Tesco hit by Christmas sales dip despite Big Price Drop

By Matthew Chapman, marketingmagazine.co.uk, Thursday, 12 January 2012 09:20AM

Tesco's Big Price Drop has failed to boost sales across the festive period and has led the supermarket giant to admit it was "disappointed" with its performance, while Argos fared worse.

Like-for-like sales including VAT and excluding petrol for the six weeks to 7 January were down 1.3% year on year, which Tesco said was particularly disappointing considering 2010 was highly disrupted by terrible weather conditions.

Tesco said: "The volume response to our increased investment into lowering prices did not offset the deflation it has driven".

The launch of The Big Price Drop in September resulted in a price battle erupting across the supermarket sector, but Tesco appears to be the most damaged.

Rivals Sainsbury's and Morrisons both increased like-for-like sales over the festive period. Asda has yet to release its Christmas trading results.

Tesco is addressing its recent poor performances in the UK by directing more investment to improve customers' shopping experience.

As a result of the increased investment, Tesco is anticipating "minimal group trading profit growth for the year".

Philip Clarke, chief executive at Tesco, said: "We will continue the process of change that we started nine months ago to address long-standing business issues.

"The Big Price Drop is an important first element in this process but there is much more we can do to further improve our shopping trip for customers and we are determined to move faster."

Tesco will announce the turnaround plan in its preliminary results in April.

Total sales including VAT and excluding petrol, which takes into account the opening of new stores and expansion of existing stores, grew by 1.7% during the period.

Tesco’s concerted push into general merchandise, which critics have claimed has led to a complacent approach to its grocery business, has yet to take off.

Like-for-like sales for clothing and electricals dropped compared to last year.

Tesco would not reveal the percentage drop, but says it was at a much improved level compared with the first half of 2010. 

Online sales for both food and non-food grew more than 14% with almost a million orders being placed with Tesco Direct during the period, of which over two-thirds were collected in store.

Meanwhile, the Home Retail Group has revealed total sales at Argos declined by 7.8% to £1.72bn during the 18 weeks to 31 December.

Terry Duddy, chief executive at the Home Retail Group, said: "Argos sales continue to be impacted by the market decline in consumer electronics categories, however we saw internet penetration reach over 40% of total sales, with Check & Reserve being boosted by the development of mobile commerce as customers embrace our leading multi-channel proposition."

Argos says there will be a number of store closures in the remainder of the financial year. It currently has 759 stores.

Follow Matthew Chapman at @mattchapmanUK

This article was first published on marketingmagazine.co.uk