Tesco continues to grow, but at a slower rate
first half results. The leading British supermarket group said that
its strategy of keep prices low and expanding its non-food offer
was continuing to bear fruit.
Fears of a slowdown in the UK food retail market were confirmed by Tesco, the country's number one supermarket operator, in the first half of the year, but the company said that it was simply a return to more normal levels of growth.
Reporting group sales up 10.6 per cent to £12.7 billion (€20.2bn) and pre-tax profit ahead 13.3 per cent to £545 million, group chief executive Terry Leahy said that the core strategy of providing the best possible value and choice for its customers had helped Tesco to improve its UK operations despite the slowdown.
UK sales were up by 6.8 per cent to £10.5 billion, of which 3.9 per cent came from existing stores and 2.9 per cent from new outlets. Tesco is the most international of the UK's leading supermarket groups, and sales outside Britain were up 32.3 per cent during the half to £2.3 billion. The international operations contributed £59 million to profits, up 78.8 per cent on last year.
Within this, the European operations (Poland, Hungary, Czech Republic, Slovakia and Ireland) lifted sales by 18.7 per cent to £1.3 billion, while in Asia (Thailand, Korea, Taiwan and Malaysia) sales were up 54.4 per cent to £1.0 billion.
Claims earlier this week by rival UK supermarket group that consumers preferred to see lower prices than benefit from a loyalty card scheme were shrugged off by Tesco, which claimed not only that it had invested heavily in cutting prices (£100 million so far this year) but also that its Clubcard scheme was the biggest in the UK, adding 60,000 new customers through the addition of the Air Miles account.
Store expansion will continue to be a key part of Tesco's business in the second half of the year, both in the UK (where the group is also stepping up its non-food offer) and in its international markets, with 28 hypermarkets due to open their doors in Europe and Asia before the end of the current fiscal year.
"From our results, it is clear that our strategy is delivering our programme for long term growth," commented Leahy. "We have gained market share from our UK competitors, developed a winning formula for international growth with profit up 79 per cent on last year, increased world-wide non-food sales to £7 billion a year and created a major new force in financial services in only five years."
Tesco continues to go from strength to strength, a performance which would be envied by any of the UK's leading retail groups with the possible exception of Asda. The shift towards non-food items will be key to the group's development, with the French-style hypermarket concept already proven to be a hit with consumers, and while there is undoubtedly substantial opportunity for growth in international markets, this may yet take some time.
It will also be interesting to see whether Tesco opts for the acquisition route to further build its business. Struggling rival Safeway has been the focus of takeover rumours in recent weeks, and while Asda has been the name most closely linked to the company, Tesco could also benefit from adding on some new stores. Whether this would be possible under competition regulations is, of course, a matter for debate, but consolidation in the UK retail sector is not yet over and it is unthinkable that Tesco will not play some part in that process.
