Asda to open smaller stores as sales growth slows

An Asda worker pushes trolleys into a car park in south London May 13, 2008.

LONDON (Reuters) - Asda said it would expand into smaller format stores, open more non-food shops and cut costs to drive growth in tough markets after posting its lowest quarterly sales growth in about two years.

Chief Executive Andy Bond said on Thursday the chain, owned by U.S. group Wal-Mart Stores Inc (WMT.N), became too focussed on promotions in 2009, which clouded its low-price message.

"While we allowed ourselves to be too promotional in 2009, be in no doubt that Asda will return with force to our Every Day Low Prices model in 2010," Bond said in a statement.

"That's what our customers need this year," he added, saying the prospect of rising taxes and public sector job cuts could make for an "extremely tough" year for shoppers.

Asda, which runs 371 supermarkets and 24 non-food Asda Living stores, said sales, excluding petrol, at stores open at least a year rose 4.6 percent in the fourth quarter of 2009.

That was down from 5.6 percent in the previous quarter and is probably the slowest growth rate since the third quarter of 2007 when the chain -- which at the time did not publish precise figures -- said sales rose by a "low single digit" percentage.

Data from researchers Kantar Worldpanel earlier this month showed Asda losing share to its main rivals, including industry leader Tesco (TSCO.L) and smaller chains J Sainsbury (SBRY.L) and Wm Morrison Supermarkets (MRW.L).

However, that was partly due to bad weather, which hit Asda more than rivals because it tends to operate big stores on the edge of towns and does not also run smaller, convenience stores.

SMALLER STORES

Tesco reported a 4.9 percent rise in underlying UK sales for the six weeks to January 9, while Sainsbury delivered a 4.2 percent increase for the 13 weeks to January 2 and Morrison a 6.5 percent rise for the six weeks to January 3.

Wal-Mart's Frankfurt-listed shares were down 1.3 percent at 39 euros at 1:22 p.m.

Bond said Asda planned to accelerate growth in smaller format stores and had created a separate division for 21 of its shops that are under 25,000 square feet.

It also plans to open more general merchandise Asda Living stores and capture market share online, as well as bearing down on costs as part of Wal-Mart's drive to buy more products at a group level, as well as directly from producers.

In total, Asda plans to open 10 stores, including three smaller shops, and extend 10 others in 2010, creating around 6,000 jobs, it said.

Asda did not quantify the savings it expected from Wal-Mart's efforts to improve its supply chain.

Wal-Mart reported a higher quarterly profit on Thursday, but said sales at its existing U.S. namesake stores fell during the holiday quarter and forecast earnings for the current quarter that could miss analysts' estimates.