6th Oct 11
Tesco’s UK sales fall as consumers avoid non-essential spending
by Adam Richards
How the mighty fall: even Tesco struggling in economic crisis
How the mighty fall: even Tesco struggling in economic crisis
Tesco has reported its poorest six-monthly UK sales results for two decades as higher food and petrol costs contributed to a significant decline fall on non-essential items such as CDs, games and gadgets in its stores.
Like-for-like sales in the UK, excluding fuel and VAT, went down by 0.5 per cent during the six months ending 27 August, while underlying sales dipped by 0.9 per cent in the last three months of this period. Philip Clarke, the chief executive of the retailer, acknowledged that the performance was slower than he had hoped for but added that the retail market has been the most challenging seen for a generation.
The market leading grocer said that high fuel prices were a massive problem for consumers who have spent £750m extra at the forecourts over this period. He said that customers were finding it tough to cope on extremely tight budgets.
Tesco explained that although its food operations saw underlying sales growth, there continued to be a fall of sales in its non-food departments, especially in key areas such as entertainment and electronics. Tesco boasts the biggest non-food business of all the supermarkets and it made up £5.3bn of its overall £44.6bn sales in the UK last year.
The challenging environment did not prevent an increase of 4.5 per cent to £1.3bn in UK trading profits. Helped by a positive performance in overseas markets, the group reported a rise of six per cent in profits to £1.9bn on sales increasing almost nine per cent to £35.5bn.
Consumers in the UK are cutting back on food shopping, traditionally the most resilient spending area, as disposable incomes are reduced by rising prices, sluggish wage growth and the government’s austerity drive. The retailer is Britain’s biggest grocer, boasting a market share of over 30 per cent but its performance has fallen behind that of rivals Morrisons and Sainsbury’s for the past two years and Clarke revealed that substantial changes needed to take place to sharpen competitiveness and execution for customers.
Tesco launched its £500m price cuts initiative – the “big price drop” – last week in an attempt to win back shoppers and halt recent falls in its market share, but claims have been made that it has not been bold enough. The retailer promised that further changes would come, but warned that sales would not increase immediately.
On Wednesday Sainsbury’s said that sales in the second quarter had gone up by roughly 1.1 per cent on a broadly like-for-like basis. Justin King, its chief executive, said that the performance was good in spite of the difficult consumer environment. Overall sales increased by 7.8 per cent, aided by its 400 Sainsbury’s Local stores, which saw 20 per cent growth, reported the company.
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