Tesco's chief executive Ken Murphy has stated that weather conditions will have a greater impact on grocery sales than home nation World Cup victories. The UK's largest retailer reported that its sales growth more than halved during a rainy spring and amid the Middle East conflict.
Weather vs. World Cup Impact
Murphy highlighted that the rainy conditions for much of this spring, compared to last year's long spell of sunshine, significantly affected spending habits. He noted that the biggest influence on the market would be the weather, with sunshine prompting households to eat together more, celebrate more, and spend more on groceries. While acknowledging that it would be fantastic for the country if England and Scotland performed well, he emphasized that the weather effect is the major difference.
Sales Boost from Football Matches
Sales via Tesco's Whoosh fast-track grocery delivery service surged 40% around the England-Croatia game on Wednesday night and rose even more in Scotland following Sunday's win over Haiti. Sales of Irn-Bru increased by 50%, and canned cocktails rose by 185% before the Haiti match. However, Murphy reiterated that the weather effect is the big difference.
Retail Sales Forecast
Football fans are expected to provide a £267.7 million boost to retail sales ahead of England's second World Cup match on Tuesday evening, with nearly £70 million predicted to be spent in pubs and other venues, according to research from GlobalData for VoucherCodes. However, data from the Euro 2024 competition suggests that the overall sales uplift for supermarkets during the tournament is likely to be marginal. The market research firm Circana indicated that cost of living pressures and discounting, along with more time spent at home, mean households are unlikely to spend much more on food and drink than usual.
Tesco's Sales Performance
Tesco reported that comparable sales rose 1.8% to £13.4 billion in the three months to the end of May, below the 4.2% reported in the previous quarter and the 2.3% growth City analysts had predicted. The numbers were lifted by an 8.9% rise in online sales, with group sales rising 1% to £16.8 billion. Murphy said consumer confidence was low amid fears of the impact of the Middle East conflict, which has pushed up petrol prices and threatens household energy bills later this year, but this had not translated into significant changes in shopping behaviour.
Grocery Inflation and Pricing
Murphy added that sales growth was also dampened by slowing grocery inflation on the previous quarter as the price of commodities such as coffee and cocoa had eased and many food producers had implemented measures to protect themselves from the surge in energy prices. He said he did not expect grocery inflation to reach the 9% levels suggested by some industry bodies and noted that petrol pump prices were falling as we speak amid hopes of a lasting peace deal between the US and Iran.
Strategic Initiatives
Tesco said it had extended its pledge to match the German discounter Aldi on leading product lines to more than 2,000 of its small Express stores and launched 520 new products. The company stated it was well placed to build on its progress to date. Sales at Tesco's Booker wholesale arm fell 3.2%, with sales to independent retailers and catering businesses declining amid tough conditions on the high street.
Outlook and Shareholder Meeting
Tesco, which holds its annual shareholder meeting later on Thursday, said it still expected to meet profit expectations for the year. Analysts expect it to make £3.25 billion in profit this financial year. However, shares fell 2.4% in early trading. In April, Tesco warned about a potential drop in annual profits, which would be the first fall since 2023. In the year to 28 February, profits rose by 8.5% to £2.4 billion as sales rose by 4.3% to £66.6 billion, including strong growth in the UK.
