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Online turns in strong growth for Tesco and Sainsbury’s alike

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Tesco and Sainsbury’s today reported very different financial results. While Sainsbury’s could point to a 2.1% rise in like-for-like sales in the first quarter of its financial year, Tesco had a 23.5% fall in pre-tax profits to £1.387bn to report in its first half. Despite a 2% rise in group sales to £35.6bn, Tesco’s UK like-for-like sales, excluding petrol, fell by 0.5% in the first half of its year.

But what both had in common was the strength of their online growth. Tesco reported a 13% rise in online sales in the 26 weeks to August 24 compared to the same time last year, while Sainsbury’s ecommerce grocery sales were up by 15%. Tesco’s also chipped in a 54% boost to its overseas ecommerce grocery sales – the supermarket group now delivers in more than 50 cities in nine international markets, and says its strategic aim is to establish multichannel leadership in all its markets, while also growing internationally and investing to strengthen the UK business.

During the first half, 40,000 customers signed up to its Delivery Saver subcriptions, while Click & Collect drive throughs are now operating in 200 stores. Some 200,000 products are now sold through its Tesco Direct non-food site through third party sellers.

Tesco said that while the turnaround programme for its UK business was making “good progress” and international investments were starting “to feed through into an improved trading performance in the second half,” “challenging economic conditions overseas, particularly in Europe” had held back consumer spending.

Tesco also announced a joint venture with China Resources Enterprises that will give it a 20% stake in what it says will be the largest food business in China, with 3,000 stores. “This, together with the conclusion of our strategic review in the United States, provides further evidence of our commitment to disciplined international growth,” said chief executive Philip Clarke, “and, more broadly, our approach to growth and returns.”

But online growth, says John Ibbotson, director of retail consultants Retail Vision, is not enough. “No matter how fast her captain bales, the Tesco ship is still taking on water,” he said.

“As soon as one leak is plugged, another opens up. The ill-starred American adventure might be over, but Phillip Clarke is now battling to stem the tide at home.

“UK like-for-like sales, excluding petrol, fell by 0.5% – a woeful performance for Tesco’s core market.

“Modest gains from its internet and convenience arms cannot make up for its struggling hypermarkets.”

Meanwhile, Phil Dorrell, director of retail consultants Retail Remedy says Sainsbury’s is leaving the others in its wake.

If you want good retail in the UK, do what Sainsbury’s has done, namely: get the offer right, tell people the offer is right, keep true to that offer and do not get diverted, and build capacity where there is growth.

“Sounds simple and Sainsbury’s have made it look so, but ask Asda, Tesco or Morrisons and they will tell you how hard it is.”

Of Tesco, he said: “Tesco are nearly through their £1bn rejuvenation investment into their stores. It was needed but we are yet to see a step change in the way they engage with their customers because of it. The stores still look flat, the marketing old hat and the Dunhumby relationship has run out of steam, or at least ideas.

“Tesco are lucky that they have a huge portfolio of the sexiest game in food retail, the convenience store. This is where their growth is coming from and no doubt where Aldi and Lidl are least effective.

“We fear another 18 months of mixed results for Tesco but expect them to pull through and start showing their true power once the rebuild of the brand is completed.”

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