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Tesco’s market share lowest since 2005

Supermarket rivals gain ground following UK’s largest grocery chain issuing a surprise profit warning in January

Tesco’s share of the UK grocery market has fallen to its lowest level since 2005, as rivals Asda and Sainsbury’s and low cost competitors such as Iceland and Aldi gained ground in the battle for customers.

The UK’s biggest supermarket chain, which in January issued its first profit warning in decades, saw its market share dip below 30%, to 29.9%, for the first time in seven years in the 12 weeks to 12 January from 30.5% a year earlier. At its peak, in the autumn of 2007, Tesco accounted for 31.8% of spending.

The reaction in the City was scathing. Dave McCarthy, an analyst with Evolution Securities, said Tesco had acquired 2m sq ft of extra space in the last year or so, but “at the same time they lose market share”.

Tesco’s shock profits warning in January wiped £5bn off its market valuation. The slump was blamed on a botched pricing strategy in the run-up to Christmas.

Competitors are doing better: Britain’s second largest supermarket group Asda boosted its market share from 16.9% a year ago to 17.5%, although it has gained from taking over the discount group Netto. Sainsbury’s edged up from 16.6% to 16.7%, according to data published by Kantar Worldpanel.

Morrisons fell marginally from 12.4% to 12.3%, but Iceland – currently at the centre of a bid process – moved up from 1.9% to 2.1%, its highest market share for 10 years.

The figures also showed that grocery inflation was running at 5.7% in early January, a decrease from the peak of 6.2% reported for November last year.

McCarthy warned that Tesco had a lot of work to do to improve its position. “I have been saying for 18 months they face a number of problems including quality of service, quality of the product, as well as issues linked to price – they are too expensive in relation to the competition,” he said.

Tesco’s chief executive Phil Clarke, who took over from Sir Terry Leahy last March, said at the time of the profits warning that the store had wrongly pulled back on one-off promotions, such as meal deals and buy one, get one free offers, as its rivals increased them.

Rivals also bombarded shoppers with money-off coupons and promotions that overshadowed Tesco’s £500m “Big Price Drop”, now dubbed the “Big Price Flop” by analysts.

Clarke promised to plough millions of pounds into improving the quality of the supermarket chain’s fresh food, the choice of products it sells as well as its customer service.

The company was not in crisis, he said. “This isn’t going to kill us, it is going to make us stronger,” he added. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds