Marketing investment fails to boost Tesco as analysts predict sales drop

Tesco is expected to post a sales drop of as much as 2 per cent when it announces its interim results next week (4 December) as it faces increased competition from both the top and lower end of the market, according to analysts. 

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Clive Black, retail analyst at Shore Capital, estimates that like-for-like sales in the UK will decline by between 1 and 2 per cent as the supermarket turns to discounts and vouchering to counter the threat of budget rivals such as Aldi and Lidl. Barclays, Shore Capital and Deutsche Bank are also expecting drops of between 1.5 per cent and 1.8 per cent.

The sales drop comes after Tesco posted flat UK sales for the 13 weeks to 24 August. Like-for-like sales in the first quarter declined 1 per cent.

Tesco is also losing market share, seeing its share drop to 29.8 per cent for the 12 weeks to 11 November, compared to 30.5 per cent in the same period a year. The figures, from Kantar, also show that all four of the big UK supermarkets lost share in the period, the first time that has happened in more than a decade.

The weak outlook comes despite a big marketing investment from Tesco, including its “Price Promise” scheme and “Love every mouthful” campaign, which pushed a quality and provenance message. It appears that this is failing to resonate with customers, while an attempt to fend off discount rivals such as Aldi and Lidl with the use of money-off vouchers is hitting its bottom line.

Black says: “To support trade through Q3 Tesco UK has been investing in reasonably extensive vouchering, trying to encourage repeat purchases with money-off the next shop supported by a pretty extensive TV campaign.

“Such vouchers raise questions, again, as to the sustainability of Tesco UK’s margins.”

Tesco will be hoping that its Christmas ad campaign, featuring videocam footage of a family through the decades, can boost its performance in the crucial Christmas quarter. However, rival Sainsbury’s campaign, which promotes a 50-minute film showing people’s Christmas celebrations, is so far performing better in terms of cut-through and propensity to purchase.

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