Tesco reports drop in sales growth

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The Independent Online

Supermarket giant Tesco today reported a halving in UK sales growth in the third quarter after it said like-for-like sales rose by 2 per cent.

The 2 per cent figure for the 13 weeks to 22 November, excluding fuel, was down from the 4 per cent reported in the previous three months.



Tesco said inflation had fallen "substantially" in the three months to the end of September, with prices in its stores falling even faster, according to the retailer.









It said the recent launch of cut-price ranges - such as its new 'Discounter' lines - was helping lower prices for cash-strapped shoppers, but had deflated its sales by "between two and three percentage points".



However, Tesco said the move was seeing it attract 300,000 more customers each week.



"We are also beginning to see strongly improving sales volumes - this is an important change, as inflation begins to subside across the industry," said Tesco.



Its upbeat outlook on customer numbers and sales volumes comes despite recent reports that it is seeing swathes of shoppers defect to rivals Asda and Morrisons.



Switching data from industry researchers TNS Worldpanel showed that in the 12 weeks to 2 November, around £22m of spending shifted from Tesco direct to Asda, according to The Times today.



Tesco said its UK business had made "solid progress", but admitted it was not immune to the wider economic troubles.



"We are pleased with our progress, but we are also realistic - the current economic climate, and the strain this is putting on consumers everywhere, is something that all businesses are feeling, including ours," said the firm.



Total group sales rose by 11.7 per cent in the three-month period, with total UK sales growth of 5.9 per cent.









Andrew Higginson, Tesco's finance director, said the UK sales growth was the slowest seen since the recession of the early 1990s.



Non-food sales fell slightly in the UK on a like-for-like basis, which added to the price drops in dragging down the quarterly growth.



"Driving deflation into your business is painful in the short-term, but we think it's the right path to be on and the good news is that customers are responding to it," added Mr Higginson.



Shares rose more than 5 per cent in early trade today.



The group said it had also found another £90m to cut from its cost base in the UK alone this year, on top of the £450m in cost savings already earmarked.



But Mr Higginson appeared to rule out job losses at the supermarket giant in the coming year.



He told BBC Radio 4's Today programme: "At the moment Tesco is a growth business so overall Tesco will be growing jobs next year.



"We will still be looking to expand the business in the year ahead, albeit that obviously we've done a lot to introduce much lower prices for customers at the moment as part of getting ready for a much bigger slowdown."



He added the company would be looking to expand its personal finance business in light of the recent bank bailouts.



Mr Higginson said: "I think people have lost a bit of confidence in banks and that feels like more of an opportunity for a brand that they trust, a brand like Tesco, to come in and perhaps do a good job for them.



"In time I think you will see us move into more of those transactional, relationship-type products. If you have a current account you have an ongoing relationship with customers and that feels like the sort of thing Tesco does well."



Tesco is due to complete the purchase of the remaining 50 per cent stake of Tesco Personal Finance from struggling Royal Bank of Scotland in the next few weeks.



The group said it was putting the brakes on its US expansion plans as the economic gloom hits a number of key areas in America, particularly on the West Coast.



It will now open 500,000 square feet for the Fresh & Easy brand in the second half, although it stressed that the first stores to open after launch late last year had "now moved strongly into like-for-like growth".

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