UK’s largest grocer sees growth slow but “discounter” products help lure 300,000
Tesco, Britain’s largest retailer, has seen sales growth fall in the face of more intense competition and a struggling economy, but still remains positive about the future.
The company, which is the market leader in the grocery sector in the UK, reported overall sales growth of 11.7% in the third quarter, but this was largely due to their international expansion – which some have credited with taking their focus away from their primary market. The company did note their food and grocery sector was progressing well, something which has been seen by most major supermarkets around the world due to the nature of the business – consumers always need food. A shift toward eating at home has been assisting grocers, while a heightened interest in private label goods has been reported – offering higher margins for supermarkets.
Tesco has been forced to respond to discount grocers like Aldi and Lidl, as more consumers take a no-frills approach to their shopping to reduce expenditure. This led to a new ‘discounter’ range of private label goods, which have reportedly been well received. The range, priced below their other private label products, followed a survey by Tesco discovering that price was now more important to consumers than at any time in the past two decades. Analysts have queried the move, which has yet to be emulated by their three major competitors, believing it might only result in people trading down within Tesco. The company, however, remains adamant that the strategy will prove successful, believing price will be the primary purchase drive over the next couple of years.
“Tesco has maintained solid progress in sales and profits during the third quarter across the Group,” Chief Executive, Sir Terry Leahy, said. “The UK has again done well – with 300,000 more customers a week and improving volume growth in our core food categories, driven by the early success of our new ‘Discounter’ products and related changes.”
“These products have been introduced with prices significantly lower than comparable brands and already represent over 5% of our UK food and grocery sales – demonstrating that customers see them as offering great value,” the company suggested in a statement.
The question is: will the interest wane as soon as economic growth returns? A recent report from Verdict Research noted that, being one of the few sectors to be profiting from the doom and gloom, the current economic fears presents a “once in a lifetime opportunity” for discount retailers. Tesco has looked to ensure they are not left behind, but the ability of their ‘discounter’ range to succeed beyond the recession will, ultimately, depend on quality. The recent boom saw consumers drawn to ‘premium’ products and this trend can be expected to return in coming years. In past recessions, private label has profited only to see some of the gains scaled back, with the quality of products the deciding factor as to whether consumers are willing to stay with private label goods.
Tesco also noted that their online grocery business had grown, delivering “very strong sales”. Australia’s major supermarkets have been slower to embrace the internet as a suitable channel in which to sell produce to customers, though Coles and Woolworths have both highlighted their desire to expand their online operations this year.