UK grocer Asda beat both its sales and profit targets for the quarter and grew profits ahead of sales. Its established value proposition and low price strategy are clearly appealing to the more frugal and price conscious consumer. Asda is continuing to gain customers from its rivals and, more crucially, retain existing ones. Indeed, the growth achieved is comfortably ahead of the most recent performance reported by Sainsbury (4.5%) and nearly double the level disclosed by Tesco (4.4%) in the same period.
Asda's success can be attributed to three key elements - its strong price proposition, an increased focus on quality, and responding to the demands of its customers. The continued investment in price has not been funded at the expense of margins, with the 'operate for less' program continuing to deliver cost efficiencies throughout the business, with all savings invested back into price to boost Asda's price and value credentials.
In the current economic climate and competitive trading environment, it is essential to understand and respond to the needs of the customer. Asda appears to appreciate this, utilizing its innovative customer insight initiative - the 'Pulse Nation' customer panel - to improve product quality and respond to the changing demands of its customers.
In addition to its investment in price, product development and range enhancements, Asda continues to develop its online operation, which is currently growing by 50% year-on-year, and is planning to re-launch its food website in June, with an enhanced capacity and improved navigation. Furthermore, Asda is set to trial a dedicated 'online store' in 2009, as it looks to improve its fulfillment operations. Finally, despite its online grocery offer reaching over 90% of UK households, the grocer intends to increase its geographical penetration. With Verdict estimating that online grocery sales are set to grow by 11.7% in 2009 and be worth 4.4% of total grocery sales, Asda's enhancements to its online offer are both shrewd and timely.
Asda's well established value credentials are paying dividend in the current climate, with the grocer catering for the demands of a more frugal consumer. It not only appears to be gaining customers from its rivals (something that all of the grocers are claiming), but is successfully retaining customers by listening and responding to their demands.
However, Asda still needs to improve its quality perception, and although it is working hard to achieve this, much remains to be done. In the short term, with price remaining the main battleground, Asda is clearly emerging the winner. However, this is only one battle, and to win the war Asda must remain focused on improving quality, especially if it is to retain its newly found customers once their spending ability allows them to return to their primary choice of supermarket.
