Tesco’s intimations of mortality

 
Tesco trolleys

Tesco is paying a big price to fix its UK business. The cost of hiring 8,000 additional staff to provide better service to customers is largely responsible for a fall of 11.6% in pre tax profits, to £1.7bn

There are signs that the investment is paying off, in that underlying sales in British supermarkets grew very slightly in the second three months of the year - having fallen in the previous three months.

What may concern Tesco's shareholders, however, is that figures from Sainsbury's, also published on Wednesday, show that this smaller competitor is continuing to take market share from Tesco - with underlying growth that is stronger than at Tesco.

Tesco can apparently no longer count on its overseas business to compensate for the problems in the UK.

The eurozone crisis has infected its central European stores, US progress has been slower than hoped and new regulations in Korea will hit profits there.

In Tesco's catalogue of mixed news, this excerpt from its statement stood out: "in Korea, the new regulations restricting opening hours for large retailers are having an immediate, unhelpful effect on our performance and are expected to impact our profit performance by around £100m for the year, weighted towards the second half."

Ouch.

More generally Tesco expects global economic conditions to be "very challenging". It is assuming that customers will face "real financial pressures" and that its own businesses will be "bearing the burden of higher costs".

None of which sounds like expectations that happy days will be back at Tesco any time soon. So questions are bound to be asked about whether the decision of the chief executive, Philip Clarke, to take direct control of the all-important UK operation means that the huge international business is not getting the attention it needs.

I asked Mr Clarke whether he was being spread too thinly, when we spoke Wednesday morning. He says international management is top rate.

So if all goes to plan in the UK, and that cannot be taken for granted, when will we see a return to serious profits growth? Probably not until 2014 - which shows the gravity of what needs to be fixed.

The UK's biggest retailer is looking more mortal and vulnerable than in many years.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
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    Comment number 144.

    I've been delivering to Tesco stores for 10 years and every one I seem to go to the staff are very unhappy. Staff numbers have been cut by up to 50% over time and the pressure to get the shops filled by the end of their shifts is very high. New staff taken on recently at some stores have left because of this and a lot of the new contracts being offered seem to be part time and not full time.

  • rate this
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    Comment number 143.

    I haven't used a Tesco store for many years. I don't like their ethos, their products or the bulk of their staff (Sainsbury have a few problems there too).
    I dislike the way that Tesco totally dominate areas with 'out of place' monoliths, land grabbibg, bribing councils with promises of community facilities.

  • rate this
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    Comment number 142.

    #142 seasonal veg and fruit,local meat,and honey,provence of everything organic and non organic,home made cakes,farmhouse pies, biscuits jams handcrafted cards,walking sticks juices and ciders the list was endless,plus i think food had done at max 20 miles.oppose that to supa marks reliant on supa trucks to deliverk 70% of food imported, so lets try and expand on the 30% and be a little greener

  • rate this
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    Comment number 141.

    mmm surprised this one is still running Bob,the question is for me are thwe prrofits being made,by any of these super markets ethical, 4 a long time my family has used the local farmers market,in conversation at work i mentioned this to a work mate, he went the following week, and reported back in was only a little cheaper,i replied but u have cut out the middle man,saved money.and kept cash local

  • rate this
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    Comment number 140.

    We get our groceries from Tesco online. Takes less than half an hour to do the shop, 2 hour delivery window and rarely late, delivery charge cheaper than a taxi back from our local Morrisons, subs usually OK and we decline them if they're not. I've no problems with Tesco.

 

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