Tesco vows to win back shoppers with price cuts as sales fall again

Tesco boss Philip Clarke vowed to win back shoppers with millions of pounds of price cuts after a second year of falling profits cast doubt on his efforts to turn around the fortunes of Britain's biggest retailer.

The world’s third-biggest retailer today reported a 6 per cent fall in annual profit, its second straight year of decline, piling pressure on Mr Clarke.

The group said trading had deteriorated throughout the 12 months, with the key figure of sales at its British stores open over a year, excluding fuel and VAT sales tax, down 3 per cent in the fourth quarter, its worst drop in Mr Clarke’s three-year tenure.

Despite calls from investors to quit or change tack, with several worried about a price war, Mr Clarke insisted he would see through his “bold” plan to rebuild the company, which had been the darling of the sector during two decades of uninterrupted earnings growth before a shock profit warning in 2012.

Tesco shares, at 10-year lows, jumped 5 per cent in early trade as Mr Clarke said he would respond to the discount groups and upmarket grocers that have hit Tesco from both sides and sent its British market share to a near 10-year low of 28.6 per cent.

“I have got no intention of going anywhere,” Mr Clarke, a 40-year Tesco veteran, told reporters. “All my waking hours are spent running Tesco. It’s what I love. I am going to see this thing through.”

Tesco’s Irish division had revenues of €2.97 billion last year, down 5.7 per cent on the previous 12 months.

The retailer said like-for-like sales in the Republic were 5.5 per cent lower.

The figures showed sales fell by 8.1 per cent and 6.4 per cent in quarters three and four respectively.

Earlier this week, data from retail analysts Kantar Worldpanel indicated Tesco's lead in the Irish grocery market had been significantly eroded, with discount stores Aldi and Lidl being the main beneficiaries.

Tesco, the world’s third-largest retailer, with a market valuation of £23 billion and 530,000 staff, has suffered on several fronts in recent years.

Overseas, failed attempts to break into the United States and Japan and troubles in China and Europe have proved a distraction to its home market, where it still makes over two-thirds of sales. Alongside a 6 per cent fall in annual group trading profit posted yesterday, Tesco took a £734 million writedown on the value of its European businesses, where trading has slowed, and a one-off charge of £540 million in China. That puts charges and writedowns for its overseas forays at close to £3 billion in two years.

At home, despite Mr Clarke’s spending billions on improving services and stores, things have yet to improve, and the firm abandoned its industry-leading margin target two months ago. A 3 per cent decline in underlying UK sales for its fourth quarter was the worst quarterly drop since he took the top job three years ago.

“The results aren’t pretty, but they are possibly slightly better than some had been expecting,” one of the firm’s top 20 investors told Reuters on condition of anonymity. “

Tesco might get a little respite from the recent relentless negativity. "I'm not in the mob of people clamouring for Clarke's head. I am keen that the company adopts a less expansionary strategy and doesn't start a price war in the UK." In common with Britain's three other leading grocers - Wal-Mart's Asda, Sainsbury's and Morrisons -

Tesco has been squeezed between hard discounters Aldi and Lidl and by Waitrose and Marks & Spencer at the premium end. Facing the slowest rate of growth in the British market since 2005, Mr Clarke said customers would see prices coming down and stores modernised at a faster rate than initially planned. "We have a big and bold plan, and customers are going to get better value from

Tesco during 2014,” he told reporters. He declined to put a price on the scale of the cuts that will be added to a 200 million pound programme announced in February. “200 million was just the start, you’ll see more coming,” he said.

The plans at Tesco, which among global retailers trails only Carrefour and Wal-Mart, will do little to ease industry fears of a price war in Britain, with both Asda and Morrison having each committed to spending 1 billion pounds on price cuts. Mr Clarke described Aldi and Lidl, which have managed sales growth of 35.3 per cent and 17.2 per cent, respectively, as “very formidable” and said while it was hard to match their prices it would ensure it stayed competitive on key products. He added that recent price cuts of 24 per cent on key lines such as milk, eggs and chicken had boosted volumes by 30 per cent.