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Tesco speeds up growth
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September 21, 1999: 11:20 a.m. ET
U.K.'s No.1 supermarket chain sets expansion in central Europe and Asia
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LONDON (CNNfn) - Tesco, the U.K.'s No. 1 food retailer, promised to accelerate its growth in developing markets Tuesday, as it reported-half earnings in line with expectations.
Britain's leading supermarket chain told analysts it plans to build 200 hypermarkets by 2004 via rapid expansion in central Europe and Asia.
Tesco's expansion will be speedier, as current plans call for 43 of its giant-size stores by the end of 1999 out of a total portfolio of some 750 stores.
"That's a pretty punchy expansion plan, and what is most interesting is the company's promises of accelerated sales and earnings growth. Tesco's has traditionally been a very reticent company," one London-based food retail analyst, who asked not to be identified, told CNNfn.com.
"I see Tesco successfully completing its transition from a domestic retailer to a world-leading international retailer," Tesco CEO Terry Leahy said.
Leahy said more than 36 percent of store space will be overseas by the end of next year, with some 226 stores in central Europe and Asia, including South Korea and Thailand.
Tesco reported an 8 percent rise in pre-tax first-half earnings to 401 million pounds ($650 million). Group sales rose 10 percent to 9.1 billion pounds, with sales up 4.1 percent, in line with analysts' forecasts.
Tesco's shares were just 0.5 percent higher at 184 pence in London in late afternoon trade.
The supermarket chain, which is facing a price war as the biggest U.S. retailer, Wal-Mart, enters the U.K. market, promised to deliver 100 million pounds in savings this year. Leahy promised to re-invest these improvements to cut prices.
But predictions of an all-out price war could be exaggerated. "All these promises of hundreds of millions of pounds in price cuts should be taken with a pinch of salt. If you were cynical, you might say much of this noise has to do with the competition commission's investigation," one analysts said.
The U.K. watchdog currently is investigating whether the big supermarket chains are using their dominance of the market to artificially inflate the price of goods. The probe has about another 12 months to run.
Nevertheless, the landscape of the U.K. food retailing sector is likely to undergo a radical shift as Wal-Mart makes its presence felt, following its takeover of the U.K.'s No. 3 supermarket chain, Asda, for $10.9 billion.
-- from staff and wire reports
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