Tesco to serve up new jobs for 10,000

News Analysis: Supermarkets may advertise cheaper food, but a price war is not in their interests

TESCO YESTERDAY claimed that an all-out supermarket price war was unlikely, although it conceded that the food sector was becoming more competitive and that sales growth was slowing.

Reporting a 6 per cent rise in first-half profits to pounds 371m, Tesco said its like-for-like sales had grown by 4.3 per cent in the period, slowing to a 2.5 per cent rise in the first five weeks of the second half.

Tesco said it was continuing its strategy of offering lower prices on its Value range for customers who wanted to trade down to cheaper products, while also extending its Tesco Finest range of more expensive, quality foods.

"There is a slowdown but I wouldn't call it a major recession and it is nothing like 1991-92," said David Reid, Tesco's deputy chairman. "It is not the end of the world, but the difference is that consumers' psyches can change."

The supermarket group is pressing ahead with a pounds 500m expansion programme this year that will see it create 10,000 new jobs, or 6,000 full-time equivalents. The positions will be created through new store openings, longer trading hours and store refurbishments: 22 new stores will be opened, while the number of stores offering 24-hour opening will rise from 24 to 64. Tesco said it had increased its market share from 14.6 per cent to 15.2 per cent, according to recent industry figures.

While Tesco's figures were ahead of expectations and its sales growth ahead of the industry average of just 1 per cent, the outlook for Britain's high-flying supermarket sector has become increasingly uncertain.

It is in the midst of an Office of Fair Trading investigation which will decide if the major supermarkets exploit their huge buying power to make excess profits. Inflation has all but disappeared, making sales growth more difficult to achieve.

Also, the threat of a price war has reappeared after a long period of relative stability. Asda and Sainsbury's have launched price promotions in the last few days, and Tesco has said it too will cut prices.

Tesco yesterday took issue with all of these concerns. On the OFT inquiry, the company says it believes there is no case to answer.

Responding to accusations that the supermarkets used their power to cut prices paid to farmers for meat, but failed to pass those savings on to consumers, Tesco's finance director, Andrew Higginson, said: "We make no money on meat." He said the difference between farm prices and those that are charged at the supermarket check-outs was accounted for by improved meat processing arrangements and other cost increases in the food chain.

Mr Higginson said the supermarkets were facing a cost squeeze as food price inflation disappeared while other costs, such as wage settlements, continued to rise.

Analysts agreed that the OFT inquiry was unlikely to lead to any action. Clive Vaughan of Verdict, the retail consultants, said: "We have a premium food retail sector in this country, because that is what consumers want. They do not want to shop in big cheap sheds. They had that 20 years ago with people like Tesco, and it failed."

Although an internal Treasury report has showed that British consumers pay higher prices than Americans for food and drink, experts say there are several obvious reasons for this. One is that America is one extremely large single market with no import duties to increase prices. Other factors include lower land prices, which mean lower store rent costs, and far lower vehicle fuel prices, which cuts the cost of distribution.

Further support for the supermarkets' position is expected to come in the next few days in a McKinsey report on global competitiveness. It is thought that the report will single out UK food retailing as one of the most efficient and competitive sectors.

Analysts said a food price war was unlikely because it is not in the supermarket operators' interests to launch one.

"These latest price campaigns are really just posturing," says Clive Vaughan of Verdict. "They have switched their advertising campaigns from quality and range to price to show the competition authorities that they are offering good value. It all has a political background."

Paul Smiddy, food retail analyst at Credit Lyonnais, agreed. "The odds must still be on the OFT exonerating the big supermarkets," he said. The OFT is due to deliver its preliminary report in December.

Although trading conditions in the mature UK food market are now becoming more difficult, Tesco again highlighted its global ambitions yesterday.

The company said that the expansion of rivals such as Wal-Mart of America, Carrefour of France and Metro of Germany made it important for UK groups such as Tesco to be able to benefit from similar economies of scale.

"We would welcome the opportunity to become larger in the UK so we can compete on the world stage," said Mr Reid. "Otherwise they [the major global rivals] will come here and buy up some of our companies."

Tesco's overseas stores at the moment account for just 2 per cent of group sales. The supermarkets in Poland, Hungary and Czech Republic recorded a pounds 5m loss on sales of pounds 130m.

The Lotus outlets in Thailand, acquired earlier this year, have recorded a pounds 1m loss on sales of pounds 30m since they became part of the group in May.

Tesco's group sales rose by 7.2 per cent to pounds 8.2bn in the first half of the year. The interim dividend was raised by 6 per cent to 1.25p per share.

The shares, which have fallen from their 202p peak in July, rose 8p to 169p.

Life and Style
A nearly completed RoboThespian robot inside the Engineered Arts workshop is tested in Penryn, England. The Cornish company, operating from an industrial unit near Falmouth, is the world's only maker of commercially available life sized humanoid robots
techSuper-intelligent robots could decide destroying the human race is the kindest thing to do
News
The current recommendation from Britain's Chief Medical Officer, is that people refrain from drinking on at least two days a week
food + drinkTheory is that hangovers are caused by methanol poisoning
Life and Style
techConcept would see planes coated in layer of micro-sensors and able to sense wear and tear
News
Patrick Stewart in the classiest ice bucket to date
people
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
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

Software Developer (Java /C# Programmer)- London

£30000 - £45000 per annum: Harrington Starr: A global investment management fi...

Senior Network Engineer-(CCIE, CCNP, Cisco, London)

£65000 - £75000 per annum: Harrington Starr: Senior Network Engineer-(CCIE, CC...

Senior Network Analyst - (CCIE, Cisco, CISSP)

£70000 - £80000 per annum: Harrington Starr: Senior Network Analyst - (CCIE, C...

Senior Network Engineer-(Design, Implementation, CCIE)

£60000 - £80000 per annum: Harrington Starr: Senior Network Engineer-(Design, ...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition