Tesco PLC sees customers moving away from online retail due to inflation

Tesco PLC (LSE:TSCO) said UK sales in the first quarter fell and warned that “customers are facing unprecedented increases in the cost of living”.

However, the UK’s biggest supermarket said overall sales were up, boosted by the growth of Tesco Bank, its wholesaler Booker and rising fuel prices at its petrol stations.

“We are seeing some early signs of changing customer behavior due to the inflationary environment,” said Tesco chief executive Ken Murphy.

“Customers are facing unprecedented increases in the cost of living and so it is even more important that we work with our supplier partners to mitigate inflation as much as possible.”

In a brief statement on the outlook, the retailer added: “At this early stage in the year, our guidance ranges for earnings and cash remain unchanged.”

Aggregate sales for the 13 weeks ended May 28, 2022 were £13.57 billion, up 2% on the equivalent part of last year and up 9.9% on a like-for-like comparison over three years.

The group revealed fuel sales jumped to £2,035million, up 44% year-on-year as petrol prices hit record highs following the war of Russia against Ukraine.

The supermarket chain said its year-on-year performance was ‘affected by the annualisation of the lockdown last year, notably in GM, clothing and online, partially offset by inflation’ .

“Tesco has been a winner in the pandemic and our experts expect it to continue to grow its market share over the next 12 months,” said Alex Smith, global market research specialist. retail business at consultancy firm Third Bridge. “Tesco is trying to be the last of the big UK supermarkets to pass on the costs of inflation to customers as it seeks to gain market share and use its size to manage costs.”

Growth in Europe, where its sales rose 9%, was driven by price increases, but the company said it was working with suppliers to mitigate those costs.

Tesco’s UK sales fell 1.5% to £9.88bn as huge gains made in online retail last year were not sustained.

Its online sales plummeted as the supermarket chain saw a shift in consumer behavior.

Online sales were down 14.5% year over year, but 55% more than three years ago. Convenience sales increased by 6.2%, underlining the evolution of the market.

Tesco’s distribution of Aldi Price Match and Low Everyday Prices products was up 19% year-on-year.

Sales at food wholesaler Booker Group (LSE:BOK), which Tesco bought in 2017, hit £2.1billion in the three months to May 28, up 19.4% from the first quarter of last year.

Sales at Tesco Bank were up 38.8%, the company said, due to the acquisition of Tesco Underwriting and the “recovery in card sales” and travel money.

Anne G. Cash