Tesco UK sales hit by fall in general merchandise sales and horse meat scandal

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Tesco: new Tesco: like-for-like sales fall in UK in first quarter website

Tesco: like-for-like sales fall in UK in first quarter

Tesco claims it is making good progress with its plans to improve the shopping trip for UK customers and “Build a Better Tesco”, despite a 1.0% fall in like-for-like sales in the first quarter.

Total UK sales including VAT and petrol grew by 0.1% and by 1.0% excluding petrol.

Tesco said it is seeing steady increases in customer perception scores across all aspects of its offer. The launch of Price Promise, an automatic price comparison coupon-at-till, has proved popular and the supermarket said it has seen an improvement in the number of customers who consider its ability to match or beat competitors’ prices as very good or excellent.

Horse meat scandal

Performance in every food category was reported to be stronger in the first quarter than in the last two months of the prior year, with the exception of frozen foods and chilled convenience meals, which were impacted by the detection of horse meat in four products. The performance of these two categories is reported to have picked up in recent weeks.

Tesco said online grocery remains the fastest growing channel in the market and it has driven improvements in product availability, quality and overall customer satisfaction. 

It has continued the roll-out of new drive-through locations for click & collect grocery, with a total of 169 now in place across the UK and in April it introduced a new mid-week option to its Delivery Saver subscription-based grocery delivery service.

General merchandise

The drag on like-for-like sales growth from non-food was more significant in the first quarter than in the fourth quarter of last year, however. 

According to Tesco, this was due to its disproportionate exposure to consumer electronics and its strategy to shift the business from low-margin, low-growth categories to higher-margin, higher-growth categories. 

Tesco said is working towards a relaunch of a core range of general merchandise in smaller format stores, followed by more extensive repurposing of general merchandise and electrical space in larger stores.

Clothing

Clothing is reported to have delivered a strong performance in the quarter, with the F&F brand boosted by the launch of its autumn/winter 2013 collection and plans to extend the franchising of F&F to more markets in central Asia and the Middle East.

New space and store revamps

Net new space contributed 1.9% to sales growth in the first quarter, with new store openings focused on convenience.

Tesco said it is on track with its opening programme for the full year, which will see around 1.1m sq ft opened across its four formats: Extra, Superstore, Metro and Express.

Nearly 40 Express stores were relaunched in the first three months, winning a stronger than expected sales uplift. A further 100 Express stores and around 70 Superstores will be revamped during the year as well as initial work on the Extra format.

Expert comment

Dan Coen, director at advisory and restructuring firm Zolfo Cooper, said: “Tesco seems to have hit a rough patch. The recent horsemeat scandal, cold weather and poor performance in the US have all put a strain on Britain’s biggest grocer. Philip Clarke’s turnaround plan is yet to look convincing, but it is still early days.

“Despite recent hiccups, Tesco is still leading the charge for British retail. The recent acquisition of restaurant chain Giraffe, along with its stake in coffee shop Harris + Hoole, are examples of the innovative ways the retailer is looking to diversify its offering for customers. By installing these outlets in its larger stores, Tesco will make more effective use of its vast floor space and become a more attractive destination for consumers.”

International performance

Tesco said consumers in its international markets continue to face challenging conditions, particularly in Europe, continuing the trend seen at the end of the fourth quarter last year.

Total sales in Asia grew by 10.9% at actual exchange rates and by 2.8% at constant rates. Like-for-like sales declined by (3.8)%, largely driven by the continuing impact of the regulatory restrictions on opening hours in Korea. 

In China business has been affected by consumer concern over the bird flu crisis and weaker demand for pork products following a national food safety scare. In Thailand, Tesco delivered a further increase in market share, on top of the gains made throughout the prior year. Its like-for-like sales performance follows two years of strong first quarter growth and reflects a slower rate of growth for the market as whole, particularly in food.

Europe and the United States

Total sales in Europe excluding petrol were up by 0.1% at actual exchange rates and declined by (3.0)% at constant rates. In all markets, consumers continue to exercise caution in their shopping habits, as they face the direct impact of a variety of austerity measures linked to the tough economic environment, Tesco said.

The impact of these external pressures increased in Ireland, with a significant reduction in consumer sentiment and spending following the announced introduction of a Local Property Tax on residential properties.

In Hungary Tesco returned to positive like-for-like growth, while its performance in the Czech Republic reflected a step-up in competitive intensity in the market, combined with the ongoing impacts of declining economic growth and increasing unemployment, the retailer said.

Tesco said its process to exit the United States continues on track and it will update the market in due course.