Mighty Tesco towers above rivals
billion profit barrier, leaving its rivals for dust and forcing it
to look outside the UK for extra growth opportunities - yet rising
costs may make the coming year more 'normal', the firm warned,
reports Chris Mercer.
Tesco today unveiled profits up by a fifth to £2.03 billion and sales up by 12 per cent to £37 billion for the year ending February 2005.
The firm exudes confidence, bossing around 30 per cent of Britain's grocery retail market - worth £111 billion in sales at the end of 2002 - and currently so far ahead of its rivals they cannot even be glimpsed on the horizon.
Now, the retailing giant's success means it must increasingly looking overseas and to non-food categories to improve its performance, despite a strong performance across its core UK grocery business, which plans to open 20 new Tesco Extra stores per year.
Tesco chief executive Sir Terry Leahy praised existing overseas stores in Asia and Eastern Europe for contributing strongly to growth, particularly in Thailand and Korea though more promising results in Poland, Hungary and Slovakia helped this region to improve profits by nearly a fifth.
As a result, Tesco confirmed in a statement that it planned to build more than 30 new stores across Eastern Europe over the next year, and aims to open even more stores in Asia, including 15 Express stores in Korea, 15 stores in Japan and increasing selling space in Taiwan by a third.
The firm already has a stake in the emergent Chinese market after buying half of Ting Hsin's Hymal hypermarket business last September. Hymal has 31 stores and plans to open another 15 this year, including one in Beijing.
Back in the UK, Tesco continues to forge ahead with its non-food sales, which have grown 17 per cent over the last year and have now got the firm planning to open an exclusively non-food store prototype later this year focused on clothes, cds and electricals.
In terms of UK food, Tesco's core market, the firm still managed to post solid growth despite a vigorous policy of price-cutting over the last year; something that has angered some of the firm's suppliers, especially milk producers who have protested that the price they received from Tesco was destroying their margins, sometimes leaving them out of pocket.
Tesco has maintained that its supplier contracts are fair. "We recently conducted a confidential supplier survey to understand what is good and where we can improve. The results were very positive," it said.
The firm also recently prevailed in an investigation by the Office of Fair Trading after the government body received a complaint alleging Tesco had abused competition rules in North Yorkshire.
However, Tesco was modest about repeating its blistering 2004 performance over the next 12 months, emphasizing that rising costs had made UK grocery retailing a tough environment to work in.
The firm singled out energy costs and a "huge business rate increase" as two reasons why the firm could be expected to return to more 'normal' growth rates this year. According to the British Retail Consortium (BRC), retailers pay around a quarter of all business rates, a government tax on business property.
Retailers in England and Wales are facing a total £500 million rise in rates as a result of the retail property boom and the government has not taken into account ability to pay, warns the BRC.
Even if this does affect Tesco in the coming year however, there are a number of retailers, even multiples, who would kill for a 'normal' year at Tesco right now.
