Private Investor: Britain's best retailer is keeping up the pace
Saturday 24 April 2004
What can possibly go wrong for Tesco? As a small shareholder in the company, I would hope not very much. What I hope is one thing. What I know is that Tesco's room for expansion seems to have no limit.
One of the most startling aspects of this week's extremely encouraging set of figures is the way that Tesco is now the market leader in baby goods, beating Mothercare and Boots - combined. From beans to nappies to DVD players, there is scarcely a product that Tesco cannot supply. All credit to Sir Terry Leahy, the chief executive, and all his team for their efforts.
It is all the more remarkable when you consider one of the great business nostrums of our times: that making much money from retailing in today's fiercely competitive globalised marketplace is virtually impossible.
Tesco, for the moment at least, seems to be defying that, although the shares have not responded particularly well to the slew of good news. Still, at about 250p they are well up on the 200p or so average that I've been buying them at over the last year or so and I see no reason to take my modest profits just yet. By the same token, I don't want to invest more now because I do have one worry: the latent threat from Asda, or rather Asda's vast American parent Wal-Mart, which makes Tesco look like a corner shop.
I have been waiting for some years to see whether Wal-Mart/Asda would be able to tear the heart out of British retailing and I'm slightly surprised that the action hasn't started yet. Still, perhaps the message of the Tesco story is that if you have a sufficiently creative set of managers and a well-motivated team then no market is "too tough" to do well in. Contrast, as I have had to, the fortunes of Tesco and Marks & Spencer.
Once Marks occupied a position of market dominance in its field every bit as strong as, if not stronger than, the one Tesco has now. Well, we Marks shareholders all know what happened next. WH Smith, a company I was wise enough not to invest in, has experienced a similarly precipitous recent decline.
So why shouldn't Tesco become the next falling star? No reason at all, except that for the foreseeable future it does seem to have created enough space for itself to exploit the opportunities that are out there. Tesco noticed the potential of the local convenience store market and has expanded here organically and via acquisition. Tesco has also woken up to the small matter of the east-central half of Europe being about to join the European Union, indeed in a week today.
Once upon a time, before 1939 that is, countries such as Hungary and the Czech Republic were comparatively prosperous. Today, even after a decade and a half of freedom, their levels of income are still well below the averages of the west. But, as with Ireland and Spain before them, there is no reason to believe that they will not be able rapidly to catch up with the rest.
It was cheering for me, on a recent visit to Budapest, to see Tesco well represented. I suppose it is too much to hope that Tesco might take over the running of the Budapest airport taxis, which are the biggest rip-off I have ever encountered. I was also unusually heartened to see Marks & Spencer in the fashionable shopping streets of Pest. I hope Magyar women appreciate Marks designs more than their British counterparts.
Indeed it is strange what you see and hear when you are abroad. I was sitting in a hotel bedroom in Doha, Qatar, when I saw on the news (not al-Jazeera but CNBC), that Rolls-Royce, in which I have a small holding, had secured a contract with Boeing to provide engines for the forthcoming 7E7 aircraft, thus cementing its place as the number two aero engine-maker in the world. For a nation that is still used to thinking of itself in relative decline, Tesco and Rolls are two magnificent British successes. Why don't I have the nerve to buy into those stories still further?
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