Fresh woe for UK’s No.1 retailer as rivals poach Tesco customers

CHIEF executive Philip Clarke’s attempts to revive Tesco’s fortunes suffered a setback yesterday as figures showed Britain’s biggest grocer continues to lose customers to its rivals.

Tesco saw its market share slip to 30.7 per cent in the 12 weeks to 15 April, from 30.9 per cent a year earlier.

The company, until recently seen as an unstoppable growth engine threatening to engulf British retail, hit the rocks in January with a shock profit warning that sent shares tumbling.

Last week Clarke vowed to get back to retail basics in order to stem the decline, pledging 8,000 more staff and a revamped, “warmer” décor in a £1 billion bid to lure customers back.

The move came as results for the year to 25 February showed that Tesco’s overall UK profits fell 1 per cent to £2.5bn. Like-for-like sales in the UK fell 1.6 per cent in the final quarter of the year, including a 2.3 per cent slide over Christmas. International profits, by contrast, rose 17.7 per cent to £1.1bn.

Clarke signalled his intention to concentrate on the core UK market in March, when he pensioned off group veteran Richard Brasher and took direct control of the division.

Last week he repeated Tesco’s commitment to its loss-making US business, Fresh & Easy, despite calls from some institutional investors for it to be abandoned. But the firm is slowing the rate of its international expansion.

Sam Hart, an analyst at Charles Stanley, said Tesco was sacrificing short-term profit and expansion in order to safeguard the long-term future of the business by reversing the decline in like-for-like sales. “We think the plan to revive the UK business is credible, but the process is likely to be a protracted one,” he said. “There is also a material risk that further investment in the UK business could be required in subsequent years, putting additional downward pressure on profitability.”

Hart said the share price already reflected the situation but kept his recommendation of “hold”, as the stock is unlikely to recover until investors see evidence of a turnaround.

The latest figures from Kantar World Panel showed Tesco’s performance improved compared to the previous month, when its market share stood at 30.2 per cent.

The overall grocery market grew by 5 per cent in value, the highest level of growth since January 2010, but the gains were driven by higher food prices. Kantar said grocery inflation stood unchanged at 5.5 per cent.

Asda’s market share was flattered by its purchase of 147 Netto stores – but its combined slice of the pie fell a tenth of a percentage point to 17.6 per cent. Third-place Sainsbury’s held its share at 16.6 per cent, Morrisons dipped from 12.1 per cent to 11.9 per cent year-on-year, while high-end grocer Waitrose grew its share from 4.3 per cent to 4.5 per cent. The smaller discount retailers, Aldi, Lidl and Iceland, all grew their share of the total.

Kantar Worldpanel director Edward Garner said the growth at Waitrose and the budget grocers suggested shoppers were polarising their spending. He said Waitrose may be benefiting as consumers cut back on eating out but are willing to spend more money on “bringing the dining out experience into the home”.