Tesco has warned that sales are likely to fall in the UK – including online – as customers return to more normal behaviour by eating out and attending the office.
The supermarket reported a 0.5% rise in sales in established UK stores in the 13 weeks to 29 May, down from an 8.8% rise in the previous quarter.
Underlying sales across the group, which also operates stores in Europe as well as the Booker grocery wholesaler, rose 1% to £13.4bn.
Tesco’s finance director, Imran Nawaz, said the company anticipated sales would fall by a “few per cent” in the year ahead as restrictions on dining out and travelling were removed.
Ken Murphy, the chief executive, said Tesco had enjoyed a “really strong first quarter” but admitted it was “definitely going to be challenging to stay in positive territory” on sales in the UK.
The first-quarter performance in the UK was underpinned by a 22% rise online and strong increases in sales of clothing and general merchandise – up 52% and 10% respectively. The non-food increases come after a return to socialising and going out but also reflect a dip in those categories from a year ago, when families focused on buying essentials to prepare for the Covid-19 lockdowns.
Murphy said that people continued to eat more at home, with sales of baking items and scratch ingredients still up more than 20% on pre-pandemic levels, but in many ways behaviour was returning to patterns seen before the impact of the coronavirus.
Families have begun to shop more frequently, turning away from the big weekly shop that had returned to favour during the pandemic, and were likely to order less online once restrictions on dining out are fully lifted in the UK and when foreign travel resumes, Murphy said. Changing eating patterns were also reflected in a 68% increase in catering sales at Booker during the quarter as restaurants, bars and cafes restocked.
With the rapid development of fast-track grocery delivery services such as Getir and Weezy, Tesco is experimenting with its own 60-minute delivery service from convenience stores. Its Whoosh service, which was launched in May, is now in 12 stores.
Murphy said Tesco was watching fast-track delivery “very closely” and had built its own software for Whoosh but was not sure there was a “viable economic model”.
The company is also planning to test out a till-free store, similar to the Amazon Fresh concept that launched in the UK in March, with customers in the next few months. Tesco has spent a year testing out its concept with staff in a store at the group’s headquarters in Welwyn Garden City.
Tesco admitted it had experienced some problems with supplies as a result of a national shortage of HGV drivers. Murphy said Tesco had not yet raised pay to help recruitment but there was lots of work going on to “improve the offer” to drivers to help ease the situation. He said that the recent shortage of salad and fresh fruits in some stores was as much to do with a sudden rise in demand because of warm weather as it was to do with driver shortages.
In Northern Ireland, Tesco is sourcing hundreds of product lines from local suppliers, including dairy, meat and crisps, in an attempt to avoid shortages there because of Brexit-induced problems with exporting from mainland UK. Murphy said Tesco was “very keen for the government to come to a sustainable solution with the European Union” on export rules. The UK is in dispute over the extension of easements on checks relating to certain foods, which are due to end of 30 June.