US investor cuts stake as Tesco trails its rivals

Pressure is mounting on Tesco to reverse market share losses in the UK and fix nose-diving profits in its Asian and European businesses that combined to pull group profit down for a third straight half-year earlier this month.

Nebraska-based Berkshire, a Tesco shareholder since 2006, cut its holding to 3.98 per cent from 4.98 per cent on October 16, according to filings on the London Stock Exchange. However Tesco still remains one of its biggest investments outside the United States.

The darling of the retail sector during two decades of uninterrupted earnings growth, Tesco has suffered in recent years from failed attempts to break into the United States and Japan and a costly, still unprofitable, expansion in China.

During heavy investment abroad the group has seen its market share in Britain eroded by rivals including Leeds-based Asda and Sainsbury’s, as well as discounters Aldi and Lidl and upmarket Waitrose.

Now, 18 months into a £1bn turnaround plan in Britain, involving revamped stores, new product ranges and more staff, its sales growth still trails Sainsbury’s.

Meanwhile, overseas, problems have been piling up.

First half like-for-like sales declined in all ten of its overseas markets, with particularly heavy falls in central and eastern Europe, which the company has blamed on austerity measures, rising inflation and high unemployment.

Tesco, which lags Carrefour and Wal-Mart by annual sales, has said its UK turnaround plan is working and that its European business would benefit from curbing store openings and focusing on stronger-growing convenience store and online markets.

Meanwhile, Sainsbury’s and Waitrose are the only top six supermarket chains currently resisting pressure from discounters Aldi and Lidl to expand their market share, according to monthly industry data out yesterday.

Though data and surveys have indicated the outlook is improving for UK consumer spending, retailers are generally still wary as inflation continues to outpace wage rises.

In recent weeks, Tesco and Sainsbury’s have highlighted the fact that consumers’ disposable income is still falling.

Sainsbury’s and Waitrose outperformed the market with year-on-year sales growth of 3.7 per cent and 7.6 per cent respectively in the 12 weeks to October 13, narrowly expanding their market share, researcher Kantar Worldpanel said. However, their growth was dwarfed by a 31.7 per cent sales rise at Aldi, which gave it a record market share of 3.8 per cent against three per cent a year earlier.

Aldi more than doubled its profit in its UK business in 2012, as it attracted one million more shoppers and got existing customers to spend more.

“The retailer has done a particularly good job in conveying its competitive pricing message through its ‘Like Brands Only Cheaper’ and subsequent ‘Swap and Save’ campaigns – both of which have given the supermarket a clear point of difference,” said Kantar director Edward Garner.

Lidl also kept up its strong run with sales growth of 13.1 per cent and a market share of three per cent, up from 2.7 per cent.

The trend for higher- and lower-end chains to gain at the expense of the middle ground was clear with Tesco, Asda and Bradford-based Morrisons all recording sales growth of 1 per cent or less, against a three per cent market average.

Kantar said grocery inflation remained at 4.2 per cent for the 12-week period.

Elsewhere, upmarket northern supermarket chain Booths is buying a long-standing supplier in an effort to take more control over its supply chain.

The Lancashire business has struck a deal to acquire Sharrocks, a Preston-based fruit and vegetable wholesaler, for an undisclosed sum.

Chairman Edwin Booth said: “This is our first acquisition of a supplier in our 166-year history. We know that they share the same ethos and values when it comes to supplying customers with quality produce.”