Tesco Hit by Heavy Drop in Sales on Tough Christmas Season

Tesco has posted another heavy fall in underlying sales in its main British market despite spending £1bn on store revamps, more staff, new product ranges and pricing initiatives.

The world's third largest retailer revealed that UK sales, excluding fuel and VAT sales tax, had fallen 2.4% in the six weeks to 4 January.

Despite these results meeting analyst expectations, the sales total has only hit the lower end of forecasted range 0.5-2.5%. A third quarter decline of 1.5% had been anticipated.

"We continued to invest in the most compelling offer for the tens of millions of customers who chose to shop with us this Christmas, but further weakness in the grocery market as a whole continued to impact our performance in the UK," said Tesco's chief executive Philip Clarke.

Clarke added that Tesco's is now re-focusing the firm's non-food offer on higher margin categories like clothing and homewares.

However, he admitted that the process has been slow, reflecting the scale of the firm's over 3,100 UK stores.

The British Retail Consortium highlighted tough trading conditions despite an improving economy in recent data.

Food prices have risen by 1.7% over the last month but this was the smallest increase since June 2010.

British grocer J Sainsbury revealed that Christmas sales were boosted by its Taste the Difference luxury food range, as well as customers redeeming loyalty points and shopping online.

According to Sainsbury's third quarter trading update, sales at stores open over a year rose 0.2%, excluding fuel, in the 14 weeks to 4 January. Total third quarter sales rose 2.7%, excluding fuel.

Meanwhile, John Lewis' upmarket grocer chain, Waitrose, beat its rival Sainsbury in the battle for Christmas sales after the group posted a 3.1% rise for the festive period.

According to the food retailer's latest trading update, for the five week period ending on 24 December, underlying sales excluding fuel were 3.1%, compared with a 0.2% rise in underlying sales at Sainsbury's over the fourteen weeks to 4 January, its Christmas quarter.

Waitrose's total sales, which include new stores' figures, rose 5.4% to £736m (€888m, $1.21bn) after online grocery shopping sales surged by 33%.