Tesco’s identical sales under pressure

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.