Tesco’s U.K. Revival Suffers Blow as Horse DNA Found in Burgers

Tesco Plc (TSCO)s efforts to win back U.K. shoppers were dealt a blow after the discovery of horse DNA in some beef products caused the U.K.s largest grocer to remove them from stores and prompted a barrage of negative publicity.

The Daily Mail and Daily Mirror newspapers both ran front- page headlines on the story, contributing to a decline in Tescos share price less than a week after it reported its strongest sales growth in about three years. The affected meat was also sold elsewhere, including Iceland Foods Ltd. and Lidl.

The news is likely to, at least temporarily, reduce consumers trust in the quality of Tescos products, which is unhelpful at a time when Tesco is trying to rebuild customers trust in the quality underpinning Tesco own-label and Everyday Value products, Caroline Gulliver, an analyst at Espirito Santo, said in a note received by e-mail.

The burgers that were withdrawn from stores in the U.K. and Ireland were own-brand products, an area that Tesco has been focusing on as cash-strapped shoppers seek cheaper alternatives to big brands. Chief Executive Officer Philip Clarke last year rebooted the companys cheapest own-label range, dubbing it Everyday Value, and promising a focus on quality. Thats part of his 1 billion-pound ($1.6 billion) investment program aimed at regaining customers as discounters such as Aldi and upscale chains like Waitrose erode its still-dominant market share.

Tesco dropped as much as 1.7 percent in London trading and was down 1.2 percent at 345.4 pence as of 1:04 p.m. That trimmed the stocks gain this year to 2.8 percent.

The negative publicity brought about by the discovery of horse DNA in some products is damaging because people dont want to think theyre eating horse and it brings into question the whole trust issue, said Matt Piner, research director at Conlumino. Retail trust is harder to build than throw away.

Tesco withdrew two frozen beef burger products from stores following tests by the Food Safety Authority of Ireland. The Irish body said yesterday that about 37 percent of the beef burger products it examined tested positive for horse DNA, while 85 percent showed pig DNA. They listed Tesco as one of the retailers that sold the products, along with Aldi, Lidl, Iceland Foods and Dublin-based Dunnes Stores.

One Tesco product contained 29 percent horsemeat relative to the beef content, according to the Irish safety authority, which said the levels in most samples it tested were very low.

Alan Reilly, chief executive of the Irish agency, said the beef doesnt pose any public health concerns. There is no clear explanation for the presence of the horse DNA, he said.

Aldi said in a statement on its website today that it has withdrawn three burger products from sale in the U.K. as a purely precautionary measure. The discounter pulled eight- packs of its Oakhurst burgers from stores in Ireland yesterday.

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Tesco’s U.K. Revival Suffers Blow as Horse DNA Found in Burgers