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The boss of Asda has warned of a two speed economic recovery, singling out Northern Ireland and the north-east where he said hard up families were struggling more than their south-east counterparts.
"It feels very different if you are in London to Northern Ireland or the north-east," said the supermarket chain's chief executive, Andy Clarke. "If you are a family on a budget in those difficult regions it still feels very challenging." His comments follow official figures this week which showed that, despite rising employment, wages fell for the first time since the 2009 recession between April and June.
Economists at Capital Economics said the jobs recovery has remained "markedly stronger" in the south than in the north. "This reflects the likelihood that public sector job cuts have continued to hurt the north more than they have the south, and because the south is less dependent on the manufacturing sector, which has showed signs of slowing over recent months," said Samuel Tombs, its senior UK economist. "There are signs that things are improving in Northern Ireland but it's from a very weak level of activity."
The continued squeeze on household finances has played to Asda's strengths with the Wal-Mart owned retailer focused on undercutting mainstream rivals Tesco, Sainsburys and Morrisons and narrowing the price gap with the fast growing discounters Aldi and Lidl. Like-for-like sales were up 0.5% for the 10 weeks to 30 June with Asda gaining market share during the period. The sales figures were released alongside those of parent Wal-Mart with David Cheesewright, its international head, telling Wall Street analysts that operating profit at Asda had declined slightly during the period as it sold more, less profitable products, but that it had made up the lost ground through "strong cost control and productivity improvements".
The supermarket industry is facing unprecedented turmoil as structural changes – such as the growth of internet and convenience retailing – are played out in a market where grocery sales are going backwards due to Britons buying less and record low food inflation. One of the biggest problems faced by supermarket chiefs is the declining popularity of big supermarkets, which until the recession were the bedrock of their businesses.
Wal-Mart, the world's biggest retailer, has not been immune to these global trends with like-for-like stores at its huge domestic chain flat in the second quarter – its sixth quarter of declining or no growth – and it warned that full year profits were expected to be lower than previously forecast.
Shore Capital analyst Clive Black said Asda was the first of the big chains to have "smelt the coffee", with the grocer ahead of the pack in squaring up to the threat posed by the discounters and moving away from the confusing promotions and money off vouchers that have put off some shoppers. He believes Tesco and Sainsbury's will have to follow Asda which last month announced 1,360 job losses as part of a five-year programme to cut costs by £1bn.
"Asda is toughing it out well to our minds, a reflection of a good focus on the day job," said Black. "Asda is leading the big boys with its focus on price, proposition and costs. That said, the others are following now, which makes for a potentially even more challenging industry."
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