Every little lost is no help to Tesco figures

Published on Tuesday 2 December 2008 09:12

SUPERMARKET giant Tesco today admitted that it is feeling the effects of the strain on cash-strapped consumers.

The company reported that UK like-for-like sales growth in the third quarter of the year was half the level it recorded three months ago.

It said inflation had fallen "substantially" on the three months to the end of September, with prices in its stores falling even faster.

The decline in sales growth comes as separate data published today showed that Tesco has lost 22 million of trade to Asda, with a further 10m of spending shifting directly to Aldi.

Today's statement on its third quarter performance showed that, in the 13 weeks to November 22, Tesco saw like-for-like sales excluding fuel rise by two per cent – compared to four per cent in the second quarter of the year.

However, overall sales, including international, grew by 11.7 per cent.

Sir Terry Leahy, Tesco's chief executive, said: "Tesco has maintained solid progress in sales and profits during the third quarter across the group.

"We are pleased with our progress but we are also realistic – the current economic climate, and the strain this is putting on consumers everywhere, is something that all businesses are feeling, including ours."

The company has recently directly taken on the competition from budget supermarkets like Lidl and Aldi and branded itself as "Britain's biggest discounter" following the launch of a new range of 350 low-cost product lines.

Mr Leahy said: "We are adjusting the business to meet the new challenges – focusing on becoming even cheaper for customers, keeping our costs low to help us to do this and managing our balance sheet and cash carefully.

"As we apply all the resources of the group to these priorities, I remain confident that Tesco can maintain a strong business performance and pursue its long-term strategy even in tough times."

However, today's new TNS Worldpanel data indicates that the company is still losing customers on price.

New "switching" data shows that, in the 12 weeks to November 2, about 22m of spending was switched directly from Tesco to Asda, while just over 10m moved from Tesco to Aldi and almost as much again to Morrisons.

It is thought to be the fastest rate of defection from Tesco to its leading rivals in more than a decade.

Industry insiders say that the new "discounter" strategy has been imposed by Tesco's board rather than its marketeers.

Branding Strategy Insider, the marketing blog, said: "Tesco is attempting to pre-empt an attack on its customer base by becoming more Aldi than Aldi, while retaining its original marketing strategy too. We teach this as a failed strategy in business school."

Tesco said that the strategy is helping it attract 300,000 more customers each week.