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.

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

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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 Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 318.

    Dear British business, if you treat your staff well and fairly you'll get the best from them and you'll see the benefits. Pander to short term gain (i.e. accountants) means long term loss.

  • rate this

    Comment number 317.

    Tesco must face facts it will never regain the customers it has lost. I live in a small rural area of mid Wales. Like most shoppers here we do our shopping in the local Audi store. Tesco is only visited for items that Aldi does not stock. Meat and fish come from local dependents.

  • rate this

    Comment number 316.

    Tesco used UK stores as cash cow to fund global expansion -disaster in USA so took the UK customer for granted . Will now find it difficult to win back UK business as Morrison,s starts home delivery and competitors up their game. Top Management overpaid and out of touch new broom needed with customer/staff focus!

  • rate this

    Comment number 315.

    Aside from the quality of their goods which are generally sub standard, I hate the way Tesco likes to think it can manipulate its customers. Buy 2 for the price of 1, instead of halving the price of each item and giving the consumer the choice whether they want 2 or not. Bread rolls 40p each or £1 for 4... I may not want 4 !!! In Lidl 29p each and much better quality. They just got too greedy.

  • rate this

    Comment number 314.

    The big problem Tesco has is the quality of it's fresh food isn't great - meat is poor, vegetables taste of nothing. There is a general air that their food palaces just sell 'product' - there is NO passion about what they do compared with Waitrose. Staff are scruffy and glum and some stores look dated. Tesco is all about shifting product whereas food is a very personal thing to consumers.


Comments 5 of 318



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