Tesco: Fuel cost hits supermarket spending
The rising cost of petrol is forcing consumers to cut back on supermarket spending, Tesco said today, as the UK’s biggest grocer reported a muted UK performance.
The supermarket giant posted a 0.1% drop in like-for-like sales in the 13 weeks to May 28, a slight improvement on the 0.7% fall in the previous quarter but short of City hopes.
Total UK sales were up 7% but this includes fuel sales, VAT and the impact of store openings.
Food sales performed well, with meat, fish and poultry recording good UK growth, but this was overshadowed by declines and weak demand for general merchandise such as clothing and electricals.
The update, which some analysts described as disappointing, will be put into context tomorrow when rival Sainsbury’s details its own performance.
Tesco chief executive Phil Clarke said the company had made a good start to its financial year despite some markets remaining subdued.
Mr Clarke said: “Uncertainties remain but, with early encouraging signs of better performance emerging in both the UK and the US, I am confident that this start will provide the platform for another year of growth.”
Supermarkets and the wider retail sector in the UK have been hit by a squeeze on consumer spending as high inflation couples with muted wage growth.
Tesco warned UK customers have to “direct some of their spending to petrol at the expense of their normal shopping” which remains a drag on underlying growth.
However, the company said the UK business continues to grow faster than the industry as a whole as new stores help offset weak demand in general merchandise.
Tesco said own-brand foods were seeing good growth, with its Finest range up almost 10% on a like-for-like basis as hard-pressed consumers sought alternatives to dining out.
The company’s fast-growing Asian business continued to offset weak domestic demand, posting 3.2% like-for-like sales growth, driven by a strong show in Thailand. Total group sales including fuel were up 7.8%.
The group said its UK non-food sales had strengthened in the first quarter, despite being negative, and should improve later in the year.
In Europe, like-for-like sales growth slowed to 2% in the first quarter as gains in Turkey and central Europe were offset by a weaker trend in Ireland.
The Fresh & Easy business in the United States reported 11.1% like-for-like sales growth as the company continued to attract new customers and a higher average spend.
Shares in Tesco fell just under 1% after the update was published.
Dave McCarthy, analyst at Evolution Securities, said he remained cautious after the “lacklustre” UK performance.
He said: “Tesco’s update does little to reassure underperformance in the UK is set to improve in the near future, with UK like-for-like sales still negative.”
