Page last updated at 12:59 GMT, Tuesday, 2 December 2008

Sales growth slows down at Tesco

Tesco sign
Tesco says it is making "solid progress" in the UK

UK sales growth slowed to 2% in the three months to 22 November at Britain's biggest retailer, Tesco.

The figure, which excludes new stores and sales of petrol, compares with growth of 4% in the previous quarter and 4.8% in the same period last year.

The growth rate in the UK is its slowest since the recession of the early 1990s.

Tesco put much of the fall down to its new discount brands, but said they had attracted 300,000 new customers a week.

Tesco also sells more non-food items than other supermarkets. Non-food has been harder hit by the downturn than food.

While growth slowed in the UK, Tesco's worldwide sales grew by an impressive 11.7%.

"We are pleased with our progress but we are also realistic - the current economic climate, and the strain this is putting on consumers everywhere, is something that all businesses are feeling, including ours," said Tesco chief executive Terry Leahy.

Discounts hit sales

The supermarket group employs 440,000 people in about 4,000 stores across 14 countries.

We've seen more customers coming to us and more customers coming to us because of price, which we think is the most important thing over the next couple of years
Andrew Higginson, finance director, Tesco

Tesco said in its statement that the introduction of its discount brands had knocked two or three percentage points off its sales figure for the UK, but that it had boosted sales volumes by attracting extra customers.

But switching figures from TNS Worldpanel suggest that Tesco may be losing business to its rivals in the UK, according to the Times newspaper.

The figures indicate that in the 12 weeks to 2 November, 22m of spending was switched from Tesco to Asda, 10m from Tesco to Aldi and almost another 10m to Morrisons.

'A bit painful'

Asda reported 6.9% growth in like for like sales for the three months to the end of September while Sainsbury sales grew 4.3% in the 16 weeks to 4 October.

Tesco has been hit harder than both of them because of its greater sales of non-food items, which have been affected more severely by the downturn.

In my experience, retailers are always grumpy about something
Robert Peston, BBC business editor

But its finance director said that it had seen the slowdown coming and had been preparing for it by cutting prices.

"While that's a little bit painful in terms of the sales value that comes through, in terms of the underlying trends within the business we've seen a really good response to that," Andrew Higginson said.

"So we've seen more customers coming to us and more customers coming to us because of price, which we think is the most important thing over the next couple of years."

Providing mortgages

Tesco is in the process of buying the 50% of Tesco Personal Finance that it does not already own from Royal Bank of Scotland.

Mr Higginson, who will head the unit, confirmed that he would be looking to provide mortgages and current accounts.

"I think people have lost quite a bit of confidence in banks," he told BBC News.

"That feels like an opportunity for a brand they trust like Tesco to come in and do a good job for them."

Korean boost

In its US brand, Fresh & Easy, Tesco is understandably pleased to have decided not to speed up its rate of new store openings, given what it says is "the severity of the economic slowdown in some geographic markets there".

But it added that despite the severity of the US economic slowdown, its first stores have shown sales growth.

In Asia sales grew by 29.4%, helped by the Homever acquisition and in spite of the depreciation of the Korean won against UK sterling.

Tesco also says that it soon hopes to complete its acquisition of the remaining 50% of Tesco Personal Finance (TPF) from Royal Bank of Scotland Group.

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