Tesco's disastrous Christmas

TescoPA

Brokers are predicting that Tesco is set to announce that it has had its worst Christmas for years. According to The Daily Mail, JP Morgan Cazenove forecast a 1.5% drop in sales from those stores that have been open for a year or longer. This constitutes a massive disappointment, and coincides with news that it now accounts for 28.9% of all food spending - compared to 29.3% a year ago.

So what's going on?
Tesco still accounts for £1 of the £7 spent in shops in the UK, so it's not quite the end of the world just yet. However, there are a couple of forces at work making life more difficult for the retailer.

Middle of the road

First, it is losing out to its competitors - at either end of the spectrum.

Asda's market share increased over the same period from 16.7% to 17.1%. Morrisons, meanwhile, has reported its results today, revealing some growth over the period. It wasn't what commentators had been hoping for, as growth was only up 0.7% in the six weeks to the end of the year (a long way short of the 1.3% we were expecting). However, it said it had added 800,000 new shoppers a week. Those shoppers have to come from somewhere...

Move upmarket

At the top end, the same brokers say that Sainsbury's is likely to be the most successful of the bigger players over the festive period, because of competitive offers and a reputation for being the most upmarket of the mass brands - something that appeals during the festive season when people are looking to treat themselves. Its market share is expected to have held steady, but there are high hopes for when the company reports this week.

Waitrose, meanwhile, doesn't have to report in such detail because of the ownership structure. However, it said it broke its record of £200 million sales in a week. It announced that its December was up 3.8% and year-on-year it was up 9.5%.

It seems that this Christmas we have either been cutting to the bone and opting for the cheapest supermarkets, or deciding that as we are cutting back everywhere else, we can splash out a bit on groceries. Tesco suffers from being bang in the middle of both.

Expansion

The second problem for Tesco is the fact that the supermarket has expanded well beyond its grocery base. It now sells everything from clothes to gifts and furniture (and just about everything else you can think of). By expanding the range, it now sells the sort of non-essential items that people are cutting back on in these tough times. While you will still need bread and milk, you might just give the latest DVD release and the new TV a skip.

And third, there are questions over whether the Big Price Drop was the success the company was hoping for. Its competitors are working hard to undercut one another, and Asda and Sainsbury's are offering discounts and coupons for those who could have bought their shopping cheaper elsewhere - so consumers have nothing to lose by shopping there.

But what do you think? Is Tesco set for a fall, or is this just a small blip in the retailer's march to world domination? Let us know in the comments.
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