Tesco goes from strength to strength

Tesco has tightened its grip on the leadership of the UK food retail market, announcing full year figures for 2002 which will, ironically, do little to improve its chances of winning the battle for control of Safeway.

The company has reported sales up 11.5 per cent for 2002 to £28.6 billion (€41.6bn) while underlying pre-tax profit increased by 14.7 per cent to £1.4 billion. In the UK, the company said that sales had grown by 7.9 per cent to £23.4 billion, of which 4.1 per cent came from existing stores and 3.8 per cent from net new stores.

Tesco acquired convenience store operator T&S in the UK during the year, which contributed 0.7 per cent to the increase in new store contributions. UK underlying operating profit was 6.9 per cent higher at £1.3 billion, the company said.

While the UK performance is clearly noteworthy, it is unlikely to do much to help Tesco in its bid to acquire Safeway, the country's fourth largest food retailer. Tesco, along with three other bidders, had its offer for Safeway referred to the Competition Commission in the UK last month, and a significant strengthening of its UK market leadership will make it harder for the chain to persuade the regulators that adding Safeway's business to its own will enhance rather than remove competition.

Tesco has also been linked to a possible bid for some of the assets of troubled Dutch retailer Ahold, and the company's international business is certainly playing an increasingly important role in the performance of the UK number one.

Total international sales grew by 31.2 per cent in 2002 to £5.2 billion and contributed £212 million to underlying operating profits, up 78.2 per cent on the previous year.

In Europe, Tesco's sales rose by 22.5 per cent to £3.0 billion and contributed an underlying operating profit of £141 million, up 56.7 per cent on last year. This performance was helped by the acquisition of Polish hypermarket operator Hit during the year, and could be boosted further in 2003 if Tesco were to add Ahold's operations there.

The company already has 83 hypermarkets in Central Europe, making it the biggest single operator there. It is the market leader in Hungary with 26 stores, while the acquisition of Hit gave it 38 stores in Poland and doubled sales there. Tesco also has 11 stores in the Czech Republic and 12 in Slovakia.

The possible acquisition of Ahold's Asian business could also boost Tesco's operations there - although they performed pretty well on their own last year, increasing sales by 45.5 per cent to £2.2 billion and contributing £71 million to underlying operating profit, up 145 per cent.

The group has 69 hypermarkets in Asia, of which 42 are in Thailand where it is the clear market leader. A further 21 stores are in Korea, with eight more due to open in 2004, while the Taiwanese business is growing rapidly from a low base. There are four stores in Malaysia.

This year will see 16 new hypermarkets in Asia and 18 in Central Europe, and the company is continuing to explore opportunities in China, Japan and Turkey.

Terry Leahy, Tesco​'s chief executive, said: "Six years ago we first talked about our four part strategy for growth. It is clear, visible, simple and is delivering strong results. In this time we have grown group sales by 91 per cent and underlying profits by 87 per cent.​

"We have won 3.3 million new customers in the UK and more than trebled group non-food sales. We have delivered international profits of £212 million, have almost half our space overseas and have moved to market leadership in six countries. We now have 296,000 employees including 75,000 working overseas."​

He continued: "Six years on our strategy remains the same. It is no longer the same Tesco. We have faster growth accessing more areas of opportunity and we look forward to growing the business further in a challenging climate."​

Leahy said that he had not been surprised by the government's decision to refer all potential supermarket bids for Safeway to the Competition Commission, but reaffirmed his position that "if four were to become three, consumers would be better off if Tesco led that change"​.

While adding Safeway's business to its own would clearly bring further benefits to Tesco, the company's growth strategy does not depend on a successful acquisition of its rival. The company has invested heavily in cutting prices and new store openings and refits, focusing in particular on different formats such as Extra and Express (petrol station and convenience store formats), and the addition of T&S will see the company push even further into the convenience store segment.

The coming year will see a new emphasis on non-food items, and the introduction of further retailing services (such as personal finance and Internet shopping), Leahy said.