Tesco 2008 Annual Report Download - page 13

Tesco PLC Annual Report and
Financial Statements 2008 11
> Our business in Poland had a good year with strong growth in market
share, driven by the successful integration and conversion of the former
Leader Price stores, combined with organic expansion across our range of
1k, 2k and 3k formats. In a difficult consumer and business environment,
sales grew well – with like-for-like growth of 43% in the converted stores.
Returns are expected to move forward in the current year as the business
absorbs the additional capital involved in last year’s acquisition and
delivers the full benefits of the enlarged business and the increasing
profitability of the converted stores.
> An excellent performance from Tesco Ireland produced another year
of strong growth, with good progress in all areas of the business.
The planned operational benefits from our new 740,000 square feet
distribution centre (DC) at Donabate, in north Dublin, which opened in
the first half, are now coming through well. Our pipeline of new space is
strong – through store extensions, new and replacement stores. We now
have six Extra hypermarkets trading in Ireland, which are proving very
popular with customers and 12 Express stores – with more to come
this year. Our new non-food ranges – including Florence & Fred and
Cherokee clothing – are performing particularly well.
> In Slovakia our new clothing and hardlines distribution centres, located
close to Bratislava, which handle general merchandise for the whole
of Central Europe, are now fully operational and delivering significant
benefits. These substantial investments are enabling our Central
European businesses to harmonise and improve our non-food ranges
and deliver lower prices for customers. Our market-leading retail business
there has made very good progress against the background of a strong
economy. Our new store opening programme, which is now focused on
our compact hypermarket and smaller 1k formats, delivered 9% growth
in selling area in the year.
> In Tu rkey, our Kipa business continues to grow rapidly and profitably
and we are making progress towards creating a national chain of
hypermarkets in a market which offers great potential. We are investing
in creating the necessary infrastructure for long-term expansion with our
first major distribution centre at Yasibasi covering 400,000 square feet,
now in operation and with similar infrastructure projects planned over
the next two years as we begin to secure sites in Istanbul, Ankara and
the other cities in central and western Turkey. We aim to grow our space
in Turkey by around 60% this year, from our base of 26 hypermarkets.
Customer response to the Express format has been very encouraging
and we plan to add more than 40 further stores this year, bringing the
total to over 80.
United States We are very encouraged by the start Fresh & Easy has
made. The first stores opened only in November and we now have over
60 trading. Whilst it is still early days, the response of customers to our offer
has surpassed our expectations – with our research regularly confirming
that they like the quality and freshness of our ranges, as well as the prices
and the convenient locations of the stores.
Sales are ahead of budget and sales densities are already higher than the
US supermarket industry average, with our best stores exceeding $20
per square foot per week. We are seeing strong growth in the early stores
as we step up, as planned, our marketing programmes and as we build
awareness of the brand. This is also reflected in the strong sales performance
of recent openings in all of our markets in Southern California, Nevada
and Arizona. Fresh foods and own brand products have sold particularly
well, confirming that the core of our offer has already gained acceptance
with customers.
Progress with real estate has been good and we have secured enough
sites for our immediate needs – although the deteriorating property market,
particularly in Arizona and Nevada, will mean that some of the third-party
developments in which we had planned to open prototype stores later this
year, will now be deferred. Nevertheless, we still expect to open around
150 new stores this year.
Our Riverside distribution centre (DC) and kitchen operation is gearing up
well as volumes rise. As we announced last November, we have taken the
necessary steps to secure the site and begin the process of obtaining the
necessary permits to launch operations of our second DC in Northern
California in due course. We expect a proportion of these costs will be
incurred in the current year.
Last April, with our Preliminary Results, we said that costs of recruitment
and training of staff for the stores, combined with the other pre-launch
costs and initial trading losses, would involve estimated US start-up costs
of around £65m in the financial year. We have delivered on this guidance –
trading losses were £62m. We expect losses to rise this year to around £100m.
US segmental reporting of sales and trading results within International
will begin with our Interim Results in September.
Core UK operations
In the UK, Tesco coped well with unseasonal summer weather, recovering
competitors and a deteriorating non-food market, particularly in the
second half, to deliver solid progress in the year by investing in improving
the shopping trip for customers. UK sales grew by 6.7%, with a like-for-
like increase, including petrol, of 3.9%. Both customer numbers and
spend per visit increased.
In the current year we expect to trade the business harder and give
what help we can to families whose budgets have become increasingly
stretched by higher interest rates, fuel costs and taxes. As always, we are
investing to improve all aspects of the shopping trip. We have already
announced a significant – and budgeted – round of price cuts, involving
an investment of £170m and this is in addition to the strengthened
programme of half-price and other promotions we have been running
since January.
Every Little Helps
> Our Price Check survey, which compares 10,000 prices against our
leading competitors weekly, shows that our price position has improved
again (for more information see www.tesco.com). We have already cut
the price of 7,500 products this year and in the last decade, Tesco has
saved a typical household £5,000 by investing in even lower prices
for customers.
> We are able to monitor and improve our checkout service using our
new thermal imaging technology. A renewed focus on reducing queues
for customers has delivered significant improvements – with a remarkable
22.5 million more customers benefiting from our ‘one-in-front’ promise.
Customers recognise Tesco as offering the best checkout service in
the market.
> The broad appeal of the Tesco brand drives our work on ranges.
We have seen solid growth across our food categories. We launched
a comprehensive update of our Healthy Living range in January –
and customer feedback has been very good. Our Organics range is
still growing well and Finest is now the UK’s biggest brand – with sales
of £1.2 billion. Last week, we did our first big event of the year on
Value, delivering great prices for customers right across the store.
> On-shelf availability, which we measure using our in-store picking of
tesco.com orders, has improved again and more customers are able
to buy everything they want when they shop at Tesco. We have made
particularly strong progress on fresh availability with projects including
better weather forecasting and working with our suppliers to reduce
lead times.
> All 7,000 of our eligible own-brand products now carry our GDA
nutritional signpost labels. We have created a system that is easy to
understand and practical to use and sales data confirms we have
made a genuine impact on customer behaviour.