Tesco customers feeling squeezed and buying less

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20th June 2022

Bite-sized business news from the UK and beyond

Good morning Anyone travelling by rail this week is likely to face the biggest disruption from union strikes in a generation. Here’s a handy guide of which lines will be impacted and when.

Today's stories

Trading down: Tesco customers feeling squeezed and buying less
Out of fashion: Revlon files for bankruptcy after 90 years in business

RETAIL
Tesco customers feeling squeezed and buying less

What happened?
Tesco said that shoppers are changing their behaviour as they face “unprecedented increases in the cost of living”.

On Friday the UK’s biggest supermarket reported that sales dipped 1.5% in the past three months, compared to a year ago when the country was still in lockdown, as customers traded down to cheaper products and bought fewer items.

The latest official figures put the rate of grocery inflation at almost 7%. To manage this, along with soaring energy bills, rising interest rates and higher taxes, households are looking to economise where they can.

Tesco said customers spent 14.5% less online and 0.7% less in its big supermarkets but 6.2% more in its convenience stores, suggesting that consumers are trying to buy little and often to manage their grocery bills. The chain also said shoppers were starting to buy cheaper ranges of products like bread and pasta where some brands have increased prices by as much as 50% this year.

Tesco is taking market share from its main rivals - Asda, Morrisons and Sainsbury’s – but German discounters Aldi and Lidl continue to make inroads in the UK grocery market as cost conscious look for cheaper alternatives.

What next - food prices are forecast to go even higher. Last week industry body, the Institute of Grocery Distribution, predicted a peak for food inflation of 15% over the summer led by meat, cereal, dairy, fruit and vegetable products.

How come? Ukraine is one of the biggest wheat producers and the Russian invasion has led to soaring prices of the commodity. This then feeds into the cost of meat that relies on wheat for food, such as poultry. Brexit and supply chain disruption related to the pandemic are also affecting prices.

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CONSUMER
Revlon files for bankruptcy after 90 years in business

What happened?
On Friday cosmetics giant Revlon filed for bankruptcy blaming too much debt and screwed up supply chains.

Founded in New York in 1932, Revlon grew to be one of the biggest, and most forward thinking, makeup companies in the world. It was the first to feature a Black model and made household names of models including Iman and Cindy Crawford.

But the company struggled to keep up with changing trends. Revlon broke through in the 1980s with splashy advertising and its line of bright lipsticks. But when cosmetics trends shifted to muted colours in the 90s, the company was slow to adjust. Revlon went from the world’s second-largest cosmetics company by sales to 22nd.

The pandemic created another challenge for the business. The advent of widespread mask wearing meant lipstick sales dropped 21% in 2020.

Competition also intensified with the emergence of a new generation of cosmetic brands. For decades, Revlon has sold most of its makeup in physical stores. But Millennials and Gen Z are now more likely to discover products on social media. Now Revlon is losing customers to the likes of online-first brands like Kylie Cosmetics, Glossier and Rihanna’s Fenty Beauty.

The global supply chain issues created as the world came out of lockdown is the final nail in the coffin. Revlon products require up to 40 raw materials and components. A shortage in just a few of these means the company can’t fulfill a third of its orders.

What next? By filing for Chapter 11 bankruptcy protection in the US Revlon will be able to continue to operate while it works out a way to repay its creditors. The company says it expects to receive $575m from its lenders to support day-to-day operations.

Stat of the day

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Tesco customers feeling squeezed and buying less

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