Price war takes its toll on Philip Clarke as Tesco sales fall 3.8% in the UK

It's hardly an impressive performance - but it's not the 4.2% fall analysts feared.

by Emma Haslett
Last Updated: 17 Jun 2014

Expect a sigh of relief from Tesco shareholders this morning, after the supermarket posted first-quarter results showing like-for-like sales fell 3.3% including petrol in its first quarter compared with the same period last year; 3.8% including VAT and petrol in the UK.

It's not good news - in fact, it's Tesco's worst quarter in 20 years. But it's also not as bad as analysts, who mooted a fall of 4.2% earlier this week, expected. So at least that takes some of the pressure off chief executive Philip Clarke.

He reckons some of its performance was because of 'challenging consumer trends in the UK' (that old chestnut) which reflected 'still subdued levels of spending'. Hmm. Clarke also pointed the finger at heavy cost-cutting (which include the launch of 'Clubcard Fuel Save', slashing prices on 'the products that matter most' and making it cheaper to order online) for the fall in sales.

When Tesco posted annual results in April showing sales had fallen 6%, shares actually rose 3.7% as investors thanked their lucky stars things hadn't actually been worse. This morning they dropped just over 1% - which suggests they've lost patience.

But there's still pressure on Clarke to explain what exactly he's doing. Figures out yesterday showed its market share fell by 1.5% in the 12 weeks to the end of May, while Aldi and Lidl's jumped 4.7% and 3.6% resepectively. Trying to compete with 'the discounters', as they're now universally known, is unwise: as Clarke himself said in April, 'discounters will never allow you to be cheaper than them'. Which begs the question, why bother to compete at all?

Lest we forget, Tesco has also spent the past few months diversifying into everything from technology manufacturing to current accounts, which suggests that even Clarke knows a supermarket cannot get by on price cuts alone. It has also 'completed the formation of... partnerships' with CRE in China and Tata in India - which means that although it's venturing into new territories, it's not doing it alone. Considering its past experiences in the US and China, where it essentially bumbled in and hoped for the best, that seems wise.

Clarke's word of the day this morning was 'loyalty': 'building long-term customer loyalty'; 'in our international business we have applied the same focus to building loyalty'; 'on promotions, we have chosen to reinvest for loyalty' - etc, etc. Clearly, Clarke has one ambition in mind.

Speaking of loyalty, the supermarket didn't announce a new financial director as expected: current CFO Laurie McIlwee handed his notice in in April, although he said he'd stay on until Tesco finds someone to replace him. At a time like this, not having someone with a vested interest in keeping a close eye on the numbers doesn't look good...

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