Grocery giants upbeat on recovery prospects

Tesco chief executive Sir Terry Leahy said the domestic economy had “passed its low point” and “things are getting better”. Sainsbury’s chief executive Justin King said: “The next couple of quarters will be bouncier because of the tough quarters a year ago, so technically we may come out of recession.”

The pair reported interims and second-quarter trading on Tuesday and Wednesday respectively (see box). Tesco posted UK like-for-likes up 3.7% excluding petrol and VAT for the 26 weeks to August 29 and 3.1% for the second quarter. Sainsbury’s delivered like-for-likes up 5.4% excluding VAT and petrol for the 16 weeks to October 3. Both said there are signs shoppers will treat themselves this Christmas.

Leahy said Tesco’s results showed shoppers are more willing to spend on non-food products, premium and organic ranges, and ready meals. He said: “People feel their financial circumstances are under control and we will offer another burst of double points to Clubcard customers in November, which should help them with Christmas.”

He said the recovery will be “slow and steady” as the fiscal stimulus pumped into the economy would need to be paid back.

King said Sainsbury’s had also seen strong growth in premium ranges, and while organic is still in decline “it is much less so than a year ago”. He said sales of Taste the Difference ready meals are up 25%, Taste the Difference wine is up 25% and premium meat is up 120%.

He expected Taste the Difference sales to continue to rise into the festive period, and revealed that Sainsbury’s Christmas ad campaign – featuring celebrity chef Jamie Oliver – would focus on the range. Sainsbury’s introduced a coupon scheme last week to drive customer loyalty, which King said would be part of the promotional mix this Christmas.

He said: “We need to be cautious for next year because there’s every sign that VAT will go up and taxes will increase, but our customers know that they can still enjoy a good-quality meal with their family.”

Internationally, Leahy said Tesco’s US chain Fresh & Easy has launched its first ad campaign and that while trading has been tough, he was confident the business is on the right track after changes were made to the range and store environment.

Separately, Tesco launched its clothing fashion website last week, stocking Tesco brands such as F&F and Cherokee and 20 other labels. Tesco will also launch a high-end line exclusively online next spring called F&F Couture, with prices between £100 and £200.