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Tesco faces UK challenge

Tesco has announced a strong group sales performance for its 2010/11 financial year with growth of 8.1%. However UK l-f-l sales in the period were flat reflecting Tesco's exposure to a struggling consumer environment and the retailer moving closer to capacity share of the market. Internationally, group sales were negatively impacted by the pressures in Ireland and Hungary in particular. The US remains challenging but Tesco predicts Fresh & Easy is still on track to break even by the end of 2013.

In the UK, the rising cost of fuel prices, discouraging customers from driving to out-of-town stores, as well as more subdued non-food growth has particularly impacted the Extra format. Tesco has indicated that improving the performance of the Extra stores will be a priority for the UK market going forward. Non-food tiered branding to enhance the better and best range on offer will be key to this recovery.

In Philip Clarke's first trading review he has stated that Tesco will remain growth focused going forward, but as the UK market becomes increasingly saturated, it can be expected that a lot of this growth will need to come from international operations. In the UK the focus will be on improving multichannel operations, driving competitiveness through scale and increasing the impact of the Clubcard. With Clarke indicating that he sees this year's results as underperformance, his outlook and six point strategy for future growth reveal an ambitious new leader at Tesco's helm and send a clear message to competitors that the UK giant will continue to exert pressure in the market.

Source : Verdict Research

27 April 2011
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