Slower sales on the high street

8 December 2009

Supermarket giant Tesco left a slightly sour taste in investors’ mouths today after third quarter sales growth slowed further amid falling food price inflation.

During the first three months of the year, the supermarket saw sales grow by 4.3%, largely because food price inflation was still rising. However, UK like-for-like sales excluding petrol only rose by 2.8% in the 13 weeks to 28 November – below the 3% analysts were expecting and down on the 3.1% growth in the second quarter of the year.

Tesco maintains that its third quarter trading was “solid” amid heavy discounting and its double Clubcard points promotions. Earlier this week, the group announced it was slashing the cost of 200 of its Finest range products to compete with Waitrose and Marks & Spencer.

The supermarket is not the only retailer to be suffering from weaker food price inflation.

Slowing food sales led to retail sales rising at their slowest annual rate since August last month, according to the British Retail Consortium. The value of like-for-like sales climbed 1.8% on the same month a year ago with food retailers sales growing at their slowest rates since July 2007.

"We would have expected much stronger growth because the comparison is with very poor results in 2008 when November was the second worst performing month of the year," said BRC director general Stephen Robertson.

Clothing sales across the high street were also down following unseasonably warm weather conditions.

For Tesco, sales of non-food items have enjoyed strong growth, particularly in toys, electrical items and entertainment. Its online division, Tesco Direct, also delivered another strong performance.

Overall, the UK’s largest retailer reported an 8.8% increase in sales with a stronger performance from its overseas operations. Like-for-like sales in its international division were down 3.7% in the third quarter from 6.7% the previous three months.

Tesco's chief executive, Terry Leahy, says: "We are seeing improving customer confidence and encouraging trends in both the UK and our international businesses, although recessionary conditions still exist in a number of markets."

High street bellwether, John Lewis, this week reported soaring sales, with sales during the week ending 5 December up 13.8% year-on-year to £102.4 million.
This marks the earliest week ever in the run-up to Christmas that sales have breached the £100 million mark and fuels hopes that retailers will enjoy a significantly better festive season this year than last.

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