Tesco feeling the squeeze on its home turf

Tesco has posted more disappointing UK sales figures, down 0.1% last quarter. But at least it has its finger in other fresh and easy pies.

by Dave Waller
Last Updated: 06 Nov 2012
Tesco may have a vice-like grip on the UK supermarket sector, but even it’s not impervious to the current slump: sales at its UK stores fell by 0.1% in the 13 weeks to 28 May, if you strip out fuel, the rise in VAT and the impact of new stores.

That’s quite a way off analysts’ expectations: they figured Tesco would be about 1% up on last year. It's the second quarter in a row that Tesco's underlying sales have fallen - although it's a slight improvement from the three months to the end of February, when sales were down 0.7%. Perhaps much-admired former chief exec Sir Terry Leahy got out at the right time?

Like-for-like non-food sales fell about 5% in that period. So what’s the problem? Tesco is blaming the ‘subdued’ conditions on the high price of fuel, which appears to be having a deleterious effect on punters’ pockets – i.e. they’re blowing their grocery pot at the petrol pumps. Indeed, when you factor in petrol and the VAT rise , Tesco’s sales were actually up 7%, or 3.4% on a like-for-like basis.

Of course, Tesco isn’t just a force on these shores these days - it’s the world’s third-largest retailer, running over 5,000 stores in 14 countries. And its performance overseas is helping to compensate for this domestic sluggishness. International sales grew at a much faster rate, 6.7% excluding petrol, driven by a 22% expansion in the US – where it recently rolled out another 12 Fresh & Easy stores. The division is still loss-making, we hasten to add - but it looks as though Tesco's great US adventure may eventually pay off: the group is aiming to be in the black by the end of 2012-13 – after spending years suffering the financial equivalent of having trolleys rammed into its shins.

Then there’s the small matter of India, which recently announced it’s opening its doors to international supermarkets in the next four months. Expect Tesco to be at the forefront of that supermarket sweep. It certainly represents a massive opportunity for growth: India is the world's largest producer of milk, second largest in fruit and vegetables and third in grain production - yet a whopping 30% of its produce rots before it reaches the market. The government is going to welcome the likes of Tesco and its investment in the whole logistics of food retail. If all goes to plan, it'll be easier to dismiss the odd unconvincing UK sales report as little more than one dodgy grape in an otherwise ripe bunch.

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