By Derya Guvenc – principal grocery analyst, Kantar
Asda results are in line with the market trend of lower traffic and larger basket that we have been seeing since March, however like-for-like sales excluding fuel growth is 2.7% and net sales growth is -0.7%.
Asda has seen strong growth in grocery driven by its omni-channel offer, and e-commerce sales are up 72% year on year. Profitability improved year-on-year thanks to the category mix with lower fuel sales, and Asda expects to see a further restoration of sales in seasonal, general merchandise and clothing through its George offer.
The recent market exits of Walmart, namely from Argentina and Japan, indicate a clear move towards portfolio streamlining and a re-focus on Walmart’s core markets. With this vision in mind, we expect the American grocery giant to be very diligent with the sale process of Asda to Issa brothers, especially with the learnings from the terminated Sainsbury’s merger deal. The acquisition has headed for a review by the Competition and Markets Authority (CMA) in November. While the market expectation is around 10-15 site closures, fuel pricing will be a decisive factor for the final number. The deal is expected to finalise in H1 2021.
Christmas at Asda: digital and compassionate
With the ‘Asda Price Christmas’ campaign focusing on food & drink categories and the Black Friday campaign pushing in-advance gifting purchases, Asda is preparing for the uncertainties around the UK’s festive period, with or without lockdown.
For many consumers, online shopping is the new norm in 2020. There are new factors in place when deciding on their grocery shopping destination: it is not only price but also being in stock for their favourite brands and products (rather than sending substitutes), reliable and timely deliveries (rather than fast/ premium delivery). As the online shopper retention wars intensify among the grocers to ‘lock in’ shopper spend, Asda will do its best to be the preferred grocer for this Christmas and beyond.
The looming recession means consumers seek savings at all fronts, and Asda’s steady pricing investments are very much in line with this demand. However, together with the new online demand this could be both a blessing and a curse. Retailers continue to invest in new fulfilment solutions while trying to control operational expenses and meeting the new demand. As a result, we see changes to home delivery slot prices as retailers can no longer absorb associated costs.
For the holiday season, home delivery slot prices are to increase to £7 as the online demand reaches an all-time high. Asda is definitely not the only grocer with such a shift in fulfilment pricing strategy. Overall, we see retailers encouraging shoppers to use click & collect from the stores, or delivery passes for savings. The big question will be around the price sensitivity of the online shopper: will the delivery slot prices be as influential as the total basket spend in store choice, or will shoppers be ok to absorb this cost for the sake of convenience?
While many families will do their best to have an indoor festive season and celebrate ‘as normal as possible’, we do not expect an indulgent Christmas. Gifting between family members and friends is likely to be rather modest, but the compassionate spirit of Christmas will definitely be strong. Asda’s target to donate over 1 million meals for Christmas through its ‘Fight Hunger Create Change’ initiative will resonate strongly with many households. Asda is also launching a text to donate service, a first for UK supermarkets.