Tesco today released their worst half-year results in nearly 20 years.
The announcement of a fall in like-for-like sales of 0.5% is the first of its kind made by the retailer since the early 1990s, and shows that no shop is immune from the effects of the falling spending power of consumers that we reported last week.
The supermarket has still reported an increase in profits of 12.1% however on the back of “strong growth” in both Europe and Asia. They cited “subdued demand” in the UK as the cause for the fall in like-for-like sales.
Supermarkets are traditionally the very last of the retailers to see a fall in sales, so independents are right to heed this as a warning that tough times remain ahead.
Sainsbury’s results relatively strong
0.5% – fall in like for like sales at Tesco
However, it’s not all bad news as many analysts see the trend towards smaller c-stores as one of the contributing factors eating into supermarket margins.
Independent retailers are uniquely placed to adapt to a tough market, whereas the multiples’ smaller format stores are bound by their bigger brothers.
Sainsbury’s showed strong adaptiveness in the market with an increase of 1.5% like-for-like sales, also indicating that the market may not be as tough as Tesco’s figures suggest. Sainsbury’s Chief Executive described the results as “a good sales performance in a tough consumer environment.”
Big Price Drop
Tesco have been fighting hard for shoppers in recent weeks with their high-profile Big Price Drop promising to reduce the prices of over 3,000 “everyday” products.
A Guardian journalist analysed his shopping from the 12th September and found that the big price drop meant an increase of £2.09 on his grocery bill – apparently Parma ham and Innocent smoothies aren’t everyday essentials!
While Co-op chief executive Peter Marks believes people are cutting back on food for the first time in his working life, Tesco’s poor results also highlight the fact that 20% of the chains UK sales come from “discretionary” items – or in other words, electricals, CDs/DVDs, clothes and books.
These non-essential items are one thing that shoppers are cutting back on in their droves, and this is therefore another solace for the independent c-store owner selling the top-up essentials that customers are very much still relying on.
Updated: 5th October, 13:43
Chander Hingorani
05/10/2011
Like it or not Tesco is still the darling of the sector and other supermarkets benchmark Tesco and offer Tesco price match which says sometning for the company. The sales in UK have been static but world wide increased by 8.8% but more importantly profits grew by 12.1%. We also know what is happening in the UK and belt tightening, income falling and consumption declining. Petrol use is down by over 15%.
So what is the lesson for the Convenience sector. It is tough and going to get tougher. Control your costs, think of promotions, special deals, one pound items, customer care and service, home delivery. Whatever you can do to keep your customers.
And dont forget there is another development-it is called online. Online sales have been increasing but luckily it does not affect the Convenience sector. No one is going to order a Mars bar or a packet of Cigarettes from Amazon. A visit to the local Newsagent will not change. A comforting thought.