Under continuing pressure from hard discounters Aldi and Lidl, Tesco blamed the fall in like-for-like sales – which included value added tax, but excluded petrol – on what it described as “the transformation of general merchandise and a weaker and increasingly competitive grocery market in the second half”.
But online grocery sales grew by 11% and like-for-like sales through its Express stores increased by 1.1%.
Tesco chief executive Philip Clarke said the results reflected a trading environment which was changing more rapidly than ever before. Signalling a willingness to match Morrisons’ pledge to cut its prices in a bid to battle the discounters, Clarke said Britain’s biggest retailer would invest in what he termed “sharper” prices.
See the bottom of this article for a video interview with Clarke, released today (April 16) by Tesco.
Sharper prices
“Having strengthened the foundations of our business in the UK, we are now accelerating our growth in new channels and investing in sharper prices, improved quality, stronger ranges and better service,” said Clarke.
“Since setting out these plans, just seven weeks ago, we have already made a substantial investment in price, launched Clubcard Fuel Save and re-launched our general merchandise ranges across the business.”
The retailer had significantly reduced new investment in Europe, refocusing most of its overseas capital on targeted, high-returning investments in Korea, Malaysia and Thailand, Clarke added.
“We have completed our exit from the US and established partnerships with CRE in China and Tata in India, which provide continued access to two of the world’s most exciting markets, consistent with a sustainable level of future investment,” said Clarke.
'I intend to be here to see this job through'
Restructuring the business in the UK will will take three years to complete, as its nationwide stores are improved, Clarke told the BBC Radio 4's Today programme. Asked about his future with the business, Clarke reaffirmed his commitment to guide the retailer through the restructuring plan. “I intend to be here to see this job through. We are in the middle of key changes and I will lead my team through to make it better for customers."
Clarke added that he was focusing on the business “in every single working hour of every single day”.
Tesco's European business had suffered a £734M loss in value due to the eurozone crisis.
In early trading this morning Tesco shares rose by 4%, reflecting City investors' relief that Tesco's trading performance had proved better than many analysts feared.
Meanwhile, David Gray, retail analyst at Planet Retail, said the retailer was suffering from management changes and needed firmer leadership. “Against a trading backcloth of like-for-like declines around the world, the business has also been beset with a string of management changes, including the planned departure of veteran finance director Laurie McIlwee,” he said.
“Stability among the senior management team is seriously lacking and with waters so choppy, a much firmer hand is needed on the tiller.”