Doubts over Tesco's approach to the recession

Questions are being raised about the strategy in the recession adopted by Tesco, which today posted a 10% increase in profits to 2.07 bn EUR in the year to the end of February.

Steve Gates, managing partner of The Gap Partnership retail consultancy, said: "Today, we saw Tesco's slice of the supermarket sector slip as it reported its slowest profit growth in 15 years and only a 3% growth of like-for-like sales, compared to Asda and Morrisons which recently reported a 7% rise.

"Today's results raise questions about the approach adopted by Tesco to ride the waves of the economic storm. "It has adopted a short-term strategy in the UK to cut prices for its customers, squeezing its suppliers to invest in price and deliver cheaper ranges.

"In stark contrast, Asda and Morrisons have adopted a longer-term strategy to deliver discounted lines for consumers. "Whilst price is an important negotiating point, it is not the only one. "To deliver consumer value and increase market share, Asda and Morrisons have collaborated with their suppliers to unearth new areas of savings using other variables such as terms of business, cash, risk and investment," said Gates.

Caroline Gulliver, analyst at Execution, took a more positive view of the Tesco results.
"Once again Tesco has highlighted its ability to deliver for customers and investors, even in the toughest economic circumstances," she said.

"The good news is that the discount brand strategy in the UK is working, with like-for-like sales continuing to rise, and that with cost savings of 440 m EUR growth hasn't come at the expense of margin.