Every little not helping enough for Tesco

Tesco has reported its weakest six monthly UK sales figures for 20 years. So is the 'UK's most powerful retailer' diving in the downturn? Not quite...

by Dave Waller
Last Updated: 06 Nov 2012
UK like-for-likes at Tesco, excluding petrol and VAT, declined 0.5% in the six months to 27 August, with underlying sales down 0.9% in the final three months of the period. This is not the kind of sparkling scores you’d expect from Tesco, usually associated with taking one pound in every seven spent. Trouble is, people aren’t spending many pounds at all right now, thanks to the government austerity drive and higher food and fuel costs. Tesco said the latter was a major problem for consumers, forced to pump £750m more out of their pockets at the forecourts during the period.

While its food sales seem to be doing ok, it’s Tesco’s non-food departments, especially electronics and entertainment, which really took the hit. Which isn’t so good when you have the largest non-food business of any supermarket – such sales accounted for £5.3bn of its £44.6bn taken in the UK last year. 

CEO Philip Clarke said customers were ‘finding it difficult to cope on very tight budgets’, describing it as the most ‘challenging retail market we have seen for a generation’. Looks like Sir Tel leapt out of the trolley at just the right time. But the wheels have hardly fallen off just yet. UK trading profits still shot up 4.5% to £1.3bn. And the group delivered a 6% rise in profits to £1.9bn, on sales up nearly 9% to £35.5bn, when you factor in its performance overseas. Even its California-based Fresh & Easy chain has started to perform, with losses reduced by 23% to £73m and Tesco saying it should break even in the next financial year. Miracles can still happen, then.

Back here, Tesco remains the UK's biggest grocer with a market share of more than 30%, but it’s not been performing as well as the likes of Sainsbury's and Morrisons. Sainsbury's says its second-quarter sales had risen around 1.1% on a broadly comparable basis. Total sales were up 7.8%, boosted by its 400 Sainsbury's Local convenience stores, which saw growth of 20%, as people got into the habit of making smaller stops for items they need, rather than risk binging in a larger shop.

Of course Tesco has one major weapon up its sleeve that may send a shudder through its rivals: last week it launched the ‘big price drop’, a £500m price cuts campaign to woo back shoppers. Tesco will most likely be expecting suppliers to take much of that hit. So the prospect of a trip up to Cheshunt to be briefed on their role may well have the nation's farmers quaking in their boots. The Tesco trolley will, meanwhile, trundle along just fine…

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