Positive signs at Tesco as turnaround takes shape

Price cuts and better service helped Tesco to win back shoppers in the first quarter of its financial year, Britain’s biggest retailer said yesterday, suggesting new boss Dave Lewis’s turnaround plan is starting to bear fruit.

Tesco has had a horrendous 18 months, with competition from fast-growing discounters Aldi and Lidl compounded by an accounting scandal that drove it to a record annual loss.

But former Unilever executive Lewis has cut prices on popular grocery brands, improved product availability and put more staff in store.

Sales at British shops open for more than a year fell 1.3% in the 13 weeks to May 30, Tesco said, partly reflecting a drop in food prices across the industry.

But that was better than analysts’ forecasts for a fall of 1.6% to 3%, an improvement on the previous quarter, and also better than recent figures from major rivals Asda, Sainsbury’s and Morrison’s.

Tesco also said 180,000 more customers shopped at its UK stores in the quarter, with the volume of goods sold up 1.4% on a like-for-like basis and transactions up 1.3%.

“Stemming the defection of consumers is the first, and arguably the most important, battle to be won,” said Neil Saunders, managing director of retail researchers Conlumino.

Tesco’s shares, down 21% over the last year, rose as much as 4.4% to a one month high of 227.35 pence.

While welcoming the improvements, however, some investors cautioned Tesco faced a battle to continue its recovery in the teeth of an industry price war.

Speaking in Dublin today, Andrew Yaxley Tesco Ireland chief executive said: “The retail market continues to be very competitive but we’re pleased to see some encouraging indications that our investments in Staying Down prices and improved customer service, in particular, are moving us in the right direction.”