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UK Retailer Tesco Spending $1.6 Billon To Revamp Image

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(Photo: Ross Brown)
(Photo: Ross Brown)

BUSINESS

  • Tesco holds 30% market share in UK but profit slipping compared to competitors
  • $1.6 billion investment to be used to remodel 430 supermarkets, re-label Value product line, introduce 2,000 new products, and increase products available online
  • Tesco plans to add 20,000 new jobs by 2013

Tesco, Britain’s largest retailer, will spend $1.6 billion revamping stores to win back market share.

Tesco currently holds 30% of the UK retail market but recently has found profit slipping compared to competitors J Sainsbury Plc., William Morrison Supermarkets Plc. and Asda, which is owned by Wal-Mart Stores Inc.

The FTSE 100 Index lists Tesco as the second-worst performer.

In March, Richard Brasher, head of Tesco British operations quit after poor third-quarter sales.

Chief Executive Philip Clarke unveiled his plan to reporters via conference call, saying the company has committed rebuilding its image at home.

The $1.6 billion investment will be used to remodel 430 supermarkets, re-label its Value product line, introduce 2,000 new products to stores and increase the number of products available online. In addition, Tesco will also expand the number of locations where products ordered online can be picked up in-store.

The investment is part of a larger plan announced earlier this year, which should result in the addition of 20,000 new jobs by 2013.

Industry analysts say $1.6 billion should be enough to achieve Tesco’s goals and that it is a wise investment. Analyst Richard Perks told Bloomberg Television: “It’s quite clear that they need to spend money on the stores, and they need to make them look more attractive. They’re looking old and dowdy and tired, and consumers don’t like that.”

Analysts speculate it should take 18 months minimum for the company to turn around.

Tesco World’s 3rd-Largest Retailer

Tesco is the world’s third-largest retailer behind tUS brand Wal-Mart and France’s Carrefour. While the company has experienced problems at home, its global growth is greater than its competitors.

Tesco says its global outlook is mixed as it faces not only a weak world economy, but also increased taxes and high oil prices. The company plans to scale back expansion in the United States, Asia and Europe.

In the US, Tesco’s Fresh & Easy chain is forecast to break even in 2013, a year later than originally predicted. Clarke says Tesco will focus on making its 185 Fresh & Easy stores profitable before expanding.

In China, expansion will be slowed down, with only 16 new stores planned to open this year.

Key Statistics - UK Grocery Retail Market (source: Verdict)

  • Retail growth in the UK is predicted to be over 1% overall for 2012, which would be the third-lowest growth rate in the past 40 years.
  • For 2012, it is predicted that growth for the food and grocery market in the UK will be more than 3, primarily because of inflation levels as volume remains unchanged.
  • Consumers are looking for ways to cut costs and minimize waste, which is leading to many making less trips to the supermarket, buying overall reduced volumes and more often going to convenience stores.

By Melina Druga for
Melina Druga is an American writer and editor. She is the author of Enterprising Women: Practical Advice for First Time Entrepreneurs.

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