Tesco Posts Second Consecutive Rise In UK Quarterly Sales; Offloads Harris + Hoole Chain

Tesco continued on the path to recovery today by posting a second successive quarter of UK underlying sales growth, the first time it has done so in more than five years. The group also announced that it had agreed the sale of its Harris + Hoole coffee chain to Caffè Nero.

In the 13 weeks to 28 May, UK like-for-like sales rose 0.3%. This compared to growth of 0.9% in the previous quarter – its first quarter of underlying UK sales growth for over three years. Despite a deflationary impact on sales of around -0.7%, Tesco hailed the success of its seven new ‘Farms’ fresh food brands which were aimed at attracting shoppers back from the discounters. The group said that two thirds of its customers have now bought products from the new ranges with customer satisfaction scores said to be “exceptionally high”.

The group said that its focus on more stable prices and its ‘Brand Guarantee’ were proving popular with shoppers and total cost of a shopping basket of goods was now 6% lower than two years ago. Its spend on couponing and number of products on multi-buy promotions in the quarter, were down by 38% and 42% respectively year-on-year.

Meanwhile, Tesco claimed that product availability remained at record levels, following the reduction of 18% of SKUs in its range resets which concluded in February. The group added that by working with suppliers, costs were being reduced, enabling to fund further investment in its offer and rebuild profitability.

In Ireland, Tesco also continued to make progress with like-for-like sales up 0.3%, helped by improvements in its offer and further investment in price reductions.

Overall group like-for-like sales rose 0.9%, supported by continued robust growth in its international division. Like-for-like sales in Europe increased 2.8%, helped by “strong performance” in Slovakia and an improvement in performance in Hungary. In Asia, like-for-like sales climbed 3.3%.

Chief Executive Dave Lewis said: “We have delivered a second quarter of positive like-for-like sales growth across all parts of the group in what remains a challenging market with sustained deflation.

“We are encouraged by the progress we are making. By growing volumes, transforming the way we work together with our suppliers, and further optimising our store operating model we are rebuilding profitability in a sustainable way. I am confident that the improvements we are making for customers are working and will create long-term value for our shareholders.”

Meanwhile, Tesco continued to slim down the business to focus on its core UK supermarket operations. Following on from the recently agreed sales of Dobbies Garden Centres, the Giraffe restaurant chain and Kipa in Turkey, Tesco revealed that it had struck a deal to sell its loss-making Harris + Hoole coffee chain to Caffè Nero. No financial details were revealed.

Commenting on the results, David Gray, Senior Retail Analyst at Planet Retail, said: “As expected, Tesco has reported another domestic like-for-like increase driven by some decent volume growth across the core food business. This is encouraging news, considering Tesco has been putting major efforts into improving the proposition through range enhancements, price investments and store refreshes (where it is taking a more mission-based approach to store layout). Upward-facing like-for-likes also come at a time when deflation is still an issue for the wider industry, showing just how far Tesco has come.

“That said, Asda’s decision to focus squarely on market share rather than profitability as a performance indicator could entail some headwinds for Britain’s biggest grocer, although, given its present woes, it’ll undoubtedly take some time for Asda to return to full strength.”

NAM Implications:
  • Key is how your sales growth in Tesco compares with their average…
  • In other words, if your growth rate is greater, then your appeal to Tesco increases…
  • Even more if your combination of front and back margin demonstrably enhances their profit performance…