Tesco’s dominance is not over yet
Nigel Williams, 5 June 2014
Three recent statistical releases have suggested things are changing. Readers could be forgiven for thinking that Tesco is in difficulties, manufacturing is reviving and the London housing bubble is over. These reports deserve a closer look.
Sales figures to 25th May 2014 from Kantar WorldPanel, based on returns from a representative sample of consumers, show a fall for Tesco’s of 3.1% compared to the same period a year earlier. As a proportion of their own sales, Morrisons fell further but makes less of a news story. Waitrose and Asda grew, but Aldi and Lidl shot up. Aldi’s year-on-year growth was 36%.
It is easy to take away an idea that Tesco is on the verge of disappearing from Britain’s high streets, squeezed out by an alliance of discount warehouses and smarter supermarkets. The same data report the other important part of the story. Tesco’s market share, even after the apparently disastrous fall, is 29%. Second and third places go to Asda and Sainsbury, far behind at 17% and 16%. Even without including petrol, Tesco customers put over £7 billion through its tills in 12 weeks. Aldi and Lidl combined add up to only £2 billion. The message of a period of declining sales may be that Tesco needs to reassess its relationships with suppliers, customers and surrounding retailers, but it remains by far the biggest force in British retailing.
The May 2014 Markit PMI (purchasing managers’ index) for manufacturing fell from from April’s 57.3 to 57. On this scale, 50 is the dividing mark between growth and contraction and manufacturing has been on the right side for over a year. They report exports and output up, new orders and new jobs. It is good news, but the context still matters. Manufacturing is an essential part of a balanced economy but a year of improvement does not bring it to a position of prominence. Partly it is a long-term trend that has separated production from sales. The traditional image of a small-scale manufacturer would allow him or her to manage both production and sales, moving between the workshop and the shop and making what the customers asked for. Specialisation has helped produce growth but it has made it easier for large retailers to open the British market to overseas competitors. If Tesco and other retailers find themselves in less of a position to dictate terms to their supply chain, then it may assist with the much-desired rebalancing of the economy. Meanwhile, the manufacturing component of the index of production, though improving, has considerable scope to go further. Output in the first quarter of 2014 was 8% below that recorded in the final quarter of 2000, when it was at its peak. The sector is showing that, if the conditions are right, it can respond positively.
As for the suggestion that the housing market is starting to moderate, that looks too much like a search for a story. The measure that Nationwide’s Robert Gardner said was ‘too early to say whether this is indicative of a cooling trend’ was a drop in mortgage approvals between January and April 2014. It will require a bit more evidence than that before houses start looking affordable to people on ordinary salaries. A few short-term results make for an interesting story, but the rebalancing of the UK economy will need several years of movement in the right direction.