Oct. 2 - The battle for grocery sales in the UK is hotting up with number three grocer J Sainsbury again outperforming profit-hit frontrunner Tesco. Ivor Bennett reports
UK shoppers are changing the way they buy groceries and at the moment Sainsbury's is benefiting the most. Sales at its convenience stores rose 20 percent in the second quarter. Online business was almost as good at 15% and overall sales were up 4.6% - they've now risen consistently for almost nine years. The results give the grocer a market share of almost 17% - a decade high and close to that of Walmart's Asda. Tesco retains the top spot. But their second quarter results tell a different story. 18 months into a 1 billion pound revamp sales are flat. CFO Laurie McIlwee says it's not because Tesco sells more non-food items than its competitors. SOUNDBITE (English) TESCO CFO LAURIE MCILWEE, SAYING: "It's just a matter of finding the right products that actually make money for a bricks business but we can also sell online in a multichannel environment and we've found those. A paper shop, celebrations, party, toys, home and cookware, these are all great categories and are already doing well in the test stores that we've put them in to." Tesco was once the envy of UK retailers. But a costly exit from the United States, the European economic crisis and the horsemeat scandal have all added to its problems. BGC's Mike Ingram says their previous focus on massive out-of-town stores hasn't helped. SOUNDBITE (English) MIKE INGRAM, MARKET ANALYST, BGC PARTNERS, SAYING: "You've pretty much got saturation in terms of coverage in the UK whereas Sainsbury's actually has quite a lot of room to grow in the north of the country. Consumer tastes have pivoted more towards smaller, in-town convenience stores, this is a sort-of format that Tesco doesn't have any more." Tesco did manage to retain its UK trading margin at 5 percent in the first half. But the group's trading profit has fallen by almost a quarter in that time - and by more than two thirds in continental Europe. Tesco shares fell three percent after the results - Sainsbury's dropped a little too but over the past year their value has risen 13%.