Of winners and losers…
Compared to the same period in 2011, market leader Tesco saw its
profits decrease by 12.4 percent on the British domestic market.
Moreover, the like-for-like turnover decreased by 0.7 percent.
Sainsbury’s did not publish global profit figures, but can take pride in
a growth of its like-for-like turnover by 1.9 percent.
Although Tesco is still way ahead of its competitors in terms of market
share in Great-Britain, Sainsbury’s is slowly closing the gap. The
supermarket chain does not only achieve this success by its food sales –
its core business – but mainly through non-food.
Fast-growing private label penetration
In the food department, Sainsbury’s owes its success to its private
labels ‘By Sainsbury’s’ (a low-cost label that fits the company’s slogan
‘Live Well For Less’) and the slightly more up-market range ‘Taste The
Difference’. “We are seeing the benefit of our on-going investment in our own-label
ranges”, says chief executive Justin King. “Our own-label penetration is
increasing at the fastest rate of any of the major supermarkets.”
Sainsbury’s online turnover has grown by twenty percent and its range of
convenience stores has firmly contributed to its growth as well. In the
first half of the year, Sainsbury’s opened no less than 49 new
convenience stores, as well as five new supermarkets. Last week, the
company was rewarded for its achievements when it was once again named
best supermarket and best convenience store of the year.
Big investments, little confidence
Tesco is in no such winning mood: the market leader invests one
billion pounds (1.25 billion euro) in a turnaround plan, that has been
aptly named ‘Investing in a better Tesco’. In an interview on its
website, chief executive Philip Clarke is not surprised that profits
have decreased in the first six months of the year. “It is a confluence
of a big investment and a decreasing consumer confidence, both in the
United Kingdom and in the rest of the world”, according to Clarke.
On the British domestic market, Tesco’s half-year profits decreased by 12.4
percent, down to 1.1 billion pounds (1.38 billion euro). Outside
Great-Britain, Tesco’s profits even fell by 17.1 percent, compared to
the first half of 2011. Half-year profits in the twelve foreign
countries amounted to half a billion euro.
‘The British love Waitrose, Aldi and Lidl’
‘Investing in a better Tesco’ is indeed necessary: in their comments
on the half-year figures, both King (Sainsbury’s) and Clarke (Tesco)
mention difficult circumstances on the markets and consumers’ frugality,
but while Sainsbury’s has not been affected too much, the crisis did
deal Tesco a heavy blow.
Tesco is ubiquitous in Britain and consumers fail to see anything
special in the brand. They seem to be more charmed by up-market
formulas, such as Waitrose, or German discount stores Aldi and Lidl. The
Germans have created an image of service discount stores in Britain,
where consumers get good value for their money.
The British seem to be highly sensitive to this: research conducted
by IGD earlier this year revealed that almost a third of all consumers
intended to visit Aldi and Lidl more often. “It is no surprise to us that
more shoppers seem to be turning to Aldi and Lidl, as they are certainly
popular with Which? members. In our last supermarkets survey, only
Waitrose received a higher customer score than Aldi or Lidl”, shopping
expert Matt Clear from British consumer organisation Which? said in
June.
Aldi UK wants to double number of shops
Aldi UK has been the fastest growing British supermarket for a
number of years, with 29 new shops opened last year and another 40
coming up this or next year. That would lift the number of Aldi shops
over 500, a number that could be doubled to 1000 discount stores in ten
years’ time, according to Aldi UK’s managing director Roman Heini.
In 2011, Aldi UK’s turnover rose 29 percent to 2.76 billion pounds
(3.44 billion euro); operating profit went up 450% to 103 million pounds
(129 million euro). After a loss of 56 million pounds (70 million euro)
in 2010 due to an enormous depreciation of Aldi UK’s real estate, the
discount store returned to being profitable last year.
Tesco recovery plan seems successful
Aldi and Lidl maintain their focus firmly on the British middle
class, whose disposable income has come more and more under pressure. In
doing so, both companies are becoming important rivals for Sainsbury’s,
Tesco and other big retailers in the densely populated middle class
section of the British consumer market. Sainsbury’s, relying on its
‘Live Well For Less’ strategy, seems better prepared to deal with the
pressure than Tesco, that has started investing an enormous amount of
money in its recovery plan.
Tesco chief executive Clarke remains optimistic and thinks his
recovery plan will turn out well: “Although it is still early, it is
fair to say our recovery plan is nicely on track”, he says. “In the
second quarter of the year, the like-for-like growth in the United
Kingdom has already improved.”
Indeed, Tesco’s UK like-for-like turnover grew 0.1 percent in the
second quarter of 2012, a nice improvement compared to the 1.5 percent
decrease in the first quarter of the year. On a half-year basis, the
like-for-like turnover figures showed a decrease by 0.7 percent.
South Korea and the euro zone
In its international branch, Tesco will see the end of a line of 15
years of increasing profits. “That was always nice for our
shareholders”, says Clarke, “but in the first six months of this year,
we were confronted with two factors. First and foremost, legislation in
our biggest foreign market, South Korea, does not allow us to stay open
24 hours a day. We are also forced to close our shops two Sundays out of
four every month.”
The second factor keeping down the profits is the continuing crisis in
the eurozone, putting Tesco’s trading business in Central Europe under
pressure. Clarke: “Consumer confidence is at a low on many of the
markets we are operating, especially in the eurozone, where uncertainty
reigns. This affects our turnover and profits in Central Europe and
Ireland.” In Central Europe, Tesco has outlets in Slovakia (within the
eurozone) and in the Czech Republic, Poland and Hungary (outside).
