By Jessica Hodgson
("2nd UPDATE: Asda Injects GBP500M In U.K. Stores Overhaul," at 0953 GMT, misstated the publication date for the Kantar Worldpanel data paragraph. The correct version follows:)
-- To open 25 new shops and three new depots across the U.K. in 2012
-- Move would create 5,000 jobs
-- Asda to refurbish a further 43 stores
LONDON (MarketWatch) -- Asda Stores Ltd., the U.K.'s second-largest grocer, Monday announced a plan to invest GBP500 million to open 25 new shops and three new depots across the U.K. during 2012, as U.K. supermarkets seek to rejuvenate their stores to combat a lacklustre economy.
The move comes shortly after Tesco PLC , the U.K.'s largest grocer, outlined its own plan to invest millions in a major revamp of its U.K. business, after announcing its first profit warning in 20 years.
Asda, a unit of U.S. supermarkets giant Wal-Mart Stores Inc. /zigman2/quotes/207374728/composite WMT +0.44% , said the investment would create 5,000 jobs in local communities across the U.K. Asda will also refurbish a further 43 U.K. stores, the company said in a statement.
The investment was announced by President and CEO of Walmart International, Doug McMillon.
"Our continued investment is because we see a tremendous opportunity in front of us," McMillon said during a U.K. visit, the statement said.
Tesco's shares last week plunged by up to 13% when it shocked industry watchers by revealing a 2.3% drop in sales at U.K. stores open at least a year for the six weeks to Jan. 7.
Tesco, which commands nearly one-third of the U.K.'s grocery market, has long been considered a relatively resilient stock to own in a poor economy.
But its recent woes have called into question the traditional sentiment that food retailers are defensive stocks to own when consumer spending is challenged. Many believe that food retail stocks will underperform until the results of Tesco's revamp become clear and as grocers that are fighting for market share put pressure on margin performance through investment in stores.
The U.K.'s other large supermarkets groups, J. Sainsbury PLC and Wm. Morrison Supermarkets , also saw their shares hit after Tesco's poor Christmas trading.
Despite rising bills and low wage growth, U.K. consumer spending has remained relatively resilient, with British Retail Consortium December same-store sales showing a 2.2% rise, buoyed largely by food growth.
Figures from Kantar Worldpanel last week suggest that the U.K.'s large grocers are also losing market share as consumers buy more food from discounters such as German retailers Aldi and Lidl. Tesco's market share fell to 30.1% from 30.5% in the 12 weeks to Dec. 25. 2011, compared with the year-earlier period. Asda has seen its share fall to 17.2% from 17.4%. Aldi's market share increased to 3.6% from 3.2% a year earlier, while Lidl went to 2.6% from 2.4% over the same period.
However, the grocery market overall continues to grow, rising by 4.8% in the 12 weeks to Dec. 25th, compared with the year-earlier period, according to Kantar.
The Asda plan Monday was praised by the U.K.'s Prime Minister David Cameron, amid mounting political concern about high U.K. unemployment.
"The additional investment and 5,000 new jobs announced by Asda today will be a real boost for the economy and more importantly for people around Britain seeking jobs," Cameron said, according to the statement.
However, analysts were unimpressed by the level of investment, saying it was significant but not out of line with existing analyst expectations for 2012. Therefore it wasn't clear that it would be a game changer for U.K. food retail.
"We see this as Asda trying to encroach on Tesco's noise," said Shore Capital analyst Clive Black. Shore Capital downgraded Tesco to hold from buy after its profit warning.
Tesco, J. Sainsbury and Wm. Morrison opened marginally higher amid a higher broader market Monday.