nickshanagher

City analysts are in the business of talking shares up and talking them back down again. So you have to treat what they say with caution. Even so, their feedback about Tesco, offers some pointers about where the convenience market may be headed. At Citigroup they talked about a future Tesco that within a few years would be an "entity without growth or cash flow generation." That is, it would not longer be opening new space and it would be forced into cutting prices. The issues are: concerns that new space opened will reduce profit margins (which may include on line sales as delivery costs are subsidised by bricks and mortar shoppers) competition from Aldi, which is about 25 per cent cheaper and growing strongly. In the UK, Tesco has 39.1 million square feet of selling space. In the last half year it achieved sales of £23.9bn in the UK. That is just over £23 of sales a week per square foot. This compares with estimates for Spar of £13, Premier of £12 and Londis of £11...

The Sunday Times has names Terry Leahy, the outgoing Tesco boss, as business person of the year. This will not be the last honour Sir Terry will pick up. In its interview it highlights: He understands why his company is successful. When it stopped trying to overtake Sainsbury and focused on the shopper, it then overtook Sainsbury to become the UK's number one retailer. He grew up loving shopping: "I went shopping with my mother a lot as a child. She had four boys and I was the most amenable to shopping. I enjoyed it." He understood the opportunity. "There were no supermarkets. These post-war council estates were surrounded by a few local shops. They were convenient but they were very expensive. A lot of our disposable income went on food and it was a constant worry." He also talks about how he used the views of City analysts to create an us against them mentality within Tesco that helped drive its performance. He lists its successes and points out how Tes...

In its second feature on Tesco this week, the Financial Times discusses Terry Leahy's vision for 10,000 small convenience stores "on every junction of every major city in the US". His working name for the chain was Fresh & Easy. Interviewing the executive who Sir Terry picked to develop Fresh & Easy, Colin Smith, the newspaper finds that after 18 months of research his team came up with a vision very close to that of Sir Terry. The gap was for neighbourhood stores selling fresh, cheap food and that was easy to shop in terms of range and location. The target sales density was between $14-$20 a square foot, above the US average of $10 a square foot. But most US stores are much bigger than the Fresh & Easy model. In contrast, the UK Tesco Express stores achieve £20-£30 a square foot ($31-$46). The speculation is that Tesco may give up on F&E because it can make more money in Asia, where its incoming chief executive Philip Clarke has made his name. Howev...

There was a statistic in Fortune magazine's listing of the top 500 companies that caught my attention. Number one company Wal-Mart had just under 1 billion square feet of floor space worldwide. Think of it another way, it is operating 1 million 1,000 sq ft c-stores. This investment in floor space for shoppers shapes the world independent retailers operate in. Back in the UK, last week Tesco announced it was back to business as usual, with sales up and profits up. Its like-for-like sales uplift was 3.2 per cent, which is a useful benchmark for local shopkeepers to use in assessing whether they are ahead of or behind the market. But looking forward, it expects to grow sales by adding space. This year Tesco plans to add 181 Express stores, which is 460,000 extra square feet of selling space and will take its estate to 1,310 shops. In addition it will add 32 One Stop shops, adding 61,000 square feet of selling space and taking it to 540 One Stop outlets. Terry Leahy, chief executive, s...