Tesco increases its lead in food wars

Tesco announced it had increased its lead over arch-rival J Sainsbury in the supermarket wars yesterday. It posted a 15 per cent rise in profits, boosted by strong sales in the summer heatwave and the success of its customer loyalty card.

However, the company said profit margins were coming under pressure from rival supermarkets and rising manufacturers' prices.

According to figures compiled by AGB market research group, Tesco had 21 per cent of the UK grocery market in August against Sainsbury's 19 per cent.

Sales have been boosted by the summer weather, which increased sales of strawberries by 50 per cent, ice cream by 38 per cent and grapes by 39 per cent. Barbeques and fresh produce also sold well.

Tesco's loyalty card, which was launched in February, has six million customers. A student card, launched last week to catch customers young, has signed up 3,000 students in Liverpool and a further 70 presentations are planned at universities over the autumn.

In the six months to August, Tesco's pre-tax profits grew by 15 per cent to pounds 290m on sales up 25 per cent to pounds 5.9bn. Tesco lifted like-for-like sales 10 per cent in the six months to July and by 8 per cent since then.

Tony MacNeary, food retail analyst at NatWest Securities, said: "These are good results but there is a short-term question on margins and a slight worry that Tesco has added to its cost structure with its loyalty card."

Tesco gave away pounds 25m in discounts in the first half and will distribute a similar figure in the second half. This, combined with food price inflation, has caused a 0.3 per cent decline in margins.

Some analysts believe Sainsbury may announce the national launch of a loyalty card in the next few months.

Tesco is continuing to expand over four formats to add to its 527 stores. In the second half the company plans to extend its town-centre Tesco Metro chain to 22, including eight new openings. The Tesco Express format, consisting of a petrol station with a convenience store attached, is still under trial. Four have opened and eight more will open by the end of the year. "It's very much a trial, and if it's a disaster, we won't continue to expand it," Sir Ian MacLaurin, chairman, said.

The 57 William Low stores acquired last year have been converted to the Tesco format. Sales were up 25 per cent on last year and the chain contributed pounds 13m of profits. Tesco said the chain had grown from fifth to second in the Scottish market, behind Safeway.

Sales in Catteau, the French subsidiary, increased by 17 per cent and more stores will be opened. The Global chain in Hungary is also being expanded with Poland and Czechoslovakia under consideration. Sir Ian said Tesco was less likely to expand in the United States.

Sir Ian would not be drawn on his successor as chairman, though he confirmed he will retire at the company's annual meeting in 1997.

The dividend was increased by 13 per cent to 3.05p. The shares fell 9.5p to 323.5p.

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