Tesco suffers worst sales for decades

5 June 2014
The Guardian
Chief executive Philip Clarke is under pressure amid worst sales fall he can remember in 30 years at supermarket giant
The pressure has increased on Tesco chief executive Philip Clarke after he revealed the supermarket’s worst sales performance in decades, despite spending over £1bn on store revamps and price cuts in a fightback against discounters such as Aldi and Lidl.
Tesco’s sales fell by 3.8% in the three months to 24 May on a like-for-like basis, an acceleration of the 3% slide in the previous quarter. Several analysts noted that the fall would have been 4% if Tesco had used the same standards used by most retailers, which exclude fuel, VAT and sales paid for with vouchers.
Clarke admitted the sales decline was the worst he could remember in a more than 30-year career at the supermarket group, where he first started working as a schoolboy shelf-stacker in 1974, but insisted it was partly driven by Tesco’s own actions to cut prices and revamp stores: “I haven’t seen a quarter of like-for-like sales like this before that I can remember but I haven’t seen a period of transformation like this for the industry,” he said.
Clarke is trying to revive sales at Tesco’s UK business by revamping stores and cutting prices on staples such as bacon, eggs and bread amid tough times for all the major grocers who have seen sales hit as cost-conscious shoppers look for bargains. He said that volumes had jumped 28% on sales of goods where price cuts had been made but the turnaround plan would continue to affect performance this year as price cuts took time to lure customers back. He is ditching short-term promotions and aiming to win long-term loyalty through sustained price cuts on the products which Tesco customers bought most often as well as money off petrol for Clubcard shoppers through the Fuel Save scheme.
“I see every day the improvements in the business but I’m not making any promises about sales improvements in the next few quarters,” Clarke said. He said he didn’t think it would be possible for Tesco to refurbish stores at a faster pace without major risk but he thought the effort was necessary. “We can emerge a winner,” he said.
Bruno Monteyne, an analyst at Bernstein Research, calculates that only half of the latest sales falls were the result of price cuts, disruption caused by store revamps and less use of discount vouchers. It means that, even without those self-inflicted hits, Tesco would still be losing sales.
“We expect this quarter to represent a low point for Tesco but there is no return to positive like-for-like (sales growth) in sight,” Monteyne wrote. Other analysts suggested that Tesco’s sales performance was only likely to get worse in the coming quarter as Clarke indicated that he was planning further price cuts. Analysts at Espirito Santo suggest a revival could take five years.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: “Investors need to ponder whether Tesco is a company showing glimpses of revival given its turnaround plan, or whether it is past its sell by date.”
Tesco is not the only major supermarket struggling to tackle rapid change in the industry amid the rise of discounters such as Aldi, Lidl Poundland and B&M Stores as well as the rise of online shopping and convenience stores. Clarke said the Tesco Express convenience chain had seen a 1.4% rise in underlying sales and online sales were up by 9% in the quarter showing it had a stake in those fast-growing sectors. But he also said the whole industry was seeing the impact of a squeeze on shoppers spending power since 2008 and said that they were still not feeling the benefits of lower inflation and the economy’s recovery.
Some big investors are losing patience with Clarke, who is 18 months into his plan to revive Tesco after UK profit fell for the first time in 20 years.
Clarke said: “You’re right, it is 18 months and they are the worst numbers but we accelerated our plans in February because we could see how the plan will work and the pace of change is huge. It has some headwinds and some consequences.”
He declined to comment on discussions with Tesco’s major shareholders, saying they were “confidential to us”. But he added: “I’m not going anywhere. I’m going to see through the fundamental reshaping of Tesco. I have got so much energy, determination and passion.”
Tesco shares fell 1.3% to 293.5p on the news.
Recent industry data shows that Tesco appears to have lost more than 1m customer visits per week, worth £25m in sales, with its market share showing the biggest fall for at least 20 years. A survey published on Tuesday by Kantar Worldpanel showed the grocery market was at its weakest for at least 11 years and that excluding inflation and population growth the market was stagnant. In the 12 weeks to 25 May, Tesco’s market share dropped to 29% from 30.5%.
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