Tesco saw sales in its UK and Irish stores fall during its first quarter as the growing cost of living crisis and tough comparatives with last year’s lockdown period took their toll.
In the UK, like-for-like sales were down 1.5% over the 13 weeks ended 28 May. However, the group noted that it was gaining market share and outperforming on both value and volume. It pointed to the success of its Aldi Price Match scheme and Low Everyday Prices strategy in maintaining its value perception against its rivals.
Whilst partially offset by inflation, Tesco highlighted that the biggest sales declines compared to the lockdown period last year were seen in clothing and general merchandise. Online sales were also affected as consumers returned to shopping in supermarkets.
CEO Ken Murphy described the market environment as “incredibly challenging”, saying it was difficult to separate the significant impact of last year’s lockdowns from other influences on shoppers.
After the Bank of England warned yesterday that inflation will hit 11% this Autumn in a squeeze on households not seen since the 1970s, Murphy highlighted that there were “some early indications of changing customer behaviour as a result of the inflationary environment”.
He revealed that the supermarket was seeing more shopping trips from its customers as they bought what they needed on the day to help manage budgets. However, basket sizes are starting to fall, and people are also buying less bread and pasta, two products that have increased heavily in price this year.
Murphy stressed that it is “too early” to predict how food inflation will change over the coming year. IGD warned yesterday that food inflation was likely to accelerate over the summer to around 15%, with higher prices expected to stay until the middle of next year.
Murphy said: “Customers are facing unprecedented increases in the cost of living, and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible.”
At Booker, like-for-like sales jumped 19.4% after the wholesaler benefitted from lapping lockdown when restrictions curtailed demand from hospitality venues. Catering sales climbed 57.4% on last year, whilst retail sales were up 2.3%.
In the Republic of Ireland, Tesco’s like-for-like sales slid 2.4% after lapping last year’s Covid restrictions. Again, the group noted that it was gaining market share in the country.
Meanwhile, sales at Tesco’s operations in Central Europe grew 9.0%, driven by inflation and market recovery.
Despite the worsening economic conditions, the group said its guidance ranges for profit and cash remained unchanged. Tesco has already warned of a hit to profits this year as it invests in keeping prices down to deter its customers from switching to the discounters.
NAM Implications:
- i.e. Consumers reacting to 15% food inflation…
- …buying/driving less, shopping around.
- Money ‘saved’ in Lockdown is being treated as reserves/insurance by cautious consumers…
- …rather than extra spending power.
- Consumers increasingly price-conscious in the aisle hence Clubcard and Aldi Price-match success.
- But continuing challenging trading conditions mean CPI’s negotiation will be tougher…
- (and it is not even the end of the beginning yet!!)
