British retailer Tesco had to confirm the fear of analysts: the identical sales of the British chain have dropped by nearly one percent, mainly due to disappointing sales of non-food and convenience foods.
Horse meat scandal lowers sales
“We set out our approach and we have started the year on track, despite a continued difficult economic environment for consumers”, as CEO Philip Clarke commented about the quarterly figures, although even Clarke had to admit that the sales of non-food in the United Kingdom were a disappointment.
Another setback was the horse meat scandal, that also affected Tesco. Clarke talks about “…a small but discernible impact on frozen and chilled convenience food sales due to the customer response to equine DNA being detected in four products.”
Total growth compensates identical losses
Tesco’sidentical growth on its British home market dropped by 0.9% (not including fuel sales) in the first quarter up to 25 May 2013. A year ago the market leader had a modest identical growth of 0.5% in the first quarter. Total sales not including fuel grew slightly by one percent.
The growth of online food, the increase in the number of ‘Click & Collect’ pick-up points to 169, improved customer service and the successful campaign on price comparison ‘Price Promise’, have stimulated sales according to Tesco. In that campaign Tesco compares prices at the register with those of competitors Sainsbury’s, Asda and Morrisons, after which customers get the price difference back. The campaign is contested however: rivals are complaining that private labels and fresh foods can not be compared objectively.
Switch in non-food
The growth of total sales can only just compensate the drop in identical sales: Tesco says it is strongly dependent in non-food on sales of consumer electronics, which suffered badly from the crisis in the first quarter.
Furthermore there is an effect of the switch from cheap household items to higher quality products that have higher margins: Tesco says this will cause a bigger growth. That will have to show in the numbers of the following quarters when the new range of high-quality household items will become available.
Internationally identical sales drop even more
Not only at home, but also internationally is the position of Tesco cause for worry, as identical sales abroad dropped even more, by 4.6 percent (not including fuel). Total foreign sales remained stable with a minimal growth of 0.1 percent. In Asia (-3.8%) and in Europe (-5.5%) the bad development of identical sales show that Tesco is still under pressure.
Tesco will take drastic measures on the market abroad, just as it did on its home market. After the announcement of the intended sale of all American activities some analysts have concluded that Tesco generates a lot of sales through hypermarkets – the format that seems the most vulnerable during the economic crisis and structural changes of demographic (aging of population) and technological (digitalisation) nature.