The Investment column: Asda trumps the loyalty card pack

Asda's refusal to get involved in the loyalty card war smacks a little of making virtue out of necessity. But cynicism about its motives aside, Asda is probably right to hold back from the fray. The jury is still out on whether the costs of loyalty cards are outweighed by the benefit of higher sales, but the evidence so far is not compelling.

Asda has always played a different marketing game from its more up-market peers, and it remains the only non-discount grocery chain to sell itself unashamedly on price, but it is currently making more than usual of its Leeds origins. Its price promise now finds itself literally inscribed in Yorkshire stone outside its superstores - true northern grit.

With the company for the time being still run by the prospective parliamentary candidate for true blue Tunbridge Wells, that may ring somewhat hollow, but the underlying message that what consumers want from a supermarket is good value, good quality and service has a ring of common sense. The tiny discounts offered by loyalty cards have always been a con that underestimated the intelligence of the average shopper.

Asda's continuing ability to outstrip its peers on crucial measures such as return on capital employed and like-for-like sales growth is surprising but pleasantly so. Like-for-like turnover growth of 10.2 per cent in the six months to November remains comfortably ahead of Tesco's 7 per cent and leaves Sainsbury's 2.3 per cent standing. For the first time, Asda's return on capital has risen above the average of its three largest rivals and while its trend is healthily upwards the others are getting a progressively worse return from the assets they employ.

Other battles Asda appears to be winning are for the hearts and minds of clothes shoppers and fresh food buyers, the latter not traditionally its strongest suit. Having taken full control of the George clothing brand, real progress is being made towards the target of becoming the number two family clothes brand behind M&S. Fresh food sales are growing like Topsy, with meat, especially, taking off.

The rather belated push to achieve 40 per cent of sales from own-brand products also appears to be going according to plan with successful cereal launches among 2,000 new lines taking penetration up to 35 per cent. A similar push is planned for next year.

In all sorts of ways Asda continues to force the pace in the supermarket arena but it remains firmly in the pack as far as stock market rating goes, on a prospective p/e ratio of 13 on the basis of a consensus forecast of pounds 343m this year and pounds 378m next time. If you want to be in the sector, Asda is your best way in, but in a cut-throat mature market and with its driving force destined for the Opposition benches, there is better value elsewhere.