Private Investor: Tesco earns plaudits despite every little anecdotal problem

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The Independent Online

What's your Tesco like? I only ask because on the bulletin boards and in conversation with friends there seem to be about as many opinions about the quality of service in the stores as there are branches, indeed customers.

What's your Tesco like? I only ask because on the bulletin boards and in conversation with friends there seem to be about as many opinions about the quality of service in the stores as there are branches, indeed customers. Surly staff, empty shelves, clapped-out managers all feature on one bulletin board in particular (iii.co.uk), although my own experiences with Tesco have been perfectly fine.

Such anecdotal evidence as this has to be treated with enormous caution, as such remarks are sometimes aimed at manipulating share prices or hyping odd rumours, such as one that Tesco was going to buy the housebuilder Wimpey. But it is certainly true that when you get to the top of the tree, as Tesco has, it is hard to keep a position of dominance for ever. Just ask Marks & Spencer (which, I notice, is the subject of yet more bid speculation, which has done more for my shares than most management initiatives lately).

All I suppose I would say as a Tesco shareholder is that I hope Sir Terry Leahy and the team are aware of these grumblings and take them as seriously as they need to (which, I admit, may need to be not very seriously at all). The recent furore about not paying staff for "sickies" raises the question about why Tesco was suffering from such absenteeism in the first place. Motivating checkout staff and shelf stackers can't be easy at the best of times, and if poor morale was the reason for the action on the absenteeism issue then one would hope that the company would look at other aspects of its personnel management and corporate culture.

Even so, such problems as Tesco may have pale when we look elsewhere in the retail sector. Perhaps the lesson for the investor is to avoid retailing at all costs, because it is being so badly squeezed by intense competition spurred on by the web, globalisation and overcapacity in so many industries. But Tesco does at least have a strategy, and its internationalisation, which I have written about admiringly on these pages before.

The opportunities in east and central Europe are clear, and Tesco is to be applauded for making the effort and taking the risks in these difficult but rapidly expanding and potentially lucrative markets.

Still more is the company to be congratulated for investing in China, although that is still more risky and on an entirely different scale to the company's forays into, say, smaller markets such as Hungary or Thailand. Wal-Mart and Carrefour are already in China, so it is right and proper for Tesco to follow them there. Sir Terry says that he wants his company to be number one in global terms, which may be a little ambitious given the size of Wal-Mart, but at least it shows some spirit. So I think the shares are a buy and have added a few to the portfolio this week at 251p. Even if things get a little sticky on the home front, supermarkets are a traditional haven in times of recession, and the 2.7 per cent yield should be reasonably secure. I have to admit, though, that Sainsbury's yield of 5.9 per cent is tempting, being much worse rated by the City than Tesco. If it wasn't for a seemingly cursed team of managers running Sainsbury its shares might be a buy, but for now I think I'll stick to the quality pick in the sector.

But all portfolios must have diversity so I ought to mention my continued subscription to the JPMF Indian Investment Trust, which took a bit of a knock after Sonia Gandhi won the Indian election and the markets there closed for a day in turmoil. They've bounced back from their low of just below 100p and now stand at around 110p, compared with a peak of about 140p. That in turn was almost treble where they stood a year ago. So the bubble has deflated rather than burst, which may be no bad thing for those of us who are looking east for the long term.

When things at home start to get choppy, China and India may be the next best hopes for the world economy and small investors alike.

s.o'grady@independent.co.uk

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