Tesco shrugs off price war impact with first quarter growth

Tesco did not give actual sales figures for the first quarter, but said that its UK performance had been particularly welcome, coming at a time when competition - in particular on process - was fiercer than ever.

Tesco's sales in its home market grew by 11.1 per cent, well ahead of the industry growth rate: recent figures from TNS Superpanel showed growth of 5 per cent for the UK grocery trade as a whole in the first quarter.

The results were also well aheda of analysts' forecasts, with Goldman Sachspredicting like-for-like sales increases of 6.3 per cent as price cuts throughout the industry took their toll. In fact, Tesco's like-for-like growth was 7.8 per cent.

"The message is that, if anything, the core food business is trading somewhat stronger in the quarter than had been the case previously, suggesting that the big pricing campaigns at Safeway and the step-up in price-cutting at Sainsbury's were pretty much water off a duck's back from Tesco's point of view - although thanks in part to Tesco itself keeping a very tight rein on its own prices,"​ GS said.

Most of Tesco's first quarter growth appears to have come at the expense of Sainsbury and Safeway, both of which saw significant declines compared to the previous year, according to TNS. Sainsbury's sales were some 2 per cent lower, while Safeway's turnover fell 8 per cent.

In contrast, Safeway's new owner Morrisons posted a 15 per cent increase in turnover for the quarter, making it the satr performer, although combined sales for the newly enlarged group were just 1 per cent higher. Asda, the number two player, registered a 9 per cent increase during the quarter, according to TNS.

Non-food value sales were affected by a series of programmed price cuts, Tesco said, but stressed that this had helped increase volumes, with clothing sales, for example, some two-and-a-half times greater than in the same period a year earlier.

International sales were up 24 per cent in the first quarter in local currencies, although the currency impact of the strong pound resulted in sterling sales rising by 18 per cent. Tesco said that all the countries where it operates (from the Czech Republic and Hungary in eastern Europe to Japan and Thailand in Asia) contributed to the growth, despite some continued tough trading conditions.

But while Tesco's board congratulated itself on another excellent performance in its home market, the retailer also found itself accused of exploiting UK suppliers and damaging other retailers to achieve these goals.

Friends of the Earth launched yet another broadside against Britain's biggest supermarket group, claiming that Tesco is "damaging communities, putting local shops out of business, and threatening the livelihoods of many UK farmers"​ in its bid to conquer the retail opposition. FoE also accused the group of "failing to live up to its promises on ethical trading with overseas suppliers"​.

Friends of the Earth also claimed that that Tesco's practices were damaging the environment. "Its search for cheap food across the globe clocks up polluting food miles, while requirements for pristine and uniform fruit and vegetables results in the some food going to waste. And Tesco's demand for the cheap palm oil for processed foods is leading to rainforest destruction in south east Asia."​

The lobby group called for greater government intervention to "tame Tesco"​, suggesting that more robust planning policies were needed to protect town centres and high street shops, adding that a much stricter, statutory code of practice would ensure that suppliers are treated fairly.

It also called for a supermarket watchdog to ensure that the grocery market operates in the interests of consumers, farmers and small retailers, and for a moratorium on Tesco taking over any more shops and chains including convenience stores.

FoE has made these claims, and these recommendations, many times in the past, and the chances of government ministers getting involved remains as slim as on all those previous occasions. The Office of Fair Trading has already investigated supermarket practices, finding no major problems, and while the voluntary Code of Conduct set up as a result of the investigation has been heavily criticised by suppliers, it is currently undergoing a review which should help address these concerns - if there is evidence to support them.

Tesco, for its part, responded to the criticism by saying that it was "a responsible company, proud of our record of serving communities around the country and of the benefits we bring, such as jobs, housing and investment in local economies"​.