Tesco Seems to Be Losing the Grocery Battle with Sainsbury’s

On 3 October 2012, Tesco (LON:TSCO), the UK’s largest supermarket company reported a first fall in profits for almost two decades. Meanwhile, one of the retailer’s biggest competitors, J Sainsbury (LON:SBRY), expectedly saw a rise in sales of more than one percent, taking the lead in the grocery battle with Tesco.

As noted in the company report, Tesco’s profits before tax for the first half of 2012 declined by 11.6 percent to £1.662 million, whereas underlying profit before tax fell by 8.5 percent to £1.759 million. In addition, Bloomberg reported that the Cheshunt-based retailer maintained their first-half year dividend at 4.63 pence, the first time this century that it has not increased the payout.

!m[The Two Retailers Release Half-Year Results](/uploads/story/507/thumbs/pic1_inline.png)The Times reports that the main reason for the disappointing results are the additional costs associated with a plan announced in April for the investment of £1 billion aimed at stemming a decline in sales. In addition, the retailer recruited an additional 8,000 permanent staff so as to deliver better service, and increased spending on Internet and mobile shopping services.

“We continue to act decisively to tackle challenges and seize opportunities across the group. I am encouraged by our customers’ initial responses to the changes we have made – but there is much more to be done,” notes Tesco’s CEO Philip Clarke in the company statement.
As reported by The Times, while Tesco’s group sales increased by 1.4 percent, the retailer’s like-for-like sales in Asia and Europe fell in to the red due to shopping hour restrictions in South Korea and the Eurozone crisis, which had a negative impact on Tesco’s performance in Europe. China’s slowing economic growth has also affected Tesco’s profit and in addition, the Californian Fresh and Easy franchise has not managed to crack the US market, although it delivered a small reduction in losses, with sales performance improving throughout the first half of the year.

The Irish Times reports that Tesco’s share of UK grocery market fell to 30.9 percent in August 2012, from 31 percent last year. Competitors such as Wal-Mart Stores Inc.’s Asda and Sainsbury’s as well as discounters such as Lidl have been eating into Tesco’s market share. Sainsbury’s in particular increased its share by 4.6 percent to 16.5 percent of the market.

J Sainsbury’s half-year results are expectedly more positive, with the retailer reporting a 1.7 percent rise in like-for-like sales, excluding fuel but including VAT, in the first half of the financial year ended September 29. “This has been a unique and special summer, during which we have delivered another quarter of good sales, outperforming the market in what remains a challenging retail environment,” noted Justin King, J Sainsbury’s chief executive in the company press release.
Sainsbury has been attracting customers with its Brand Match strategy which offers shoppers a coupon if the same product is available for less at a rival store. “We are positioned to perform well coming into the important Christmas period,” points out Mr King.
Bloomberg reports that Sainsbury’s shares rose by 0.3 percent to 346.8 pence in London trading on October 2, extending 2012 gains to 14 percent. Tesco’s shares on the other hand have posted a 17 percent loss in the year to date.