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Tesco sales fall across all major markets Tesco sales fall across all major markets
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Tesco has been hit by falling sales across all its major markets, including the UK, underlining the scale of the task facing chief executive Philip Clarke as he struggles to restore growth at Britain's biggest retailer.Tesco has been hit by falling sales across all its major markets, including the UK, underlining the scale of the task facing chief executive Philip Clarke as he struggles to restore growth at Britain's biggest retailer.
Sales in the UK fell by 1.5% in the third quarter, excluding new stores and petrol, with Tesco blaming "an unprecedented period of declining incomes" and a "challenging grocery market".Sales in the UK fell by 1.5% in the third quarter, excluding new stores and petrol, with Tesco blaming "an unprecedented period of declining incomes" and a "challenging grocery market".
The dip in sales represents a deepening of Tesco's woes, following a period of stagnant UK growth earlier this year. John Ibbotson of Retail Vision said Clarke's job was now under threat, arguing that Tesco was not changing fast enough to respond to the shake-up in the grocery market. The dip in sales represents a deepening of Tesco's woes, following a period of stagnant UK growth earlier this year. John Ibbotson of Retail Vision said Clarke's job was now under threat, arguing that Tesco was not changing fast enough to respond to the shakeup in the grocery market.
Tesco's group's performance was even worse in its major foreign markets: sales in continental Europe were down 4%, with the steepest fall in Ireland, where sales plummeted by 8.1%. The fall in Slovakia was 5.7% and 4.9% in the Czech Republic, but the pace of decline slackened in Poland with a 0.7% fall, and Turkey, down 3.5%. Tesco fared even worse in its major foreign markets: sales in continental Europe were down 4%, with the steepest fall in Ireland, where sales plummeted by 8.1%. The fall in Slovakia was 5.7% and 4.9% in the Czech Republic, but the pace of decline slackened in Poland with a 0.7% fall, and Turkey, down 3.5%.
In Asia like-for-like sales were down 5.1%, with Thailand the worst performer, down 6.9%, followed by South Korea, down 4.8%.In Asia like-for-like sales were down 5.1%, with Thailand the worst performer, down 6.9%, followed by South Korea, down 4.8%.
Clarke, who has embarked on a £1bn turnaround plan since taking the top job in 2011, said Tesco was working to change its business, including opening fewer stores. Clarke, who has embarked on a £1bn turnaround plan since taking the top job in 2011, said customers were already seeing improvements that would pay off for the company in the long run.
"Continuing pressures on UK household finances have made the grocery market more challenging for everyone since the summer and our third-quarter performance reflects this," Clarke said. "The actions we have taken to position the business for the future – including the work currently under way to transform our general merchandise offer and our decision to significantly reduce the amount of new space we open – are also holding back our sales performance in the short-term. "We are in the middle of that business transformation plan, we are in the middle of a retail revolution and we are in the middle of the toughest retail market in a generation. It makes for some difficult quarterly reporting but we are already getting better for customers every day," he told journalists.
"Overseas, the near-term trading environment also remains tough, most notably in Thailand, but we have been able to drive a better performance in Poland and Turkey following the actions taken in the first half." Facing calls to copy the discounters by slashing prices, Clarke said he would not "trade long-term health for short-term help", adding that price was only one factor. "We are absolutely determined to make sure that price, quality, range and service improve for customers everywhere."
With the poor UK performance widely expected in the City, Tesco shares rose 1.3% to 346p in early trading. Investors were relieved there were no alarm bells on profits, as Tesco noted "we are performing in line with market expectations for the full year". With the poor UK performance widely expected in the City, Tesco shares rose in early trading, but slipped 0.2% later to 340 pence. Investors were relieved there was no alarm bell on profits – Tesco noted it was "performing in line with market expectations for the full year" – but its 5.2% profit margin has been described by HSBC as unsustainable. Clark denied that Tesco was squeezing suppliers to hold up its profits.
City analysts called on investors to have patience with the supermarket giant, which is attempting to win back by customers by giving stores broader appeal, with the introduction of Harris & Hoole coffee shops and family-friendly Giraffe restaurants. Tesco said it had "refreshed" more than 100 stores during its third quarter and claimed it had tailored 1,600 Express stores to local needs. Other City analysts called on investors to have patience with the supermarket giant, which is attempting to win back customers by giving stores broader appeal, with the introduction of Harris & Hoole coffee shops and family-friendly Giraffe restaurants. Tesco said it had "refreshed" more than 100 stores during its third quarter and claimed it had tailored 1,600 Express stores to local needs. But with more than 3,000 shops across its estate – including 1,000 superstores – Clarke said the overhaul would take time: "We do plan to go quicker but you can only go as quick as you can go." As the bricks-and mortar revamp takes shape, Clarke is trying to sharpen up Tesco's internet presence by expanding click-and-collect services. The grocer also revealed that it has sold 300,000 of its Hudl tablet computers and expects to double that over Christmas.
Ibbotson said the decline in sales called Clarke's turnaround plan into question. "Another very poor set of results from the UK's largest grocer … This, together with declining sales in key overseas markets, will put Clarke and his senior management team under threat. Everything now depends on the critical Christmas period, but schmaltzy advertising, sponsorship of Downton Abbey and promising jam tomorrow are no guarantees that things will turn around." But Ibbotson said the decline in sales called Clarke's turnaround plan into question. "Another very poor set of results from the UK's largest grocer … This, together with declining sales in key overseas markets, will put Clarke and his senior management team under threat. Everything now depends on the critical Christmas period, but schmaltzy advertising, sponsorship of Downton Abbey and promising jam tomorrow are no guarantees that things will turn around."
Tesco, along with Asda, Sainsbury's and Morrisons, is being squeezed from both sides by posh grocer Waitrose and discounters Aldi and Lidl. Tesco, along with Asda, Sainsbury's and Morrisons, is being squeezed from both sides by upmarket grocer Waitrose and discounters Aldi and Lidl.
The rise of the discounters meant that Tesco's attempt to blame its weaker grocery performance on "the effects of an unprecedented period of declining real incomes" and the "higher cost of living" was met with scepticism. Aldi and Lidl continue increase their market share, according to the latest data from Kantar, by broadening their range into discounted luxuries, such as fine wine and partridge. The rise of the discounters meant that Tesco's attempt to blame its weaker grocery performance on "the effects of an unprecedented period of declining real incomes" and the "higher cost of living" was met with scepticism. Aldi and Lidl continue to increase their market share, according to the latest data from Kantar, by broadening their range into discounted luxuries such as fine wine and partridge.
But Bryan Roberts, Kantar Retail's director of retail insights, warned against the "nuclear" option of slashing prices. "The recent past shows us that value is so much more than price," he said, advising Tesco to concentrate on improving their stores and customer service. But Bryan Roberts, Kantar Retail's director of retail insights, warned against the "nuclear" option of slashing prices. "The recent past shows us that value is so much more than price," he said, advising Tesco to concentrate on improving its stores and customer service.
Phil Dorrell at Retail Remedy, described the results as "a like-for-like whitewash", but said Tesco could still turn things around. "The re-emergence of Tesco won't happen overnight and some shareholders will lose patience with what is likely to be another year of mediocre results. Shareholders with a sense of perspective, though, will cut Tesco some slack. The long-term value and returns Philip Clarke talks about will come but it will take time." Phil Dorrell at Retail Remedy described the results as "a like-for-like whitewash", but said Tesco could still turn things around. "The re-emergence of Tesco won't happen overnight and some shareholders will lose patience with what is likely to be another year of mediocre results. Shareholders with a sense of perspective, though, will cut Tesco some slack. The long-term value and returns Philip Clarke talks about will come but it will take time."
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