Tesco UK Sales Fall as Grocer Loses More Ground to Discounters
Bloomberg News
Tesco Plc (TSCO), the largest U.K. retailer, reported a renewed decline in domestic sales as its efforts to stave off discounters and more upscale competitors wavered.
U.K. same-store sales fell 1.5 percent, excluding gasoline and value-added tax, in the fiscal third quarter ended Nov. 23, the Cheshunt, England-based company said today in a statement. That matched the median estimate of 12 analysts in a Bloomberg News survey.
The decline marks a deterioration from the second-quarter's stagnant sales, showing that the supermarket owner is still struggling to contend with the expansion of discounters Aldi and Lidl and of the upscale Waitrose chain. A 1 billion-pound investment in staff, revamped stores and price promotions has failed to restore growth, while sales are also sinking in international markets such as Thailand and South Korea.
'The painful truth is that all around the world Tesco's hypermarkets are under attack from discounters, convenience stores and online grocers and there are no easy solutions to the problem,' Nick Bubb, an independent retail analyst and member of the KPMG/Ipsos Retail Think Tank, said ahead of the release.
Tesco rose 0.2 percent to 341.6 pence in London trading yesterday. The stock has fallen about 6 percent in the past month on concern that sales may be worsening at home and beyond.
In Europe, sales at outlets open at least year fell 4 percent in the third quarter, Tesco said today, as shoppers from Dublin to Bratislava shunned the stores. In Asia, same-store sales declined 5.1 percent.
'Despite the challenging conditions in many of our markets, we are performing in line with market expectations for the full year,' Tesco said in today's statement.
Tesco isn't alone in being squeezed by the expansion of Aldi and Lidl, both of which are stepping up U.K. store openings as hard-pressed Britons seek to cut their grocery bills.
At the other end of the spectrum, the upscale Waitrose chain is gaining customers as shoppers place greater value on food provenance. All of Britain's four main food retailers lost market share for the first time since records began in the 12 weeks to Nov. 11, researcher Kantar Worldpanel said Nov. 19.
Analysts at HSBC Securities this week advocated that Tesco should slash prices, 'destroying competitors' cash flows and profits.' The grocer could justify cutting its operating profit margin to 2 percent to 3 percent from 5.2 percent, HSBC analyst David McCarthy said in a note, as it should be able to recover more quickly than the competition. 'Without radical action Tesco's long-term margin may be eroded in any case,' he wrote.
To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Paul Jarvis in London at pjarvis@bloomberg.net
To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net
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