The rain was beating against the office windows this morning as we tuned into the conference call on Tesco's first-quarter trading update and, looking at the numbers, the gloom surrounding the UK's largest retailer has not lifted just yet. However, in many ways, that is hardly surprising.

The company reported a 1.5% decline in like-for-like sales, excluding VAT and fuel, in the UK for the 13 weeks to 26 May. The fall was, CEO Philip Clarke said, the fourth consecutive quarter in which Tesco's underlying sales in the UK had decreased and, on the face of it, will do little to ease some industry watchers' concerns over the retailer's performance.

Nevertheless, Tesco pointed to signs of improvement in the UK. Like-for-like sales in the fourth quarter of its previous financial year fell 1.6%, so the retailer could cite some sequential improvement. It also referred to data from Kantar Worldpanel it said showed its performance had "improved relative to the market".

Clarke, who remains in charge of Tesco's UK business on top of his role as group chief executive, said the changes the retailer had made in the UK to its product range, stores and staffing was paying off. "Our customers are seeing the evidence of the changes we’re making and they’re telling us they like what they see," he said.

Let's face it, Tesco was hardly going to see its LFL numbers bounce back into positive territory after just one quarter of the remedial work on its UK business. Notwithstanding the time it will take to see if these measures truly have gained traction, the UK grocery sector remains fiercely competitive as retailers battle to win over very cautious - and promiscuous - consumers. Tesco needs time to turn its UK business, which accounts for two-thirds of company profits, around. However, the retailer's shares have lost over a quarter of their value since the start of the year, indicating investors are looking elsewhere.

On Wednesday, we'll hear from another UK retailer, Sainsbury's, as it reports its first-quarter trading update. Sainsbury's first quarter covers the Diamond Jubilee, which the retail sector had been hoping would be the first of a trio of events (alongside the Euro 2012 football championships and the Olympics) that would boost sales. However, anyone that even glanced at the Jubilee celebrations will know that, at times, it was a rather damp affair. And, looking at England's likely team sheet for tonight's game against France and for the two other group matches in the next eight days, retailers looking for a boost from a long Euro 2012 campaign from the national team could be disappointed. But, of course, you never know. Football's a funny old game.

Staying on the European theme but turning our attention further south, Spain is the country on the continent that has dominated business headlines in recent weeks. Over the weekend, ministers for the countries in the eurozone agreed to a EUR100bn bailout package for Spain's banks. The move will provide some relief for the markets but, for FMCG manufacturers, it needs to be remembered Spain is in its second recession in three years. The unemployment rate in Spain reached 24.4% in the first three months of 2012.

As data from the latest just-food international basket shows, Spain is one of the most price-sensitive markets in Europe, reflecting the pressure consumers are under. The gap between the prices of brands and own label is growing as retailers fight to attract shoppers. Spanish retailer El Corte Ingles has announced price cuts on thousands of food products in a bid to stay competitive. Its announcement followed annual financial results from Spanish co-operative retailer Eroski that showed a fall in annual sales as it invested in price. Food manufacturers operating in Spain will be aware just how challenging operating in Europe's fifth-largest economy has become.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
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