Planet Retail: Asda is one of the few relative bright spots for Wal-Mart in Q1

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Asda is tipped as the best performer in parent Wal-Mart’s international business by Stephen Springham, senior retail analyst at Planet Retail.

Commenting on the retail giant’s Q1 results, Springham said: “Asda in the UK is likely to prove one of the few relative bright spots in an otherwise mixed International business. But the operative word here is still ‘relative’ – the big four UK grocers continue to be squeezed from one side by upscale operators (Waitrose/M&S) and, from the other, by the discounters (Aldi and Lidl). Meanwhile the UK grocery sector as a whole remains constrained by the straitjacket of negative volume growth. Despite its healthy glow, Asda is merely out-performing an under-performing peer group.

“Price has now become an increasingly-fractious flashpoint on the wider battleground. Heavy price investment on the part of Tesco and Morrisons has seen an industry-wide shift away from ‘high-low’ strategies and greater convergence around EDLP – the business model espoused and cherished by Asda. The phony price war has moved onto Asda’s home turf, but the evidence to date suggests it is more than holding its own.”

On the core business Springham said: “After a battering in the storms of Q4, Q1 has provided Wal-Mart with a degree of respite. But the relatively sedate news flow doesn’t necessarily presage a return of good times. Comp growth in the core US business continues to prove very hard to find.

“Our expectation is that comp US sales will be around flat, perhaps even slightly negative. Should the business surprise us and report positive numbers, this would have to be put in the context of a very soft comparable period last year, when comps were down 1.3%. Even in the event of a positive outcome, WMT’s US comp performance is not yet where it needs to be.

“Domestically, the big Q1 story was WMT ramping up small-box format expansion, with up to 300 opening this year alone. Having clamored for this for so long, our cheers are somewhat muted. While pressing the launch button on Neighborhood Market (up to 200 new openings for 2014) is positive, the news is tempered in how Walmart Express (up to 100 new openings this year) is to be deployed.

“Rather than act as a bridgehead for urban expansion, Express will instead be used as an infill in rural and light suburban areas – a response to dollar stores and drugstores. A defensive, rather than offensive, strategy, if you will.

“News flow on International has also been somewhat sluggish. The emphasis overseas continues to be on regrouping rather than on aggressive development or new market entries. With so many long-standing issues still to be put right in major markets such as Mexico, Brazil and China, any idea of further internationalisation in the current environment seems somewhat fanciful.”