Tesco defiant despite its first loss in 18 years

Sainsbury’s on offensive with strong sales growth

THERE were contrasting fortunes for the UK’s biggest supermarket chains as Tesco fell to its first loss since 1994 while J Sainsbury continued to outstrip it in sales growth.

The development came as Tesco’s Scottish-headquartered bank won £30 million from a partner and revealed it would launch its first current accounts in late 2013, in the latest and most important stage of its bid to compete with high street institutions.

Tesco has continued to struggle in the UK with like-for-like sales up just 0.1% in its second quarter to August 25.

Although halting an 18-month slide in sales, it was outshone by rival Sainsbury’s, which posted a better-than-expected 1.9% likefor-like sales rise for the 16 weeks to September 29.

Tesco has also been hit by economic problems in countries such as Poland and Hungary.

Meanwhile in booming Asia, substantial restrictions have been put on trading hours on stores in South Korea, Tesco’s second biggest market.

Its US chain, Fresh & Easy, remained loss-making, despite reforms such as putting cashiers into stores that were previously self-service only.

There were hints that Tesco chief executive Philip Clarke might yet close the five-year-old chain, as he warned it had to demonstrate it was making money for investors.

Tesco’s pre-tax profit fell 11.6% to £1.7 billion for the six months to August 25.

Mr Clarke, who took on the top job in March 2011, said his £1bn

GIANT DIVIDE: Sainsbury’s Justin King (top) and Tesco’s Philip Clarke have seen their supermakets experience contrasting fortunes this year. UK revamp plan, including the hiring of more staff, was starting to make a difference. “We are on the road,” he said.

Food volumes, although falling due to lacklustre consumer spending, are ahead of its rivals, he said.

Sainsbury’s chief executive Justin King said the company – ranked as market number four in Scotland – saw a weak start to the quarter due to poor weather, which was replaced by a “celebratory mood” during the Olympic Games.

Mr King said: “There is no upturn but neither is there a downturn.”

Both Sainsbury’s and Tesco, Scotland’s largest supermarket chain, have cut back the rapid store expansion of recent years.

Even so, Sainsbury’s continued to make inroads north of the Border, where its market share is just 10%. The chain now has 34 main stores and 36 “local” convenience stores in Scotland, having opened four in the past quarter.

Tesco has 189 stores in Scotland having recently opened supermarkets in Falkirk and Airdrie.

New stores in Aberdeen and East Kilbride will open next month.

The picture remains of a hardpressed UK consumer as wage rises lag inflation.

Both chains reported rising own-label sales.

Mr King said: “Looking forward we expect the current economic backdrop to persist. There is no reason to expect that customers will have more money in their pockets.”

There were warnings from both companies that bad weather at home and abroad has hit harvests and could push up food prices.

Tesco Bank saw revenues fall after it took longer than expected to move accounts from the systems of former joint venture partner Royal Bank of Scotland.

It took an additional £30 million provision for compensating customers mis-sold payment protection insurance.

But trading profit rose 113.6% to £94m after it received a £30m credit on settling a dispute with an unnamed “former business partner”.

The bank, which started offering mortgages in August, will add a Cash ISA product by the end of the year. It is expected to unveil a current account towards the end of 2013. The launch of the service will coincide with industry reforms to make account switching easier.

Clive Black, analyst at Shore Capital, said: “Philip Clarke is probably less than 25% of the way through the implementation of his plans to improve the core chain’s performance.

“It may take until well into 2013 before we and the market can assess the direction and effectiveness of the plans.”