*

Hitt og þetta 21. febrúar 2006

DJ THE SKEPTIC: A Convenient Move For Asda

LONDON (Dow Jones)--Why is Wal-Mart letting its U.K. supermarket chain Asda lose ground to Sainsbury?

Probably because it realizes retailing fashions change, and it's been busy thinking about some new strategies.

At 17%, Asda's U.K. market share is only fractionally ahead of third-place Sainsbury. Both trail leader Tesco's a 30%.

Asda remains committed to expansion and says it plans to take on an additional 7,000 staff in the U.K. to man 25 new outlets and improve service at the existing 315 stores.

That's fine, provided they've done their homework and the locations are good. But assuming these new stores come in the usual Asda format, and probably won't be far from one of the big competitors, Asda could be accused of pouring good money after bad - if this is the only idea for further expansion.

What it really needs is some kind of new format to attract shoppers. After all, the U.K. grocery market is saturated, and there are already far too many big stores. It's hardly a growth market, either.

And there's increasing evidence that shoppers to go local if they can, rather than at huge suburban malls - which is why Asda might actually be on to a very good thing if it choses to drive the small-format convenience stores called Asda Essentials forward.

The reason is simple: Asda's idea as we know it seems to be to offer customers a much larger convenience store than the hundreds of similar ones operated by Tesco and Sainsbury. Assume that to mean that if rolled out nationally these would carry a greater variety of goods.

If Asda can learn from customers what they want from a convenience store, it could steal a march on both Tesco and Sainsbury.

Tesco has a commanding lead in this segment - and ironically enough plans to export its success to the U.S. market, Wal-Mart's home turf. But in the U.K. Tesco's being complacent, and has been edging up prices of late. That makes it a target for competition.

As yet Asda is only dipping a toe into the U.K. convenience market, but it could be on to a winner, provided it gives shoppers speedy service, good food variety and brand selection.

It's worth a try in the U.K., as it's certainly a sector where Asda could give Tesco and Sainsbury a run for their money.

(Howard Wheeldon was a senior equities analyst for 20 years, and has been a columnist at Dow Jones for the past three years. He can be reached at +44 207-842-9251 or by e-mail: howard.wheeldon@dowjones.com)

(END) Dow Jones Newswires