David Prosser: Tesco's still healthy despite the small sales slide

Outlook It turns out that not even the mighty Tesco is immune to the economic slowdown that has inflicted so much damage on other retailers. Still, before investors get too anxious about the 0.9 per cent slide in like-for-like UK sales reported yesterday, they ought to take a deep breath.

No retailer likes to admit to falling sales, but Tesco's performance is not as disappointing as one might think. For its non-food sales account for a far greater proportion of its total revenues than any other grocer – that it is holding its own given its reliance on this discretionary, recession-vulnerable spending is a mini-triumph.

Note also that revenue growth overall – as opposed to like-for-like sales – was above 7 per cent over the same period. Retailers are rightly judged on their like-for-likes, but the headline figure is a vindication of Tesco's continuing store expansion programme.

Then there is the international dimension to Tesco's business, where, in a good number of markets, sales growth looks much more healthy. Most eye-catching is the continued progress at Fresh & Easy, the much-watched US business – it at least stands a chance of breaking even by the end of 2012-13, as the supermarket hopes.

What, though, to make of the Big Price Drop, the price-cutting campaign Tesco unveiled with so much fanfare in the autumn? Well, it's hardly surprising that the initiative has yet to produce spectacular results, for the only spectacular element of the campaign was the marketing hype behind it. This was no more a price war than any of the other phoney battles fought in the grocery sector over the past few years.

There is some evidence that the campaign has driven more customers into Tesco stores, but even the grocer admits that prices, on the whole, are still going up. No wonder shoppers are ever-more cynical about supermarket pricing. In a market where everyone swears blind they're the cheapest, everyone bar one is telling porkies.

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