Tesco’s ‘disappointing’ campaign proves a festive turkey

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Tesco reported a “disappointing” Christmas yesterday, wiping billions of pounds off its shares and sending shock waves through the retail sector.

Tesco lost £4bn in value after admitting that it messed up its pricing strategy over the festive season. The blue-chip stock closed down 16 per cent at 385p last night after chief executive Philip Clarke said the grocer had failed to pull in enough customers with its £500m Big Price Drop campaign.

The comments caused big share price falls elsewhere, with Sainsbury’s, Bradford-based Morrisons and Marks & Spencer all suffering as a result.

This is despite the fact that all three reported an improvement in Christmas trading earlier this week.

Tesco’s update forced City analysts to slash their full-year profit forecasts by around 15 per cent and raised fears that the floundering UK performance over the festive period would hit Tesco’s future growth.

Tesco reported a 2.3 per cent decline in UK like-for-like sales excluding VAT and petrol in the six weeks to January 7, which came in below expectations of a 0.9 per cent fall.

Mr Clarke said the group had made the mistake of pulling back promotions such as meal deals and “buy one, get one free” offers, as its rivals increased them.

“I’ve got to acknowledge that we backed off on some of our promotion and coupon activity just as everyone upped it,” said Mr Clarke.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Unfortunately the ‘Big Price Drop’ reported in this update will be remembered as more reflective of the shares than the campaign.”