Blog: Dean BestTrouble at Tesco

Dean Best | 2 December 2008

Listening to the interview Sir Terry Leahy gave in the wake of Tesco’s results today (2 December), it rather hit home that we are in quite the economic pickle.

 

Things are not looking rosy in the consumer economy, to say the least. Confidence has been seriously shaken and people are tightening their purse strings as a consequence. Suddenly, the heady days of – oh, eight months ago – when credit was aplenty, have caught up with us.

 

As Sir Terry said: "The current economic climate, and the strain this is putting on consumers everywhere, is something that all businesses are feeling, including ours.”

 

Tesco’s Q3 trading update was one of its worst in years, showing as it did that the group's UK like-for-like sales, excluding fuel, grew by just 2% during the 13 weeks to 22 November.

 

While the economy is undoubtedly looking the worse for ware, is this the sole cause of Tesco’s slowing sales growth in the UK?

 

Perhaps not.

 

Let us pause to remember the expectation-beating figures Wal-Mart’s UK unit Asda delivered last month, when it unveiled third-quarter like-for-like sales growth of 6.9%, excluding fuel. Interestingly, Asda sales growth has accelerated during the year: sales increased by 6% in the second quarter and 5% in Q1.

 

To win back customers Tesco plans to cut prices.

 

"We are adjusting the business to meet the new challenges - focusing on becoming even cheaper for customers, keeping our costs low to help us to do this and managing our balance sheet and cash carefully,” Sir Terry said.
 

Asda is arguably the UK grocer that competes most closely with Tesco on price. But it doesn’t stop there. Last month, Sainsbury’s saw comparable sales rise 3.9%, benefitting as it did from consumers who are trading down from M&S and Waitrose.

Looking at the numbers, one could be forgiven for thinking that Tesco dominates the UK grocery market, controlling as it does over a third of the sector. In reality this is far from the truth. The UK’s supermarket sector is highly competitive and the Tesco bigwigs must surely be concerned that the company’s woes are more than just the product of the dire economy.

Katy Humphries, deputy editor


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