Blog: Dean BestSupermarket sweet

Dean Best | 18 April 2007

There have been mutterings that perhaps Tesco’s rivals had begun to nibble away at the company’s position as the UK’s largest retailer.

Recent TNS data showed sales at Asda and Sainsbury’s growing faster than those at Tesco and analysts had begun to caution that Tesco would face stronger competition in its home market.

However, let’s face it, Tesco saw its UK sales rise 5.6% on an organic basis during its last financial year, which ended on 24 February. The group’s UK profits were up over 9% - hardly a performance that would leave Tesco shareholders with furrowed brows.

Tesco faces almost daily criticism in the UK about its perceived “dominance” of the retail sector. With the company accounting for GBP1 (US$2.01) in every GBP7 spent in the UK, consumer organisations and lobbyists for small business cry that the UK – once described as a nation of shopkeepers – will turn into “Tesco-land” as the company opens more and more stores.

Arguments about consumer choice and what constitutes healthy competition in the UK are perhaps for another day.

However, it should be noted that a crucial factor in Tesco’s domestic success is that it is staying one step ahead of its rivals. In a nod to consumers' environmental concerns, Tesco plans to reduce the packaging on its branded and own-label products by 25% within three years. The company is also looking into how to introduce carbon labelling across all it products.

Tesco chief executive Terry Leahy has also pleased the company’s shareholders, with a move to accelerate the rate of sales from the company’s property portfolio – and therefore hand back more cash to investors. The move is significant given shareholder pressure at Sainsbury’s for the company to sell off its property portfolio.

Domestic success means Tesco has not faced any urgent need to look abroad for growth and has been able to cherry-pick the markets in which to enter.

The retail industry will watch the company’s US foray with interest. Tesco revealed yesterday (17 April) that costs linked to the chain, dubbed Fresh & Easy, will be GBP65m this year. These costs are ahead of what some in the City expected, although Leahy said they were in line with plans.

US industry watchers believe the local retail giants will sit up and take notice of Tesco’s concept, which includes stores much smaller than traditional grocery stores on the other side of the Atlantic. The first store will open later this year, and while the US retail sector is ultra-competitive, Tesco could succeed in playing the underdog, nibbling away at its larger rivals.


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