Tesco upbeat as sales improve

Tesco upbeat as sales improve

UK retailer Tesco benefited from an increased uptake of own label products in the UK, where it has relaunched various products in its own brand line-up as part of its turnaround strategy.

Reporting its strongest growth in Christmas sales for three years, Tesco said UK like-for-like sales were up 1.8% in the six weeks to 5 January. This compares favourably to the group's performance last year, when a 2.3% drop prompted the firm to issue its first ever profit warning and launch a far-reaching investment programme for the UK business.

Tesco is now nine months into its turnaround plan, during which time CEO Philip Clarke has overseen UK business. During the period, the company has taken a number of initiatives designed to improve its UK offering, including revamping its stores, employing more staff on the floor and relaunching some of its own label lines.

Commenting on the group's performance during a conference call, Clarke said higher own label sales had come at the expense of branded sales.

"What is very interesting is how much customers bought into Tesco brands over the Christmas period. Own brands have grown strongly at the expense of manufacturer brands," Clarke said.

"We put a lot into Everyday Value and Finest range, as well as Tesco own brand, which sold well even though we've only just begun our product improvement programme."

According to Clarke, the trend is a reflection of changing consumer habits, as shoppers increasingly seek out "value" in response to the weak economic environment.

"Customers are recognising the value that you get from Tesco own brands and it's one of the ways that they can manage the pressures on their household budgets. We'll continue to focus on improving them in 2013 - there is a lot more to come," he suggested.

Clarke said he did not anticipate a significant improvement in 2013 trading conditions, a factor that may bode well for the continued resurgence of 'brand Tesco'. "[2013] is going to be difficult for consumers and for businesses because earnings aren't growing as fast as costs... that is why we have a combination of quality and value."

According to Clarke, Tesco is aware it is not a case of "job done" in the UK and the appointment of long-time Tesco executive Chris Bush does not signal that the group is taking its foot off the accelerator domestically.

Clarke was also quick to emphasise that Tesco is not getting carried away with one improved quarter, which was helped by soft comps. "The plans roll on into another year. A new sense of energy, a new sense of optimism and a feel-good Christmas."

Clarke revealed that in order to maintain its investment levels as it works to drive further improvements in the UK business, the firm will be "holding the margin flat" in the UK to reinvest into 2013-14. "We know if we are going to do well in the UK we have to do well for consumers first," he commented.

An important part of Tesco's strategy to improve its offer has been the reassessment of its promotional strategy, which has been refocused to deliver personalised club card offers. The group also tailored its in-store promotions to focus on seasonal products over this festive period, a move that Clarke said was warmly received.

Elsewhere, Tesco saw strong growth of online food sales, which rose 18%. Clarke said Tesco is developing its online offering - through initiatives such as drive through collection points - in order to "fuse" its bricks and mortar and digital offer to "create another point of difference".