LONDON Asda, the British arm of U.S. retailer Wal-Mart Stores (WMT.N), posted a slowdown in quarterly like-for-like sales and said the amount of spending money in customers' pockets was at the lowest level for two years.
Britain's second-biggest supermarket chain behind Tesco (TSCO.L) said on Thursday sales at shops open more than a year, excluding fuel and VAT sales tax, were up 0.7 percent in the 13 weeks to June 30, its fiscal second quarter.
That followed a rise of 2.2 percent in the first quarter, when growth was driven by a focus on low prices and revamped fresh food lines.
Recent industry data showed Asda increasing sales faster than its main rivals over the past three months.
Market leader Tesco has stepped up promotions and vouchers following a shock profit warning in January, while industry No. 3 J Sainsbury (SBRY.L) has followed, to a degree.
Finance director Rob McWilliam said Asda would not run unsustainable promotions and would continue to focus on low prices for basics such as bread, cheese, mince and milk.
"There has been an increasing number of promotions, vouchers and frankly gimmicks out there to try to disguise a weak price position," he said. "That is not in customers' interests and is clearly not sustainable."
Chief executive Andy Clarke said Asda would not be drawn into the promotions battle. "We are not taking short-term decisions on promotional activity."
McWilliam said while the period was the wettest second quarter in Britain for 100 years, Asda would never blame the weather for its performance.
Asda, which trades from about 550 stores and lagged Britain's grocery market in 2010, has fought back, helped by its purchase of smaller format Netto stores and a relaunch of its own-brand food range.
It has also benefited from a price guarantee offering to refund customers the difference, via a voucher, if an online price comparison website did not show their shopping was at least 10 percent cheaper than at a rival.
Clarke said the London Olympics provided a welcome distraction for hard-pressed consumers, although the longer term impact on confidence was harder to gauge.
"The spirit and the feel across the country has just been outstanding," he said. "For our shoppers, many of them were either glued to the TV screens or got the opportunity to watch it live, and I think we are still to see what will unfold in terms of customer confidence around the benefit of that spirit."
(Editing by Sarah Young and Dan Lalor)