Tesco turnaround: The three BIG problems Britain's biggest supermarket will face in 2016

As Tesco announces its Christmas sales figures

Tesco has started 2016 on a good note with its UK like-for-like sales rising 1.3% in the six weeks ending 9 January.

However, Britain’s biggest supermarket posted a 1.5% fall in sales for the 13 weeks ending 28 November after ending its popular “£5 off £40” promotion.

Total like-for-like group sales were up 2.1% for the six weeks over Christmas, against the same period last year. However, group sales for the quarter were down 0.5%.

Tesco chief executive Dave Lewis said that the supermarket’s “Christmas performance was strong”.  

“There is plenty more to do, but we are making good progress and are trading in line with profit expectations for the full year,” he said in a statement.

Tesco’s Christmas performance was strong as customers responded well to seasonal offers.

The retailer said that prices on “the lines that mattered most to our customers at Christmas” were 5% cheaper than the previous year.

Also, the supermarket put 4,000 extra staff on the shop floor in the week running up to Christmas.

These figures are particularly good news for Tesco as in April 2015 it posted a catastrophic £6.38bn loss – the largest in its 96-year history.

 

Here are the three biggest challenges Tesco will face in 2016

Competiton

Tesco might be Britain’s biggest supermarket. However, it was far from being the best perfomer of all supermarkets.

According to figures from Kantar Worldpanel, Tesco was the second worst performer over the 12 weeks to 3 January, with sales down 2.7%. This led to a 0.8 percentage point dip in its shares to to 28.3%.

Morrisons’ sales slid 2.6% as its shares fell 0.3 percentage points to 11%.

Sainsbury’s was the best performer of the big four supermarket chains as it saw a 0.8% rise in sales in the 12 weeks to 3 January.

 

Doubts over share price

In December 2015, Tesco shares dropped to 153p, its lowest value since October 1997. Despite the strong Christmas performance, here’s why Ed Bowsher, senior analyst at Share Radio, will steer clear of Tesco shares.

He said: “Tesco’s latest update was surprisingly strong, both over the Christmas period as well as the third quarter. I was particularly impressed by the significant rise in international like-for-like sales, but the UK performance was much stronger than we’ve seen recently.

“It was also good to see that clothing sales did well while Next and Marks & Spencer struggled. Even Tesco’s large ‘Extra’ hypermarkets did better than expected - welcome news as these stores have been the weakest part of the UK business.

“That said, I’m still going to steer clear of Tesco shares. Thanks to the rise of Aldi and Lidl, profit margins are going to be permanently reduced in the supermarket sector and I don’t think Tesco’s share price fully reflects that change yet. This was all the more true after today’s share price rise.”

 

Sales in big stores

Tesco saw sales over the three months to January drop in its largest stores as competition from smaller stores and online shopping hotted up. This is a key challenge Lewis is prepared to take up in 2016.

In a statement, he said: “This idea that big stores are a weight around our neck or some sad dinosaurs clearly hasn’t been the case. As we have improved the offer and gone back to quality, range, service and price people have seen they can get everything they need under one roof and that is the most convenient form of shopping.”

 

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