Business

Tesco shares hit by drop in sales

Shares in Tesco have fallen over 5% after the supermarket giant reported a drop in UK sales over the past three months.

Tesco said the horsemeat scandal had a "small but discernible impact" on frozen and chilled convenience food sales.

Like-for-like UK sales, excluding petrol and VAT, dropped by 1% during the 13 weeks ending 25 May 2013.

Tesco said it would cut back on its range of consumer electronics goods.

The firm added it was making the change as electronic goods "take up a lot of space and don't make much money".

It plans to refocus, selling more home items, cooking products and clothes, which take up less room in its stores and can be sold for a higher profit.

'Huge changes'

In April, Tesco reported its first fall in annual profits for 20 years, and also said it was exiting its US chain Fresh & Easy, which had never made a profit, at a cost of £1.2bn.

The retailer is undertaking a programme of store refurbishments and is planning to refit almost 70 of its larger outlets.

"Our plan is a long term project," chief executive Philip Clarke told BBC Radio 4's Today programme.

"We're not helped by the huge changes we're making to general merchandise, which is all about changing the space and the ranges for the future."

"We have dramatically reduced our ambitions to grow big stores," added Mr Clarke.

'Awkward questions'

During the horsemeat scandal, traces of horsemeat were found in four of Tesco's own-brand meat products. The company has since introduced new safeguards to ensure food quality, and said that sales of frozen and chilled convenience foods had picked up in recent weeks.

In February, Tesco pledged to bring meat production "closer to home" and work more closely with British farmers in response to the horsemeat scandal. It introduced a new testing process, and chief executive Philip Clarke said that all chickens sold in UK stores would come from British farms by July 2013.

Matt Piner, research director at retail consultancy Conlumino said: "Despite only having a small number of affected products, the retailer was very much at the centre of the negative fallout from the scandal."

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Media captionTesco chief executive Philip Clarke: "Our plan is a long term project"

"Whereas Sainsbury's and Morrisons were able to spin the episode into a positive, highlighting their product quality and supply chain transparency, for Tesco it merely raised some awkward questions and damaged shopper perceptions of the Tesco brand," he added.

Tesco's online business continued to grow, and the retailer said its internet sales outperformed growth in the market as a whole.

It said it had improved the quality and availability of food offered online, and it now had 169 "Click & Collect" grocery collection points across its UK store network.

Tesco said consumers in its international markets faced "challenging conditions", especially in Europe.

In China, sales have been affected by the bird flu crisis and a drop in demand for pork products after a food safety scare in the country.

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