king kong tesco

'King Kong' Tesco has a tough battle ahead

JIM STANTON
DEPUTY BUSINESS EDITOR

IT'S still giving its rivals a good hammering, but it's going to have to muster hidden reserves as the fight wears on.

Tesco's 5.7 per cent increase in like-for-like Christmas sales might have delivered a stinging jab to rivals, but the UK's biggest supermarket chain - dubbed the "King Kong of the high street" - knows it's going to have to scrap a good deal harder in future.


Make no mistake, the gulf between Tesco in the UK and its main rivals remains vast. But the previous year saw Tesco record a 7.6 per cent jump in Christmas sales.

In the Christmas period just gone Sainsbury scored a 5.2 per cent increase in sales, and while UK No 2 retailer Wal-Mart Asda did not reveal exact figures, it said it had turned in a better performance than Morrisons, which enjoyed a 2.8 per cent increase.

Analysts say Tesco, which has 1800 UK outlets, faces a battle to keep adding market share. Paul Mumford, at Cavendish Asset Management, said that with Sainsbury regaining momentum, "it will become more difficult for Tesco to take market share".

Andrew Higginson, Tesco's finance director, agrees the battle will heat up. "This year we'll be fighting for every pound," he says, adding that prices will fall.

Non-food has become a focus of Tesco's expansion strategy in the UK, particularly through the Extra hypermarket network. In the week before Christmas, it sold 130,000 MP3 digital music players and more than 250,000 digital cameras over the year.

Across the UK, Tesco takes one pound for every eight spent by British shoppers.

In Inverness, it dominates the retail landscape with three stores and a fourth planned. Tesco collects 51 pence of every pound spent in the Highland capital.

Inverness MP Danny Alexander believes Tesco's "extremely dominant position" is a worry.

Such statistics have also given rise to competition concerns, with the Forum of Private Business (FPB) claiming 20,000 shops have gone bust since 1997, a period that coincides with the rapid growth of Tesco and the move of the supermarkets into the convenience store sector.

"Tesco has become the King Kong of the high street," says the FPB's chief executive Nick Goulding. "It is too powerful, too greedy and too dominant."

The Office of Fair Trading has indicated it will reinvestigate allegations that supermarkets are a barrier to competition.

But the FPB also wants what he describes as Tesco's "abuse of the planning system" looked into and accuses it of bullying suppliers.

The FPB says that if Tesco succeeds in opening stores on all of its 185 development sites, its market share could hit 45 per cent.

All this makes analysts believe it's more likely that Tesco will turn its attention increasingly overseas. It presently has outlets in 12 countries and runs more hypermarkets than any other retailer in Hungary, Poland, Slovakia and Thailand. Mr Higginson says the firm sees India as a goal market.

However, he adds: "Our main focus is to keep pressing on with the markets we're already in."

The City is expecting the group to turn in full-year profits of £2.18 billion - up from £2.03bn - for 2005/06. "We're comfortable with market forecasts," notes Mr Higginson.