Tesco announces underlying £1.9bn half year profit but has had its worst sales performance for 20 years
The supermarket sees growth of 11.9% in Asia
But UK sales in electronics and entertainment declines by 0.9%
Sainsbury’s sees 10% growth in both its cheap range and Taste the Difference ranges
£750m spent at petrol forecourts has ‘diverted money for other goods’
Tesco shares drop 3.3p at 376.8p while Sainsbury’s go up 7p at 281.75p
By Sean Poulter, Consumer Affairs Editor
Last updated at 1:29 AM on 6th October 2011
The cost of living squeeze has seen Tesco post its worst sales figures in 20 years.
They fell by almost 1 per cent as customers bought less food, switched to budget rivals and turned away from luxury purchases.
Yesterday’s figures from Britain’s biggest retailer provide grim evidence of a nation struggling to cope with the greatest fall in spending power since the Second World War.
A 5 per cent surge in food prices, soaring energy and petrol bills, fears of unemployment and low or non-existent wage rises are creating real hardship.
The entire high street is suffering, with the latest official figures showing that consumer spending is running 0.8 per cent lower than a year ago.
Yesterday, Mothercare issued a profits warning and admitted that sales are down by almost 10 per cent.
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The Dunelm Mill homewares chain and chocolate retailer Thorntons also revealed sales falls.
In theory, the fact that food prices are rising sharply should bring an automatic increase in the value of sales through supermarket tills.
However, Tesco’s same-store sales – excluding fuel and VAT – in the three months to the end of August were down by 0.9 per cent on the same period last year.
This measurement excludes newly-opened stores and was the worst quarterly fall in same-store sales for 20 years.
Its sales of general merchandise, clothing and electrical products, including flat-screen TVs and furniture, fell by 4.8 per cent in the first six months of the financial year compared with a year ago.
Tesco, which accounts for £1 in every £10 spent on the high street, has enjoyed years of sales growth.
Business strategist Anna Smee, of Hundred Consulting, said: ‘When even an established supermarket such as Tesco is suffering at home, you know the economy is in trouble.’
Scott Corfe, senior economist at the Centre for Economics and Business Research, said: ‘Consumers have seen a prolonged, substantial erosion in their living standards, which is unlikely to ease until 2012.’
Tesco has responded to the fall in sales by announcing the Big Price Drop, a pledge to cut prices on 3,000 everyday essentials by the equivalent of £500million a year.
The chain hopes it will help stop shoppers deserting to budget chains such as Lidl and Aldi.
Tesco finance chief Laurie McIlwee explained the fall in sales, saying: ‘UK consumers are particularly hard-hit. There are the VAT increases, fuel increases, utility increases, worries about job security and reforms to benefits.’
Tesco has embarked on an aggressive expansion plan in the UK. As a result, total sales, taking into account all the new outlets, were up by 7.1 per cent in the first half of the financial year.
This boosted UK trading profits by 4.5 per cent to almost £1.3billion compared with the same six-month period last year.
Positive sales figures in Tesco’s overseas chains, particularly in Asia, saw the group’s total trading profits for the last six months hit £1.9billion, a rise of 3.7 per cent on the same period last year.
Sainsbury’s also published sales figures for the last three months showing an increase of 1.1 per cent despite a ‘tough consumer environment’. Chief executive Justin King dismissed the Tesco Big Price Drop as smoke and mirrors.
‘We see price promotions all the time,’ he said.
‘We understand why they feel the need to reduce their prices – because they have not been competitive. That is why their sales are down.’
Retailer Thorntons said sales in its stores were down by 10 per cent on a year ago as cash-strapped consumers continued to cut back on chocolate treats.
The group’s preparations for the important Christmas season have also been hit by the loss of a large corporate order at its internet division.
Overall, Thorntons said total sales were down by 7.6 per cent to £46.5 million in the 14 weeks to October 1, in line with its earlier forecasts.
Chief executive Jonathan Hart said: ‘As expected, the retail environment continues to be challenging with weakness in high street footfall. Our consumers remain cost conscious and continue to select promoted products.’
It has responded to the squeeze by improving own store merchandising and layout, as well as rolling out new ranges of ‘little gifts’.