Tesco to invest £1bn following poor annual results

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Tesco is set to invest £1bn in its stores and increase its estate in the convenience channel following a drop in profits.

The overall group trading profit increased by 1.3% over the period (52 weeks to 25 February 2012), but Tesco’s UK profit fell by 1%.

Chief executive Philip Clarke said the group would be looking to grow its convenience store estate in the UK at the expense of opening larger format stores.

“We are reducing our capital expenditure, focusing more of our investment on existing stores and pursuing growth through smaller, less capital intensive formats and online,” he said. “We plan to open a further 5.8m square feet during the current year, with a growing proportion of the new space in less capital–intensive smaller formats – some 49% of the opening programme in 2012/13.”

Clarke hoped to emulate the group’s European expansion into the convenience sector. “In Europe, our new space expansion is now largely coming through smaller formats with the hypermarket networks in most markets nearing completion,” he said.

Over the next 12 months Tesco will also be investing £1bn in improving its current estate. This will include more staff for existing stores, larger ranges and increased brand marketing. Clarke said the investment was a direct response to the poor UK figures.

Association of Convenience Stores chief executive James Lowman was concerned about the level of investment and growth within the convenience channel. “Tesco have already been expanding rapidly in the convenience sector,” he said. “They have significant advantages, especially the buying power they can leverage through their market dominant position. This should be closely monitored.

He urged independent retailers to continue focusing on what sets them apart from the multiples and called for more say for local people in the planning process.

“Good convenience stores provide a far better service to their customers both in terms of their community role and the wider range of products they offer. Tesco can only match a small part of what our members offer,” added Lowman. “Like any of their stores a badly positioned Tesco Express can have a damaging impact on a community and so local people should be able to have their say through the planning system.”

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