Britain's Tesco has posted the worst quarterly drop in underlying sales in its key home market since Chief Executive Philip Clarke took the helm in 2011. So is his trading strategy right? Joanna Partridge reports.
REPORTER: The pressure's building on Britain's biggest retailer - and its management. Tesco's sales fell for the third consecutive quarter - dipping by almost 4% in its home market. It's the worst quarterly drop since Philip Clarke took over as Chief Executive in 2011. He's two years into a multi-billion-pound plan to turn around the British business, which accounts for two-thirds of sales and profit. Tesco's seen two straight years of declining profit, with the same expected for 2014/15. Clarke's strategy is being questioned. But Tesco's also battling a British grocery market which is growing at its lowest rate for 11 years as consumers watch their spending. The recession changed shoppers' habits, says Maureen Hinton, Global Research Director at Conlumino.
MAUREEEN HINTON: "We're looking for value, and we're not buying as much as we used to as well, and we're definitely not travelling out of town, and that's a big problem for Tesco, with those huge out-of-town stores that it's got, which are over 50% of its property."
REPORTER: Like Britain's three other big grocers, Tesco is being squeezed between discounters like Aldi and Lidl, and premium end stores like Waitrose and Marks & Spencer.
MAUREEN HINTON: "The discounters have made a really strong impression on the consumer and it's going to be really difficult to change our buying behaviour, because we're turning much into the way they shop say in Germany, where you shop at discounters and then shop elsewhere for perhaps your treats and more established product."
REPORTER: Asda and Morrisons have pledged to cut prices, while Sainbury's is promising to remain competitive. That's led to some analyst concerns a possible price war could hit earnings across the industry. Tesco's promised to win back shoppers with millions of pounds of price cuts, and continuing to spend on store refits, product range and online services. Robert Cole is from Reuters Breaking Views.
ROBERT COLE: "The one piece of good news today is that volumes of products, ie the numbers of bits of toothpaste or loaves of bread that they sell in those categories where they have cut the prices, they say today they're up 28%."
REPORTER: That could be why Tesco stock was up, despite the results. For management and investors, the turnaround programme needs to bear fruit soon.
1. A squeeze is a large reduction in the amount of money that a person, company, or government can spend or earn. To feel the squeeze is to suffer the consequences of such a reduction. • A series of reports last week suggests that financial institutions will feel the squeeze on their balance sheets well into next year.
2. To bear fruit is to have a successful result. • Our policies must be given time to bear fruit. The expression is a metaphor based on the idea of trees bearing (i.e., producing) fruit.