Sales Fall Again at ASDA - Cheap Prices are not Compensating for Poor Quality

Here’s another confirmation that consumers do not just buy food purely on the basis of price. Mysupermarket.com the price comparison website says that ASDA is the cheapest of the “Big Four” (ASDA,Tesco, Sainsbury, Morrisons), yet ASDA yesterday announced that like for like sales fell by 0.4% in the three months to July 31st, after a 0.3% fall in the three months before that. At the same time Kantar Worldpanel, the research company which reports on how supermarkets are faring, said that ASDA continues to lose market share, whilst Morrisons and Sainsbury motor ahead.

Commenting on the company’s performance, Andy Clarke, ASDA’s new chief executive was vocal on the subject of price being different from value. Saying “We have got to be the best value. What we have been is the best price”, he promised that in future customers would see a “step change” in quality - “We are not as well known for the quality of our food as we could be”.
Despite this commitment to better products, Clarke also said that UK consumers are facing difficult times, that ASDA would respond by offering everyday low prices, and that as a first step towards this goal, ASDA would cut the price of staples such as bread, milk, and eggs.

He is not alone in recognising that as well as offering great quality, supermarkets have to offer sharp prices to ensure that shoppers walk through their doors as opposed to competitors. Even Waitrose, store of choice for the affluent, recognises this and anyone venturing in to a Waitrose will see aisle ends featuring promotional offers. In fact all supermarkets with the exception of ASDA are heavily price promoting with Kantar reporting that nearly 35% of all products are bought on promotion compared with 31% a year ago.

The focus on price is unlikely to ease any time soon. Consumer confidence has taken a bit of a dive recently as the scale of government cutbacks is becoming clearer, and they seem less willing to spend. Whilst this has yet to happen in supermarkets where sales in the last 12 weeks grew by 4.5%, supermarket supremos will be turning their attention to driving growth against a background of consumer thrift.

So how will they make money when heavy promotions lead to lower profits, and shoppers demand good quality? Harder bargains will be struck with suppliers of course. But a more productive answer might lie in developing a new “super premium” market segment with even higher cash margins than current premium ranges, and with a quality so irresistible that shoppers are happy to buy. We know that even in the depths of recession, consumers were prepared to spend on top quality goods if they felt they were worth the money.

Innovative suppliers who can deliver superb quality products at an acceptable return to themselves and their supermarket stockists could do well. Not easy though.