Last month saw Tesco grow in the UK as it shed less profitable areas of the business to focus on rejuvenating the core. But the going could get tougher in the UK, where retailers are expected to feel the fallout from Brexit and the likes of Amazon are making in-roads in grocery delivery. The fast-paced world of e-commerce saw notable developments, including Lidl’s launch of an e-shop in the Netherlands and Wal-Mart’s expansion of its online presence in China. 

Here is just-food’s monthly round-up of the retail news from June. 

The green shoots of recovery at Tesco 

Early signs of a budding recovery continued to sprout at Tesco when, last month, the retailer reported its second straight quarter of like-for-like growth in the UK. 

The supermarket’s like-for-like sales were up 0.3% in the 13 weeks to 28 May in the UK. The group sales, which include its businesses in Ireland, Europe and Asia, were up 9%, the company revealed. 

Tesco has responded to the competitive UK retail environment by cutting prices. The company stressed that deflation had depressed its value sales growth, with volumes up 2.2% in the period. 

Looking at its performance, Tesco attributed some of its sales improvement to the success of its controversial “farm foods” range. The launch of the line provoked a backlash on social media when it emerged that the “farms” Tesco has named its lines after – such as Willow Farms, Boswell Farms and Rosedene Farms – are made up. 

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“Our new fresh food brands are performing very well, with over two-thirds of our customers having bought products from the new range,” CEO Dave Lewis stressed. 

Verdict Retail analyst David Alexander suggests that the naming controversy “may have been lost on customers”, suggesting that “for most shoppers, the perception of provenance is sufficient, provided the products are perceived to be good value”.  

At the heart of Tesco’s turnaround its a streamlining of its proposition. The company is reducing the number of coupons and promotions it runs and instead focusing on everyday low prices. The UK retailer is also concentrating in on the performance of its domestic operations, where it generates the lion’s share of its profits. 

Indeed, separately this month, it emerged that Tesco had sold a majority stake in its Turkish Kipa to Migros. The group also disposed of its Giraffe restaurant chain. 

According to Bernstein analyst Bruno Monteyne, this action is all about increasing Tesco’s focus on the core. “These sales further simplify the group and will allow management focus on core business. While Turkey and Giraffe were a small part of the Tesco business from a financial point of view, there is a greater impact on the business through focussing management’s attention on the core business,” he suggests. 

Brexit could make things tougher in UK retail

Just as Tesco starts to look like it is getting its house in order, the monumental vote that will see the UK exit the European Union threatens to send shock waves throughout the UK retail scene. 

A period of economic uncertainty could well place UK supermarket sales under pressure, as consumers in the country cut back spending in the short term. 

A weaker pound will also push up the cost of products procured overseas. Maureen Hinton, global research director at Verdict, explains: “For retailers the immediate issue is the fall in the pound and whether it will remain weak for a sustained period. This will impact costs as most buying is done in US$ and will push up prices.”

With UK retailers already having sacrificed margin to lower consumer prices in response to the growth of the discounters in the market and subsequent grocery price war, the question could well become ‘how low can they go’?

Jon Copestake , chief retail and consumer goods analyst at the Economist Intelligence Unit, is downbeat on the prospects for 2017. “Worse is likely to come in 2017 when retail sales volumes could decline by over 3% as the economy falls into recession and uncertainty mounts, especially as higher import prices also act to depress demand. A weak sales environment will only be one of a number of challenges for retailers though. As consumers rein in spending retailers will be scrambling to renegotiate agreements with suppliers and reassess the regulatory environment in which they operate. Other factors such as exclusion from the Common Agricultural Policy and Digital Single Market will have both ramifications for retail supply and for cross-border trade with EU markets,” he predicts. 

According to HSBC analyst David McCarthy, more pressure on pricing in UK grocery could be on the horizon thanks to Wal-Mart owned Asda and a potential fresh initiative to slash prices. “Asda has learnt if it prioritises margins, it will lose its sales, which then leads to a falling margin. Better a company invests its margin to reward its customers and to protect its sales than to see margins eroded by the competition… we believe Asda wants to regain price leadership and to send a message to the discounters of what to expect in the US.”

McCarthy’s observation follows Wal-Mart’s move to appoint Sean Clarke, who ran its operations in China, as Asda’s new CEO. 

Amazon Fresh launches in UK 

At a time when competitive pressures are reaching boiling point in the UK, the launch of Amazon Fresh, the grocery delivery service of US e-commerce giant Amazon, has attracted considerable attention. 

The service is being rolled out in areas of central and east London. Amazon Fresh offers 130,000 “competitively priced products” including “Britain’s best-loved brands” and local food products, Amazon said as it announced the move. 

The company also stressed the convenience of the service it is offering Amazon Prime members. This includes “fast and flexible delivery”, one-hour delivery slots are available from 7am to 11pm seven days a week and same-day delivery available from 5pm for orders placed by 1pm. 

“The bar in grocery retailing is exceptionally high. The supermarkets and grocers are amongst the very best retailers in the world,” said Ajay Kavan, vice-president of AmazonFresh. “We believe that the key to the long term success of AmazonFresh is to bring together the low prices, vast selection, fast delivery options and customer experience that Amazon customers know and love.
“We are launching with a comprehensive offer in a limited area and will take our time to hone and improve our service based on our learnings and feedback from our customers. We will be very methodical and considered in how we roll this service out further in the UK.”

Much has been said about how the business will perform and the impact it will have on other retailers. Some pundits suggest that Amazon Fresh could struggle to compete in a grocery market that is already highly concentrated, while others believe Amazon Fresh’s success could pile on the pressure on its competitors – notably Ocado. 

As Conlumino analysts note, in the low growth UK environment if Amazon is to prosper it will need to steal share. “With virtually no volume growth in the UK grocery market, and a competitive environment that is characterised by overcapacity, it stands to reason that any new entrant is an unwelcome additional pressure. Such is the zero-sum nature of today’s food market, any sales Amazon Fresh manages to generate will come from other players.”

E-commerce competition heating up in the Netherlands

With their strong price leadership and no-frills style, the German discounters have been expanding strongly in the developed markets of Europe, the US, and Australia. 

Lidl announced plans to extend its business in the Netherlands with the launch of an e-commerce platform. Lidl’s online shop will initially sell the firm’s non-food ranges, but the company already has plans to expand to include food items once the back-end systems are established. 

Lidl opened its online store in Belgium in March this year, while it has an online store in its home country Germany since 2009. 

As further evidence that competition is heating up in the Netherlands’ online space, Ahold began trials of a new delivery service at select Albert Heijn stores, under which orders will be made in less than an hour. Meanwhile, Spar International revealed plans to roll out same-day delivery in the market. 

Wal-Mart’s tie-up with paves way for China expansion 

US retail giant Wal-Mart – the parent of Asda in the UK – also detailed plans to expand its online presence in the Chinese market. The company said it had formed an alliance with Chinese e-tailer

Wal-Mart said the agreement – which sees it take a 5% stake in – “greatly expands” its opportunity in China e-commerce and provides its stores with potential traffic from’s significant base of online customers and “vast same-day delivery network” to serve its customers. The deal covers supply chain cooperation and will see Wal-Mart’s Sam’s Club banner open a flagship store on 

Doug McMillon, president and CEO of Walmart, commented: “… has a very complementary business and is an ideal partner that will help us offer compelling new experiences that can reach significantly more customers. We also look forward to offering customers a tremendous number of quality imported products not previously widely available in China through Walmart and Sam’s Club.”  

The move comes as FMCG companies increasingly work to forge links to China’s booming e-commerce  trade. Nestle recently inked  a deal with e-commerce rival Alibaba to grow its online presence while Mars also established a “global strategic partnership” with Alibaba to grow its business online and offline.

The development of these e-commerce strategies comes  in response to growing food sales via online channels in  China. Sales of grocery items have risen from US$2.83bn in 2012 to US$7.26bn in 2014, equating to an average increase nearing 80% per annum, research from Euromonitor International suggests.