Grocers positive despite high petrol prices and low inflation hitting Q1 sales

Tesco and Sainsbury’s have vowed that there remains plenty of growth to go for despite sales suffering because of high petrol prices and low food inflation in their first quarters.

Both grocers reported the same UK like-for-like sales rise, excluding petrol, of 1.1%. Excluding petrol and VAT, Tesco’s uptick was 0.1% and Sainsbury’s 0.3%. The figures are the pair’s lowest quarterly numbers for six years.

Tesco corporate and legal affairs director Lucy Neville-Rolfe said shoppers are building higher petrol prices into their weekly budgets and “spending that little bit less on food to compensate”.

Neville-Rolfe pointed out that Tesco’s growth also comes from its international presence. Overseas total sales rose 11.9% excluding petrol at actual exchange rates. Asia performed particularly well, up 15.4%, although it was held back temporarily by political uncertainty in Thailand and Korea. Neville-Rolfe would not comment on speculation that Tesco is in talks to buy Korean retailer Kim’s Club Mart, but said that “the Korean market is already our second engine after the UK and provides a vision for how we want other markets like China or Malaysia to grow”.

Sainsbury’s chief executive Justin King said low inflation is “good news for customers” and that the retailer “doesn’t need inflation to grow the business”. He added: “We will continue to focus on loyalty, extending our store estate, which will be dominated by non-food, and we expect grocers’ share of the non-food market will increase.”

He pointed out that Sainsbury’s is on plan to add about 1.5 million sq ft this year, “which is roughly the size of the Netto chain Asda has acquired”.

Both retailers hoped that the new Government’s emergency Budget next week would not harm retailers. King said that while it is in

everyone’s interests that the deficit be reduced “sooner rather than later”, the “focus needs to be on cost spending reduction, not tax rises”.

Neville-Rolfe said: “If VAT has to go up, we’d prefer it to be later rather than earlier as the timing of the change is key for retailers.”

She said that Tesco would be interested to see what is said about a lower tax rate for green products, and a fuel duty stabiliser - which was in the Conservative manifesto - whereby fuel duty is lowered when the price of oil is high, and vice versa.

Tesco and Sainsbury’s have both benefited from the World Cup, which Tesco is celebrating in five of its markets. Sainsbury’s is the only grocer selling vuvuzela horns - it bought 75,000 that “look likely to sell out in the next week”, said King.

King said that he “intends to be around for a while yet” despite four of his grocery competitors appointing new chief executives recently.

➤ Tesco has appointed Andrew Yaxley, commercial director for packaged foods, to take over from Colin Holmes as director of fresh food. Holmes quit the retailer following the management restructure revealed last week when Sir Terry Leahy said he would retire in March 2011 and be replaced by Philip Clarke. Yaxley will be replaced by John Scouler, at present commercial director in Hungary.