Tesco warns on consumer spending as UK sales fall

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The Independent Online

The finance director of Tesco has said there is a "real chance" of a further slide in consumer spending next year, as the grocery giant posted its fourth consecutive quarter of falling UK sales. This was despite launching a £500m aggressive price campaign in September.

Laurie McIlwee made his comments as the world's third-largest grocer, which operates in 14 countries, posted a 5.4 per cent rise in half-year sales, excluding petrol, boosted by new stores and strong performances in the US, Poland and Slovakia.

Asked about a further downturn in UK retail spending next year, he said: "There is a very real chance of that. They [consumers] have been cutting back all the way through this year. When your real wages are going backwards, your confidence is low and you are worried about your job... it is not a great environment for retailers." But he expects Tesco's UK performance to improve in 2012.

Tesco's UK like-for-like sales, excluding fuel and VAT, fell by 0.9 per cent over the 13 weeks to 26 November, the same as in its second-quarter.

The grocer put a brave face on its UK division – which accounts for 72 per cent of the group's trading profit – by saying the Big Price Drop has helped deliver a 1 per cent rise in food and grocery sales volumes. But the deflationary impact of lower prices on 3,000 items more than offset the sales rise. Mr McIlwee also hit back at the consultancy Retail Remedy – which dubbed its initiative the "Big Price Flop" – by saying: "It is not a promotion or a quick fix and its lasting impact should be judged over months not weeks."

Tesco has prepared contingency plans for the possible break-up of the eurozone, such on currency exposure by raising debt to pay off a £1.5bn eurobond due next year and by signing shorter supplier contracts.