UK economy and Tesco diverge

Tesco store in London

Tesco this morning announced that in the three months to 23 November, underlying or like-for-like sales in the UK were down either 1.4%, or 1.5%, or 1.6%, depending on which of the three blinkin' measures published by the giant grocer is the most reliable.

There is no point in getting into the nuances of the calculation of this measure of sales, since they all tell the same story - sales down.

Now these figures are obviously not seen by investors as a disaster, since the share price is up a bit this morning.

But at a time when rising household consumption is driving the UK's recovery, according to the official statistics, it is slightly odd perhaps that the UK's biggest retailer should be struggling.

So what is going on?

Well, Philip Clarke, Tesco's chief executive, says: "Continuing pressures on UK household finances have made the grocery market more challenging for everyone since the summer and our third quarter performance reflects this."

He's right that, on the face of it, food retailers in general seem to be having a tougher time. Earlier this week, the BRC-KPMG Retail Sales Monitor showed a fall in like-for-like sales for all food retailers of 0.4%.

However I am sure you have noticed that Tesco seems to be doing worse than the norm.

Start Quote

Shoppers are drifting away from the middle ground, and going either to the out-and-out discounters or trading upmarket”

End Quote

Which of course implies, given that Tesco is by far the biggest food retailer, that some food retailers are doing pretty well.

What seems to be happening is that increasingly value-conscious shoppers are drifting away from the middle ground occupied by Tesco, and going either to the out-and-out discounters, like Aldi and Lidl, or trading upmarket to the likes of Waitrose.

That would be the explanation which says Phil Clarke was dealt a difficult hand when he took over from Sir Terry Leahy as chief executive.

But even if that is right, it is not impossible to prosper in that middle ground, as Sainsbury - which has been capturing market share - has been demonstrating.

And there is another thing.

Non-food retailing is doing pretty well across the UK. According to the latest BRC survey, in the latest three month period, non-food like-for-like sales were up 1.5%, a slight deceleration from the August-to-October figures but not too shabby.

Tesco still has a substantial non-food presence, although Clarke took a decision to scale that back some time ago, and does not appear to be benefiting from the general non-food revival.

The bigger story of what's happening in the UK economy is that growth in household consumption has been driving economic recovery. In the latest quarter. the increase in household consumption delivered 0.5% of a 0.8% growth in GDP.

That implies the squeeze at Tesco may be more about the weakness at Tesco than what is happening to consumer spending and the economy in the round

Which of course doesn't resolve the question of whether, because of its history, Tesco is trapped in the squeezed middle, or whether Clarke and his team could have done more to liberate it. Are the poorish sales at Tesco a reflection of duff management or the inheritance by the newish management team of an intractable structural problem?

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

Modi's mountain to climb

Hopes are incredibly high for India's new government, led by Narendra Modi. Tomorrow's budget will be the first test of whether these hopes will be fulfilled.

Read full article

More on This Story


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 18.

    Before the recession cheap Aldi Netto Lidl supermarkets were doing reasonably well but not great. Now with every penny counting those people who use to Tesco shop have had to reconsider where to shop. Having done so they have found that not only is the same stuff cheaper but in a lot of instances its better quality as well. Tesco will have to smarten their act up if they want to stay in business.

  • rate this

    Comment number 17.

    "..the out-and-out discounters, like Aldi and Lidl..". Oh dear Robert, despite your TV prog. you clearly know little about these up and coming retailers. Discounting is what they do very little of, they have a different business model which offers a limited range of very good quality products at permanently low prices. Having 'discovered' Aldi in particular I'm hooked, at Tesco's expense!

  • rate this

    Comment number 16.

    Tesco's problem is they want to 'dominate'. I live in a small town of about 70,000 and they currently have three Tesco outlets and are trying under local protest to open a fourth. This is on top of other shops that they control under the 'non-Tesco' name. Seems to me their problem is greed without an ounce of thought for what the consumer really wants. This could be their downfall.

  • rate this

    Comment number 15.

    If shopping is leisure activity, and many commentators say it is, then it will be subject to all the factors that impact leisure choices, including novelty.

    Perhaps Tesco as a brand and a venue is simply a little tired?

  • rate this

    Comment number 14.

    I used to go to Tesco because it offered a nice blend of good quality, good choice, good value and convenience.

    Now it's just convenient.

    Morrisons have taken the value crown, Sainsburys the quality.

    Tesco are directionless and trying to find their identity again.

  • rate this

    Comment number 13.

    @ 5

    s'burys in middle, M&S/waitrose above, aldi below.

    your post suggests you have never been not poor.

  • rate this

    Comment number 12.

    Falling sales isn't too much of an issue when you've replaced large numbers of staff with free labour courtesy of the taxpayer. Tesco deserve to be knocked down a peg or 12.

  • rate this

    Comment number 11.

    Don't do shopping, what is Tesco?

  • rate this

    Comment number 10.

    Tesco is probably a good indicator of the real economy as opposed to the the so called economic data from the statisticians.


    Correct. Also known as the real world.

    Inflation has been 6-7% for 5 years now in reality. GDP fueled by a SE housing bubble.

  • rate this

    Comment number 9.

    maybe the people got fed up with a tescos on every corner and a stripey carrier bag in every gutter and protest by spending their money elsewhere . not too big to fail unlike the banks .

  • rate this

    Comment number 8.

    Theres nothing wrong with Tesco,

    The squeeze is on the nation & peoples incomes, many people who shopped at Tesco have lost jobs & got new ones paying much less, some now shop elsewhere, eating lower quality & cost food.

    Fewer people in UK can afford electrical items, which is why Comet & others went bankrupt.

    Tesco has also had lots of negative media coverage, including from BBC

  • rate this

    Comment number 7.

    Tesco is a classic example of complacency. Their product was only the best because of their scale and ubiquity. Now that others have caught up their flaws (generally poor product quality for the money particularly in meat and fruit and veg) have been exposed. It's happened to the market leader in so many other industries and now it's happening to Tesco. I struggle to feel sorry for them.

  • rate this

    Comment number 6.

    Tesco is doing badly because they grew too big to manage and became complacent.
    My local Sainsburys is great and offers fantastic products of great quality.
    Unless Tesco start to focus on the customer again this will continue. Luckily I am already noticing a difference in my local Express. Good food but still very expensive!

  • rate this

    Comment number 5.

    "... it is not impossible to prosper in that middle ground, as Sainsbury.."

    If you think Sainsbury's is the middle ground, you've never been poor.

  • rate this

    Comment number 4.

    Best summer for years. Of course consumer spending went up.
    The growth in the economy is fragile to say the least and so far only seems to benefit those who are already doing well.
    The ordinary person on the street is still seeing their standard of living drop and for most, are still in recession. Inflation at 2.2%, pay rises at 0.8%. That's recession for most. Apart from the elite getting 14%

  • rate this

    Comment number 3.

    Two things:

    1) Tesco is unloved. Shopping there is a choice that comes from the head, not the heart, mainly from its incredible convenience.
    2) Tesco grew through being the first to market in new areas, particularly corner shops. Others have now caught up (especially Sainsbury), so this area is no longer their monopoly.

  • rate this

    Comment number 2.

    They are out of touch and complacent. I used to only shop at Tesco, now do most of my shopping at Aldi. £1.40 for green beans in Tesco, £0.80p in Aldi. The quality is better too so its no contest.

  • rate this

    Comment number 1.

    I'm not sure that Tesco and the British economy has diverged. I suspect that Tesco is probably a good indicator of the real economy as opposed to the the so called economic data from the statisticians and politicians.


Page 16 of 16



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.