our customers, particularly in the United States, are still concerned about their personal finances and unemployment, as well as higher fuel prices."