The supermarket chain, which achieved only a 1.7% increase in UK total sales, including VAT and excluding petrol, for the six weeks to 7 January 2012, saw its share price drop 10% to 347.05p, following the trading announcement this morning.
Clarke, who described the UK Christmas trading period as “surprising and disappointing” in a conference call today, said: “In a noisy promotional period, our price cuts didn’t cut through as much as expected. As coupon and promotional investments fell year-on-year, coupled with lower inflation, this is the reason why we underperformed in the market.”
He went on to defend the company’s competitive prices, explaining the Big Price Drop was not a “gimmick” and was “a necessary thing to do” in order to offer customers the best deals, compared to Sainsbury’s ‘Brand Match’ price promise and Asda’s Price Guarantee.
Tesco has gone on to develop a two-pronged strategy for the next 12 months, beginning by fixing and improving the shopping trip for customers, focusing on price, quality, range and service.
In addition, the company plans to build on the success of its online business, which performed well throughout the six-week period. Tesco reported a 14% increase in online sales, both food and non-food, with almost one million orders placed with Tesco Direct and more than two-thirds collected in store.
Clarke added: “Our plan for 2012/13 now reflects substantially increased investment to deliver an even better shopping trip for customers – particularly in the UK. Consequently, we anticipate minimal group trading profit growth for the year.
“An important element of our plan, as we signalled at our interim results, will be reduced levels of capital expenditure as we modify our approach to UK expansion.”
To see how well other leading supermarket chains and bakeries did during the 2011 Christmas period, read the 13 January issue of British Baker.