Is Tesco on the turn?


Depending on how you measure it, Justin King has probably avoided the minor embarrassment of winning two accolades from his boss rivals (the chief executive they admire most) and simultaneously being obliged to announce the end of growth.

In the third quarter of its year, Sainsbury's underlying, or like-for-like, sales grew a tiny bit, 0.2%, excluding fuel, and were flat as a pancake including fuel. This compares with rises of 2.1% and 2% respectively in the strong second quarter of the year.

Is that a bump in the road after an extraordinary 35 quarters of unbroken growth? Yes, but not one such that King is likely to feel desperately uncomfortable.

More interesting is the piece of the jigsaw Sainsbury's provides to explain what happened to retailers and to household consumption in the Christmas period.

As I said on Monday, October and much of November were difficult months for the high street. But the Christmas period itself was strong, with King saying the seven days prior to 25 December were the busiest ever for the business.

The other important trends for all retailers were these:

  1. Sales of more expensive items - cars, televisions, tablets and so on - were strong. At Sainsbury's, there was a 25% jump in tableware and 30% in "gifting".
  2. 2013 was the year in which online sales wagged the entire retailing dog, in a revolution that is permanent. The best performing store chains, Next, John Lewis and House of Fraser, are those with huge and efficient online presences. And at Sainsbury's, online grocery sales rose more than 10%.

The confidence of shoppers that online purchases will arrive in a timely way is shown by 22 December being Sainsbury's biggest-ever day for internet sales. In previous years, digital sales had tapered off so close to Christmas.

So what about Tesco, Sainsbury's much bigger rival, which reports tomorrow?

My hunch is that this Christmas will have been good for Tesco, in the sense of how its owners see the course and strategy set by the chief executive Philip Clarke.

This is not to say that the headline numbers will look great. There is bound to have been a fall in like-for-like, or underlying, sales, and so the simple direct comparison with Sainsbury's will not flatter Tesco.

But that disguises Tesco's strengths - especially in online - which Clarke is reinforcing.

Start Quote

Over the course of a year, the share of digital in Tesco's sales is said to have jumped several percentage points”

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Clarke has made a big and expensive bet that the future will be digital, and not about huge out-of-town stores.

The fruits of that are not yet conspicuous, in that there is still a big drag on sales from the way Clarke has permanently rebalanced sales away from less intrinsically profitable general merchandise towards food in the big stores and from the declining popularity of vast superstores.

But internet sales are growing at a remarkable rate - analysts believe digital, from a much bigger starting point than at Sainsbury's, has grown at a double-digit rate and rather faster than Sainsbury's.

And over the course of a year, the share of digital in Tesco's sales is said to have jumped several percentage points from under 5% of sales. For a business of Tesco's size - with its 10% share of the entire retail market - that is quite something.

Clarke has been reinforcing Tesco's "multi-channel" approach with the almost 500,000 own-brand Hudl tablets it sold in just the past few months. He is thought to have plans to follow up with another tablet and a smart phone.

As a result of digital, especially the so-called click-and-collect, approach to sales, Tesco has unrivalled access to UK consumers. For example, the citizens of Stornoway and the Hebrides will shortly be able to order online and collect their groceries from a depot by the ferry port.

All of which is not to say that Tesco will suddenly find itself increasing its profits as it did in the Leahy and Maclaurin years. Those days are gone, probably forever - because Tesco's market share is now so enormous, and is at the limit of what consumers are likely to tolerate.

But after their initial doubts, Tesco's owners may start to feel more confident that Clarke is keeping the giant baby in the bathwater, rather than - as they feared - seeing it disappear down the plughole.

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

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  • rate this

    Comment number 15.

    Want to save the planet ? Online shopping, where one vehicle delivers to 100 customers must be better for the environment than having 100 cars descend on a single store.

  • rate this

    Comment number 14.

    "Is Tesco on the turn?"

    If in the sense of it being past its sell by date the answer is probably yes.
    Aldi Netto & Lidl are all offering as good if not better quality stuff at a lot cheaper prices. The likes of Tesco Sainsbury's & Morrisons are going to have to match these cheaper grocers or go out of business in the long term. The days of Britain being the most profitable grocery market are past

  • rate this

    Comment number 13.

    Perhaps now that these galactic retailers are doing much better they can ensure their staff benefit like their opposite numbers do in John Lewis.

  • rate this

    Comment number 12.

    I shop weekly online, with Tesco.

    But I considered switching this week to Sainsburys because Tesco no longer sell the 500g jars of Marmite, thus I have to buy 2 250g @£2.49 each. Sainsburys do sell the 500g jars, and at only £3.50.

    Then I clocked how much Sainsburys want for delivery and there is a £25 min spend.

    I don't (can't) spend £25 a week on food and I'm not paying £5 for delivery!

  • rate this

    Comment number 11.

    The fastest growing food retailers in the UK are low price - Aldi, Lidl, B&M - taking customers from the mid-level ones. On-line is an important channel but much more difficult to get right in food than non-food. In non-food, companies that lag in on-line (e.g. Debenhams) have to change their strategy (and CEO) and so do second tier chains who need to move out of secondary towns and embrace c&c.

  • Comment number 10.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 9.

    Most people just buy stuff these days. Shopping is done on the internet which the retailers like as it allows them to control the customer and the customers like as it is pornography for the consumer. So all that most retailers do now is follow the trend.

    However, true fashion, quality and innovation can only be tested for the larger market where people can be tactile, which is only in a shop.

  • rate this

    Comment number 8.

    Looking at the photograph at the top of the article....
    two recyclable shopping bags...good
    two placcy bags...bad
    MESHOP....good for exercise,general wellbeing
    ESHOP...OK for housebound and elderly, click and collect not a problem, but delivery I subsidising their fuel and running costs when I shop AND have to avoid their huge trolleys blocking the aisles instore! STOP NOW PLEASE

  • rate this

    Comment number 7.

    Tesco - such a depressing place to shop. Surly staff, but who could blame them, when they are treated so badly by their employers ?

    Tesco also use workfare, Zero Hours contracts and immigrant labour, which makes them a very unpatriotic company.

  • rate this

    Comment number 6.

    Its all very well pushing up on-line sales, minor problem is that NONE of the grocery retailers have been able to show that they can earn money out of it. Even the darling of the market, Ocardo with its self trumpted amazing efficient warehousing after more than TEN years is still not making money.

  • rate this

    Comment number 5.

    Tesco as a company can only expand if it opens in other countries, I for one think it is not healthy for any company in any market to have more than 8% of the market.

  • rate this

    Comment number 4.

    My take is that during the recession Tesco shopper demographic (with Asda and Morrisons) was just the wrong side of the 'squeezed middle' and Sainsburys just the right side. The recovery in sepdning on credit has allowed Tescos strong internet operaton to pick up big ticket expenditure but their food business will be harder to sort.

  • rate this

    Comment number 3.

    I find Tesco's reward card very poor. Boots the chemist has the best one I have found. It's great that people in Hebrides are now in the shopping loop, but maybe Tesco's should focus on the rest of the country if it wants to win back hearts and wallets

  • rate this

    Comment number 2.

    Tesco may be a broadly based supermarket but its food is overpriced, it championed home delivery but its competitors will nibble away at that. As for the tablets, bought a tv from them and it packed up after a year bet the tablets do the same.
    Habits change, I owe no allegiance to one supermarket for my shop and will cherry pick, Sainsburys and Tesco are at the bottom of the list.

  • rate this

    Comment number 1.

    Have we reached Peak Tesco yet ? Just how big can a company get ?
    Tesco would impress me if they supported lots of LETS (local exchange trading schemes ,and Credit Unions).......
    Do they accept Bit Coin ?
    As an exercise I tried setting up a Bit Coin Wallet, well its still saying 80 weeks out of synch.
    And try remembering addresses eg(1CZJzJEPwrnXtNppu1i8jqkMDns9i87vpU) too complex!


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