FIONA REDDAN
Tesco, the UK’s largest grocer, saw Irish sales slip by 3 per cent on a like-for-like basis in the first quarter, on the back of increased austerity measures.
“The impact of these external pressures increased in Ireland, with a significant reduction in consumer sentiment and spending following the announced introduction of a Local Property Tax on residential properties,” the retailer said in a statement.
Group sales for the thirteen weeks ending May 25th 2013 increased by 1.8 per cent including petrol. In the UK, the retail giant also failed to sustain a domestic sales revival in the first quarter as discounters and upscale rivals continued to gain momentum. Same-store stores fell by 1 per cent, excluding gasoline and value-added-tax, compared with the previous quarter’s 0.5 per cent gain.
Tesco is retreating from some international markets and downsizing domestic store expansion at it struggles to maintain its dominant share at home. Even though the company last year invested £1 billionin its stores, food offer and staff training, customers have polarised toward discounters such as Aldi and upscale chains like Waitrose and some of the investment has held back sales on general merchandise in the UK, chief executive officer Philip Clarke said today.
While Tesco’s performance in every food category was stronger in the first quarter than in the last two months of the prior year, frozen foods and chilled convenience meals were the exception, although the retailer noted that the performance of these two categories has also picked up in recent weeks.
“Since January this year we have completed nearly 1,500 tests on our own-brand meat ranges, which identified four frozen beef products contaminated by equine DNA. The four products were withdrawn, reformulated and reintroduced, with new suppliers. We have also accelerated our work with all of our suppliers to ensure that our market-leading technical processes and specifications can enable customers to place a renewed level of trust in our entire product range,” the retailer said.
Tesco’s market share declined to 30.2 per cent in the 12 weeks ended April 14th from 30.8 per cent in the same period a year earlier, researcher Kantar Worldpanel said May 21st.
“Tesco is a long way from being out of the woods,” Dave McCarthy, an analyst at Investec in London, said before today’s announcement. “There are many unanswered questions and difficult decisions yet to be made.” The grocer’s profit margin is likely to come under pressure as “no retailer can suffer high like-for-like declines indefinitely without a big hit on profits,” Mr McCarthy said.
Tesco’s attempts to bolster its U.K. business comes against a backdrop of economic stagnation and inflation outstripping wage growth, leaving shoppers with declining real incomes. Turning the business around “will take time,” according to Philip Dorgan, an analyst at Panmure Gordon and Co in London.
Tesco senior managers will only receive an annual bonus if they manage to reverse declining profits, according to the company’s annual report published on May 23rd. Clarke and his team missed out on a bonus and other long-term incentives last year as profit fell for the first time in two decades.
(Additional reporting Bloomberg)
