Store shake-up and online effort in Tesco fightback

Grocery giant earmarks £1bn in bid to boost domestic performance after fall in profits

Tesco put a radical overhaul of it UK stores and dominating online shopping at the heart of a £1bn fightback to turn around its weak domestic performance yesterday.

Following the grocery giant's first fall in UK profits for decades, Tesco is also slashing the amount of big stores it opens this year, to focus on smaller shops in this country.

The retailer, which has operations in 14 countries, has had a rough ride recently, after its first profit warning in 20 years in January and its UK underlying sales falling behind Morrisons, Asda and Sainsbury's. Its shares, which started the year above 410p, fell another 2 per cent yesterday to close at 321.05p.

Philip Clarke, its chief executive since March 2011, vowed to invest more than £1bn in its UK operation this year to put the "heart and soul" back into Tesco. He said: "Tesco has launched a plan to get better in the UK."

His blueprint includes hiring 8,000 more staff – largely into the fresh food areas of its 750 bigger stores, increasing training, refurbishing a further 430 shops with a "warmer look and feel", and expanding its online operation. The grocer is investing £150m in online, including more than doubling the number of products it sells to 200,000 by Christmas.

In addition to extending its click-and collect service for non-food, Tesco's customers can now pick up groceries ordered online at car park collection points outside 45 of its stores. But Tesco is slashing the new space it opens in the UK by 38 per cent to 1.5 million square feet this year. This will see the group's capital expenditure cut from £3.8bn to £3.3bn.

While Tesco will open fewer superstores and out-of-town hypermarkets this year, it will still introduce more new UK shops in 2012-13, as it focuses on its smaller Metro and Express outlets.

Mr Clarke said: "Large stores with lots of non-food space will probably not be as necessary in 10 years' time because of the growth of the internet."

Tesco posted a 1 per cent fall in UK trading profit to £2.5bn over the year to 25 February, following a 0.9 per cent drop in underlying domestic sales.

Mr Clarke, who first started at Tesco in 1974, said he didn't know if its UK profits had ever fallen in 38 years.

Freddie George, an analyst at Seymour Pierce, said: "Tesco is still a strong business with an unassailable market-leading position in the UK that has temporarily come off the rails."

Strong international growth helped Tesco's pre-tax profits rise 1.6 per cent to a record £3.9bn, on total sales up by 7.4 per cent to a whopping £72bn.

Mr Clarke said: "In the last two decades, we have built a business outside of the UK that is bigger than Sainsbury's, Marks & Spencer and Morrisons."

The grocer grew its international profits by 17.7 per cent to £1.1bn, driven by robust growth in countries such as Malaysia and South Korea.

But Tesco has pushed back its "break even" target for its US business, Fresh & Easy, by a year to 2013-14. This follows Fresh & Easy racking up losses of £153m last year, although this was a 17.7 per cent reduction on 2010 -11.

Fresh & Easy plans to open fewer stores this year, as it seeks to prove the model is profitable before accelerating capital expenditure in America.

Mr Clarke said: "What we need to prove to shareholders is that we can get sustainable returns."

Excluding provisions for payment protection insurance, Tesco Bank grew profits by 29 per cent to £203m.

Tesco grew its full-year dividend by 2.1 per cent after a final payout of 10.13p.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?