Changing stock in Irish stores costs Tesco £15m

TESCO SPENT £15 million (€16.2 million) changing the stock in its Irish stores under its price-cutting programme, the retailer said yesterday.

Tesco, the world’s third largest retailer, said its net income totalled £1.03 billion for the six months to August 29th, compared with £1.01 billion a year earlier.

Tesco, which runs more than 4,300 shops in 14 countries including Ireland, said it made profit before tax and one-off items of £1.57 billion. Sales rose 9.3 per cent to £27.8 billion.

Second-quarter sales in Tesco’s key British market, which accounts for about two-thirds of its business, rose 3.1 per cent in stores that had been open for at least a year, excluding fuel.

Tesco said the prices of 12,500 products in Ireland were reduced by an average of 22 per cent following the introduction of its price-cutting programme earlier this year as a response to the “dual challenge” of the recession and a rise in cross-Border shopping.

Suppliers have complained that the space allocated to Irish brands has fallen significantly after Tesco decided to integrate its brand-buying programme in Ireland with its British business.

The change in supply tactics required Tesco to temporarily close and then reopen each of its Irish stores.

The company said yesterday that Irish customers had responded enthusiastically to the price-cutting plan with “significant uplifts in volumes, offsetting much of the impact of lower prices”.

It said the changes in supply, combined with the cost-reduction programme, had allowed Tesco Ireland “to deliver a steady financial performance despite the economic head winds and significant self-imposed price deflation”.

Tesco does not break out figures for Ireland, but an internal business plan obtained by The Irish Timesearlier this year showed the Irish division makes profit margins of more than 9 per cent, well above normal retail margins in the US and at least 50 per cent higher than elsewhere in the retailing giant's operations.

In Britain, Tesco’s growth rate has been lagging behind its main competitors partly due to its exposure to non-food products, which have been hit harder than food products in the recession.

Tesco chief executive Terry Leahy said sales of non-food products had returned to growth and demand for more expensive groceries, like organic foods, ready meals and Tesco’s “Finest” range, was picking up, adding to recent signs of improving confidence among shoppers.

Tesco’s first-half results, which were at the bottom end of expectations, were described as “solid, but not inspiring” by Bank of America-Merrill Lynch analyst John Kershaw. – (Additional reporting: Reuters.)