Asda has worst quarterly sales drop blaming food deflation

Asda has reported a drop in sales of 7.5% in the past three months, its worst quarterly performance on record.

Walmart chief executive Doug McMillon blamed the dip on food deflation and "the competitive environment".

Discount food stores such as Aldi and Lidl have been undercutting Asda and its rivals, including Tesco, Morrison and Sainsbury's.

The supermarket chain is relying on £1.5bn of price reductions over five years to win customers back.

"Our strategy to turn things around is focused on improving the retail basics," Mr McMillon said. "While our turnaround will take time, I'm confident in the new leadership team there and want to assure you we're addressing this with urgency."

In June, Walmart said the UK supermarket's chief executive, Andy Clarke, would be stepping down to be replaced by the head of Walmart's Chinese business, Sean Clarke.

Walmart said Sean Clarke's experience would allow him to "reposition the business" in a competitive market.

'New nadir'

Asda began a price-cutting campaign in 2013, cutting £1bn in prices. In January, outgoing boss Andy Clarke extended the cuts to £1.5bn by 2018.

In the same month, the company said it was shedding hundreds of jobs at its Leeds headquarters.

Analysts said "a monumental challenge" lay ahead for the new chief executive.

"This time last year, ex-chief executive Andy Clarke talked about Asda's sales decline hitting a nadir - unfortunately today's results represent a new nadir, with the scale of the problems facing the grocer becoming ever more severe," said Greg Bromley from Verdict Retail.

He said that Asda seemed to have been hit harder by the arrival of discounters such as Aldi and Lidl, since low prices had always been its main selling point.

"If Asda has been waiting to push the button on its latest wave of price cuts, the time must be now, especially as a more uncertain post-Brexit consumer becomes ever more price sensitive," he added.

US sales

Walmart, the US-based owner of Asda supermarkets, said its own net profit for the three months to the end of July rose 8.6% to $3.77bn (£2.87bn).

A rise in online sales helped revenue, excluding currency movements, to rise 2.8% to $123.6bn in the quarter.

While Asda struggles with customer traffic and declining revenues, Walmart's US stores saw their eighth consecutive quarterly gain in sales and store visits grew 1.2%.

Earlier this year, Wal-Mart said it would, over the next two years, spend $2.7bn to raise minimum wages to $10 an hour. The move has meant faster checkouts and cleaner stores, it says.