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Britain's Asda says sales growth slows in tough grocery market

Trolleys are lined up outside an ASDA supermarket in London January 23, 2012. REUTERS/Finbarr O'Reilly
Trolleys are lined up outside an ASDA supermarket in London January 23, 2012. REUTERS/Finbarr O'Reilly

By Paul Sandle

LONDON (Reuters) - Asda, Britain's No. 2 grocery business to Tesco , said on Thursday that sales growth fell in the second quarter as family budgets remained under pressure.

The Walmart-owned group , whose core customers have seen wages stagnate over years of economic downturn, said sales at stores open for more than a year, excluding fuel and sales tax, rose 0.7 percent in the 12 weeks to July 5, down from 1.3 percent in the first quarter.

"We're pleased with our results in a tough market," Chief Executive Andy Clarke said on Thursday.

"We continued to grow our sales while also investing in holding down the price of essentials," he said.

Asda - which also competes with Sainsbury's and Morrisons - had a 17-percent market share in the 12 weeks to July 7, compared with 17.3 percent a year ago, industry research company Kantar Worldpanel said last month. Tesco saw its share fall by 0.6 percentage points, but it remained the clear leader with 30.1 percent.

Retailers Aldi and Lidl have been attracting more customers at the discount end of the market, while Waitrose has been growing strongly at the top end.

The caution shown by Asda's customers was replicated in Wal-Mart Stores Inc's other markets, prompting the discount retailer to lower its revenue and profit forecasts for the year.

Clarke said Asda would continue to focus on driving volume growth by keeping prices low on essential items such as milk, bread and tomatoes rather than raising the top line through price inflation.

Asda's reporting period missed most of July, when British retail sales rose at their fastest annual rate in over two years as a heatwave boosted sales of barbecue food and outdoor goods.

Clarke said the warm weather had been positive for Asda in July, for example in boosting demand for summer clothes.

He said that despite Britain's growth prospects improving slightly, Asda's consumers were still feeling the pinch.

"We are bumping along the bottom," he said. "That still continues to reflect how the customer feels, how mum feels, about how much money she has to spend on her weekly shopping bill."

Tesco put the brakes on its expansion plans in Britain earlier this year, calling a halt to the "space race" to build more and more big stores and shifting its focus onto the faster growing sectors of convenience stores and online sales.

However, Clarke said Asda would keep opening stores ranging from its largest formats to supermarkets in areas where it was underrepresented, as well as increasing online and mobile sales.

"We have 568 stores," he said. "We will continue to open space, but as I signaled three years ago, I wasn't prepared to acquire space at any cost, and that is the way we are going to continue to invest."

(Editing by Kate Holton and Louise Ireland)

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