Not content with pocketing one in every three pounds spent on groceries in the UK, the supermarket giant Tesco has now become the first British retailer to smash the £2 bn ($3.78bn) profit barrier. However, Tesco should beware the pitfalls of high street omnipotency – consumers’ perception that it has grown too powerful could damage its image in future.
Tesco’s underlying pre-tax profits were up over 20% on the previous year, while overall turnover increased 12.4% to £37.1bn, with sales in the UK accounting for £29.5bn of that figure. Takings at the company’s 580 foreign stores increased by 18.3%, with growth in Asia particularly strong.
It is highly likely that international sales will account for a growing proportion of the group’s sales in the future. It is currently planning to open 40 stores in central Europe as part of plans to offset slowing growth in the UK, where Tesco now expects “a more normal year”. This assessment appears prudent: there are signs that rival J Sainsbury may be over the worst of its recent troubles, and a cynic might suggest that, as almost everyone in Britain now seems to shop at Tesco anyway, one would expect some kind of plateau in growth at home.
Unsurprisingly, Tesco has an answer to this conundrum too – namely, to drive further expansion in the non-food arena, traditionally a peripheral activity for what was primarily a grocery chain. Last year non-food sales rose 17% to £6 billion and current investment should help facilitate further growth in this area. Back in January, Tesco announced the bold move to open new stores that will sell non-food products only, a move that could have a huge impact on the UK’s overall retail landscape.
However, there are some clouds on an otherwise blue horizon. Tesco’s expanding size risks creating negative perceptions among consumers, amid accusations that the company’s dominance is damaging farmers and squeezing rivals on the high street (mirroring some of the criticisms that have been levelled at Wal-Mart, arguably a similarly dominant player in US retail).
Furthermore, there is a trend towards ‘going local’ whereby consumers favour smaller, independent niche retailers. Failure to respond to these concerns could compound the tougher market conditions the group expects in the future.
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