View from City Road: Superstores take cue from utilities

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Their infrastructures may be superstores and car parks rather than underground pipes and power stations, but the food retailers are becoming more like utilities.

There may be no regulator dictating the prices they can charge, but free-market competition is just as compelling a constraint on their expansion.

In effect, Tesco admitted that yesterday. It is curtailing its investment programme on the grounds that its own, and its competitors', national coverage means that the returns are diminishing sharply.

The cash-flow freed from the space race will be used to increase dividends by more than the rise in earnings - just like an electricity company.

Argyll got halfway there last month, when it cut pounds 100m from its annual capital spending budget. J Sainsbury, which is still enjoying excellent returns on its new investments, may hold out a bit longer but it, too, is likely to run out of new places to colonise.

If food retailers can no longer rely on new openings to fuel their growth, they would be equally unwise to bank on price increases; low inflation and fierce competition will keep margins firmly under pressure.

While that means earnings growth in the 1990s will be rather more pedestrian than in the 1980s, the alternative - continued mindless expansion in Britain or ill- judged diversification overseas - could be a lot worse.

Tesco's shares, severely re-rated over the past 18 months, stand on 11.7 times earnings, based on profits of about pounds 600m this year, and a yield of 3.8 per cent - exactly in line with the regional electricity companies. The 15p jump in its shares to 251.5p yesterday showed the City's delight that it at last knows its place.