Tempus analysis on Tesco

Tesco has slipped to its worst growth performance since the last recession as shoppers spurn its premium lines, the supermarket said yesterday.

The world’s third-largest retailer reported like-for-like sales growth of 2 per cent for the third quarter, its weakest growth since 1993. Tesco said that customers were trading down to its Value range and items introduced in its drive to become Britain’s biggest discounter.

The supermarket admitted that sales of its discount range, introduced to head off the threat of opposition from stores such as Lidl and Aldi, had reduced sales growth by up to 3 percentage points during the 13 weeks to November 22. Up to a quarter of baskets now contain value items, while sales of its Finest range have fallen.

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Andrew Higginson, Tesco’s finance director, said: “Driving deflation into your business is painful in the short-term but we think it is the right path to be on and the good news is that customers are responding to it. Obviously we are heading into a recession and customers are very savvy and looking to save money.”

The trend to lower-priced items deepened in September in the wake of the failure of Lehman Brothers, as consumers were driven by an “almost primal fear that they would lose their savings”, Mr Higginson said.

The deep discounters, such as Aldi, Lidl and Netto, are increasing their market share, but, as The Times reported yesterday, Tesco is also losing trade to its chief competitors J Sainsbury, Asda and Wm Morrison, according to industry statistics.

Separate figures from TNS Worldpanel also show Tesco trailing its rivals in growth for the 12 weeks to November 4. Sales grew 5.4 per cent, compared with a rise of 9.4 per cent at Morrison, 9 per cent at Asda and 6 per cent at Sainsbury’s.

Tesco said yesterday that its discount drive, which was introduced in September, had brought an extra 300,000 shoppers through its doors each week. About 12 million customers a week shop at the supermarket. Mr Higginson said that Tesco was continuing to press suppliers: “We are having to have some robust conversations with them. It is interesting that they are speaking to the press and analysts because it shows we are doing the right thing.”

Overall sales at Tesco, including its international business, grew by 11.7 per cent, while total sales in Britain, including petrol, rose 5.9 per cent, or 3.2 per cent without petrol. International sales were up 14.6 per cent at constant rates. Shares in Tesco rose 37.4p, or 13 per cent, to 325.4p yesterday as the market took heart from the fact that the results were not worse.

Tom Gadsby, an analyst for SG Securities, said: “Tesco tends to look ahead to five or ten years’ time and worry less about the next quarter’s figures, and they are trying to protect against a wholesale expansion of the discounters. If consumers get used to shopping at Aldi, the danger is they may not come back. In the meantime, it is going to hurt Tesco’s sales and I expect that to continue into 2009.”

Leading supermarkets fear that the discounters’ market share will grow to European levels. In Britain they account for about 6 per cent but in Germany they have more than half.

Sir Terry Leahy, Tesco’s chief executive, said: “We are adjusting to meet the challenge, focusing on becoming even cheaper, keeping our costs low and managing our cash carefully.”

Shopping list

440,000 people employed by Tesco

3,956 Tesco stores around the world

14 countries in which Tesco operates

2,115 Tesco stores in the UK

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