Tesco finds itself in the slow lane

Challenging times for Tesco, which has reported its slowest Christmas sales growth for nearly 20 years...

Last Updated: 06 Nov 2012

Supermarket giant Tesco said today that UK like-for-like sales were up 2.5% in the seven weeks to 10 January – its slowest growth rate since the early 1990s, and well behind the 4.5% reported by Sainsbury’s last week. Tesco admitted that it was facing ‘challenging trading conditions in all of our markets’ – and although there was actually plenty to be positive about in today’s results (overseas and non-food sales, for example), the figures do suggest that its various promotions are having less impact on British shoppers than those of the other Big Four supermarkets…

Of course, it’s worth stressing that a lot of retailers would be delighted with 2.5% sales growth at the moment (particularly since Tesco, unlike some of its rivals, is comparing against an extremely strong performance last year). The British Retail Consortium said today that sales were down 3.5% across the industry last month, making it the worst December on record – so boosting sales in this climate is a pretty good effort. What’s more, Tesco’s figures would have looked much better had it not been for the pre-Christmas VAT cut, which seems to have had little impact on shoppers and apparently wiped a full percentage point off Tesco’s growth figure. And it’s still expanding: it said today it would create another 10,000 jobs in the UK this year.

Tesco looks even healthier when you take new stores and overseas business into account: in total, group sales rose by nearly 12% during the period (to record levels), thanks largely to an impressive 33% jump in international sales. Its Asian business is going great guns, with sales up 43%, while even its much-maligned US arm Fresh ’n’ Easy is apparently ‘coping well with a severe downturn’ in its local markets. Tesco’s big advantage is that its business is much more broadly-based than the other big supermarkets, so it’s less dependent on the whims of UK shoppers.

And yet... The fact remains that Tesco’s UK arm has clearly been relatively less effective than its rivals in attracting new customers. Sainsbury’s has already reported a big sales boost, Morrisons and Asda are likely to be even higher, and this week Aldi posted a 22% jump for 2008 – leaving the all-conquering Tesco at the bottom of the pile (at least in growth terms). Tesco’s new guise of ‘Britain’s Biggest Discounter’ doesn’t quite seem to be having the desired effect – and it’s also likely to have a detrimental effect on margins in the coming year.

Nonetheless, the 2.5% figure was slap-bang in the middle of analyst forecasts, and there was enough positive news to push its share price up slightly this morning. But when you’ve set yourself such high growth standards – and not been afraid to throw your weight around along the way (only yesterday a report suggested it was demanding some building contractors halved their prices) – Tesco has to expect some brickbats when times get tougher...

In today's bulletin:
Tesco finds itself in the slow lane
Brown mulls loan guarantees as downturn gets scary
Eurostar's sterling display as sales hit record level
Crispy crisis as Findus pancake
Google: search and destroy?

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