Price cuts take toll on Tesco

LEADING supermarkets chain Tesco announced Christmas sales figures below City expectations and blamed the shortfall on price cuts and petrol. British sales excluding the impact of new space were up by 4.6% in the seven weeks to 5 January. The figure was lower than analysts had anticipated and less than the underlying growth reported by its arch-rival Sainsbury's on Monday.

Stripping out petrol, where prices fell sharply at the end of last year, Tesco's underlying sales in Britain rose 6.2%, compared with a 6.8% growth figure from Sainsbury's.

Tesco, led by chief executive Sir Terry Leahy, pointed out, however, that its sales were affected by heavy price-cutting and that volume growth (which excludes the impact of deflation) was 6.7%.

Sainsbury's, by contrast, said its non-petrol sales had benefited from inflation of 1.5% over the three months to the beginning of January. Overall sales for Tesco rose 11% over the festive period. The group said the increase had been driven by all four parts of its business - food, non-food, international stores and retail services.

The internet business alone sold two and a half million nappies and 12,000 Christmas puddings while the stores sold five million blank video cassettes and 150,000 Harry Potter books. Digital cameras and DVDs were also popular alongside mobile phone airtime and 99p apiece Santa hats.

City supporters of Tesco said that Sainsbury's had a very poor Christmas in 2000, so it was comparatively easy for the company to improve its performance. Tesco, by contrast, did extremely well in 2000, making strong sales growth much more difficult to achieve.

In its third quarter figures to mid-November, Tesco delivered underlying sales of 6.4% and overall British sales growth of 9.2%. At the time, the company warned that sales growth was likely to slow.

Safeway, meanwhile, reported 'robust' Christmas trading, like-for-like sales rising by 4.1% in the 12 weeks to 5 January. Third-quarter volume growth accelerated from 4.3% to 5.4% after disinflation of 1.3%. The group, Britain's fourth-largest supermarkets chain, said its performance reflected continued growth in customer numbers together with an increasing average spend from existing shoppers. It had been achieved despite the impact of substantially lower petrol prices and the continuing store reformatting programme.