Tesco thrives in tough market

Tesco, Britain's biggest retailer, has shown it operates best in tough markets, racking up a 10.3 per cent increase in profit of €1,824 billion for the first six months of 2008 to 23 August. Total sales rose 13.8 per cent to €32.1 billion.

Chief executive Sir Terry Leahy said: "Tesco is at its best in tough markets - responding to the changing needs of customers - and that's why we have been able to make good progress this year, despite facing into powerful economic headwinds."

This included tough competition from the emerging discounters in the UK, to which Tesco responded by cutting the price of hundreds of articles, launching 350 new products and selling itself as "Britain's Biggest Discounter". It was the biggest overhaul of its grocery range in a decade for the company which now serves over 20 million shoppers per week.

Non-food sales did less well. In the UK they grew 4% during the first half in 2008, compared with 8% growth in the second half of last year, but Leahy said this was "part and parcel" of being in the non-food market.

International sales rose 26.8 per cent at actual exchange rates to €10 billion and by 12.6 per cent at constant exchange rates. Like-for-like sales in international grew by 1.0% in the first half, with net new space contributing 11.6%. Tesco added 0.26 million square metres of space through 162 new stores in the first half. At the end of August, international operations were trading from 1,772 stores, including 525 hypermarkets, with a total of 4,552m square feet of selling space. The plan is to increase international space by over 25% this year.

Tesco's entry into the US with Fresh & Easy posted trading losses of €75 million but these were in line with the company's expectations. Indeed the company is positive about its US venture with average sales running at $11 per square foot per week which is higher than the US supermarket industry average. Its best stores are now running at more than $25 per square foot and the stores which opened in the Spring are averaging sales densities close to $13 per square foot per week.

The company plans to continue its property divestment strategy. In the first half of the year it sold property assets worth  €760m and reaped a net profit of €200m.

Tesco also revealed it had reduced the single-use of carrier bags by 40% and was on track for a 50% reduction by 2009. It is also on track to create up to 30,000 new jobs this year.
"Our business is strong, broadly-based, increasingly international and, I believe, well-placed not just to cope with the challenges which lie ahead but also to grasp the growth opportunities open to us by continuing to invest in our strategy," said Leahy.

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