Tesco raises expansion money
stores. The supermarket chain plans to rent the stores on a long
leasehold and carry on running the operations, and claims that
customers will not see any change.
Tesco says that it will use the extra cash for expansion in the UK market, where it is the dominant force in retailing. "These initiatives will provide the flexibility and firepower to expand and take full advantage of the further growth opportunities available in all areas of Tesco's business," the company said in a statement.
The chain will have to be careful though. Competition regulators are aware of its strong position in the British market and are keen to promote greater competition in the UK's retail market. Tesco currently has around 27 per cent of the UK grocery market
The 33 stores have been sold to a joint venture that is half owned by Tesco and real estate firm Topland. Tesco has also sold two distribution centres in the deal. The properties make up about 5 per cent of Tesco's total property assets.
In January, the supermarket group raised £773m by selling new shares to investors. A small chunk of this cash was used to buy Adminstore, which owns the Europa convenience stores. But following the leasing of the 33 stores, the chain now has a large cash pile.
Some analysts are wondering if Tesco will use the cash to convert more of its stores into the large hypermarket format, where non-food ranges such as clothes and CDs are sold alongside food products.
These rumours have been heightened after it was reported in the UK's Daily Telegraph that the chancellor, Gordon Brown, has agreed to relax the ban on out of town shopping centres. The paper reported that Brown had made the decision under pressure from major retailers.
Retailers have long been unhappy with planning rules that restrict the building of large supermarkets, intended to protect small high street stores. The Telegraph reported that the rules have quietly been changed to say that councils should "take into account any genuine difficulties in operating the applicant's business model" from sites close to town centres.
But UK ministers this week insisted they were not about to overhaul planning policy to allow out-of-town shopping centres. Town centres are protected by a sequential test requiring planning authorities to consider all town centre options for retail and leisure first.
