- UK retail sales fall in first-quarter
- Shoppers moving to value items to save money
Tesco (TSCO) warned that the cost of living crisis is affecting consumption after reporting a fall in UK retail revenue, with management saying that customers are moving towards value products to cut down on shopping costs.
In a trading update, chief executive Ken Murphy said “we are seeing some early indications of changing consumer behaviour as a result of the inflationary environment”. Speaking on a media call, he noted that for staples like bread and pasta, “we are seeing the customer choose the own brand or the entry-level brand variety to help them manage their overall basket cost”.
While Tesco said it grew market share in the UK (by far its largest market), on a like-for-like (LFL) basis, retail sales fell by 1.5 per cent to £9.9bn for the 13 weeks to 28 May. Total LFL retail revenue of £13.6bn was up by 2 per cent on last year and by 10 per cent on pre-pandemic levels. Retail sales also fell by 2.4 per cent in Ireland, but group sales climbed by 2 per cent as revenue grew at wholesaler Booker by a fifth and in central Europe by 9 per cent.
Tesco’s update comes as UK inflation continues to rise and many workers face real-term pay cuts, hitting disposable incomes. The Office for National Statistics’ latest data on earnings shows that regular wages, adjusted for inflation and not including bonuses, fell by 4.5 per cent year-on-year. This represented the steepest ever decline in the statistics body’s data set, which began in 2001.
A report from the Institute of Grocery Distribution (IGD), meanwhile, said that annual CPI inflation for “essential food items” such as meat and bread will hit 15 per cent over the summer and that “a significant number of shoppers will continue to struggle financially”.
Alongside Tesco, other food retailers have flagged the impact of rising costs in recent results. J Sainsbury’s (SBRY) said in its 2022 annual report that food inflation could “cause increased competitive pressure and so lower margins generated on those sales”. Marks and Spencer’s (MKS) management said in its annual report said that it is “planning for an adverse impact on volumes due to price inflation, slowing the rate of sales growth”.
