Tesco improving, but outpaced by Sainsbury's

Fri Sep 28, 2012 11:22am EDT
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By James Davey

LONDON (Reuters) - Tesco (TSCO.L: Quote), Britain's biggest retailer, is expected to show it is fighting back from a shock profit warning when it reports first-half results on Wednesday, though its sales growth is likely to be outpaced by rival J Sainsbury (SBRY.L: Quote).

Analysts expect both companies to say Britain's food retail market remains weak and that they do not see much improvement in the economy any time soon, with government austerity measures and inflation running ahead of wages growth continuing to squeeze household budgets.

Once one of the most consistent British companies in terms of earnings growth, Tesco stunned investors in January with its first profit warning in over 20 years.

In April Chief Executive Philip Clarke unveiled a plan to invest 1 billion pounds ($1.6 billion) in its main British business to stem a steady decline in market share to Wal-Mart Stores' (WMT.N: Quote) Asda, Sainsbury's and Morrisons (MRW.L: Quote), as well as discounters Aldi and Lidl.

Since then, Tesco has recruited 8,000 permanent staff to help give customers better service, devoted more store space to food, given its stores a warmer look and feel, revamped its food ranges and invested more in lower prices, promotions and marketing, making more use of customer information gleaned from its Clubcard loyalty scheme.

The firm has also stepped up investment in its internet and smartphone services, expanding its online range and rolling out its Click & Collect service of buying online for pick up in store.

Monthly industry data has shown signs Tesco's plan may be starting to work, albeit the firm has been promoting aggressively with money-off vouchers.

On Monday Tesco said its program was showing "the green roots of progress".   Continued...