Tesco's credit rating down as rivals chase

Published on Thursday 28 May 2009 09:43

SUPERMARKET giant Tesco suffered a double blow today as the outlook for its credit rating was downgraded and new data showed it has lost ground to its rivals.

International credit rating agency Moody's has changed the outlook on Tesco's A3 rating from stable to negative.

It said that the company's debt protection ratios have suffered as a result of "volatile capital markets and a material increase in operating lease commitments beyond our expectation".

Meanwhile, a new analysis of performance data has shown that Tesco's 4.7 per cent growth in the 12 weeks to May 17 is behind a grocery market growing at a rate of 5.8 per cent.

Morrisons was the fastest-growing of the UK chains, recording 7.9 per cent of growth in the period, which lifted its market share to 11.6 per cent.

Asda continued to chase market leader Tesco with growth of 7.2 per cent, taking its market share to 17.1 per cent, compared to Tesco's 30.8 per cent.

Sainsbury's recorded 7.8 per cent growth and now has 16.3 per cent of the market, according to the data from TNS WorldPanel.

According to market research firm Nielsen, consumers are now shopping around more than ever, with 32 per cent of all goods sold in the four weeks to May 16 being on special offer – a record figure and about four per cent ahead of what would be normal at this time of year.

Mike Watkins, senior manager of retailers services at Nielsen, said: "Take this benefit away from shoppers and we would probably be looking at headline growths at the multiples some one percentage point lower than the buoyant five per cent we have seen since Easter.

"A fundamental shift in consumer behaviour has taken place over the past months. At face value this will be good news for Asda, Tesco and the discounters, but it is also an opportunity for all other retailers to get a bigger share of wallet of the recession-struck shopper."

The TNS WorldPanel data also indicated that the discount chains like Aldi and Lidl had seen their runaway growth begin to tail off, with the discount sector's combined growth rate being 9.4 per cent, much closer to the traditional stores than in previous months, when they have typically grown twice as fast.

Moody's said: "Ratings would be adjusted downwards if Tesco were to fail to implement further corrective actions in order to restore its credit metrics towards our targets."