Battered Tesco set to continue its fightback

Tesco, Asda, Sainsburys and Morrisons have battled discounters Aldi and Lidl for market share by cutting prices

Although the impact of fierce supermarket price wars is forecast to see like-for-like sales drop by 1 per cent, according to HSBC analysts, it will represent a significant improvement on the 4.6 per cent slide at the same time last year.

But the brokerage estimates half-year operating profits tumbling by 58 per cent to £385 million compared with a year ago, as the supermarket giant recovers from a disastrous year when it reported losses of £6.4 billion largely due to property writedowns in April.

Analysts at Jefferies also expect the business led by Lewis, who took over at Tesco following sliding sales under predecessor Philip Clarke, to reiterate that the country’s largest grocery chain will operate under a leaner structure with a focus on its core UK market.

Jefferies said this will mean an emphasis on simplifying ranges and promotions, re-investing in customer service and striking new deals with its suppliers.

Over the last year the Big Four players – Tesco, Asda, Sainsbury’s and Morrisons – have battled discounters Aldi and Lidl for market share by cutting prices.

In the last few days, Sainsbury’s delivered some welcome cheer from the under-pressure supermarket sector as it increased its profit outlook for the year after narrowing sales falls.

The chain posted a 1.1 per cent drop in like-for-like second-quarter sales, excluding fuel – its seventh quarter of falling sales in a row.

But the decline was better than the 2.1 per cent fall seen in the previous three months and Sainsbury’s said it saw the number of sales and transactions rise, while it added that lower average basket spending in supermarkets continued to stabilise.

The group now expects full-year profits will be “moderately” ahead of the £548m expected in the City, although this is still a sharp fall from the £681m reported the previous year.

The latest till roll figures from research group Kantar Worldpanel for the 12 weeks to 13 September showed Tesco’s sales slide 1 per cent as its market share fell by 0.6 per cent to 28.2 per cent compared with a year ago. Asda saw its market share fall by 0.6 per cent to 16.7 per cent, with sales down by 2.9 per cent. Sales at Morrisons decreased by 1.4 per cent, taking its share down by 0.2 per cent to 10.7 per cent.

Sainsbury’s was the only one of the big four to show growth, with sales rising by 0.9 per cent, attracting 250,000 new shoppers through its doors, while holding its market share at 16.2 per cent.

Earlier this month, Tesco agreed to sell its South Korean business Homeplus in a £4.2bn deal in the latest phase of the group’s turnaround plan. The division, which operates more than 1,000 stores, has been snapped up by a consortium of investors led by Korean private equity firm MBK Partners and including Canadian pension funds and Singapore sovereign wealth fund Temasek.

Lewis has embarked on a shake-up of Tesco since taking over a year ago.

He has already announced plans to relocate its head office and shut down its final salary pension scheme as well as closing 43 stores and axing plans to open 49 others.

Lewis has also sold off Tesco Broadband and UK download business Blinkbox. But the group has been embroiled in a scandal over an accounting black hole as large as £326m. The Serious Fraud Office is investigating.