Torrid year for Tesco no better for Irish outpost

Aggressive discounters continue to eat into supermarket’s margins

Ireland was a reliable Tesco sweet spot for years, with sales advancing rapidly and a profit margin well ahead of the group average.

Ireland was a reliable Tesco sweet spot for years, with sales advancing rapidly and a profit margin well ahead of the group average.

 

A torrid year for Tesco was no better for its ailing Irish outpost. Annual sales in Ireland dropped to €2.56 billion, a level not seen for many years. As aggressive discounters eat into Tesco’s market share and profit margin, like-for-like sales here have now dropped for 10 successive quarters.

True, the 149 Irish stores constitute just 3.2 per cent of floor space in the sprawling Tesco empire. But Ireland was a reliable Tesco sweet spot for years, with sales advancing rapidly and a profit margin well ahead of the group average.

That was before the crash, which cut consumer spending and added to the lustre of German hard-discounters Aldi and Lidl and new arrivals such as Dealz. Although the Irish economy is now in recovery mode, there is no sign of a turnaround in the chain’s Irish business.

“We have seen strong competition from discount retailers and this held back our sales performance, particularly in Ireland which saw a like-for-like sales decline of 6.3 per cent,” Tesco said of trading in the year to February.

The wider group incurred a £6.4 billion loss (€8.9 billion), the worst in nearly a century of business, as huge property write-down added to woes accumulated in an accounting scandal and a big drop in trading profits.

After the departure of both chief executive and chairman, this marks the culmination of turmoil a business has struggled for years after prolonged success and relentless expansion turned sour.

“It has been a very difficult year for Tesco. The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years,” said Dave Lewis, the new chief executive.

“We have faced into this reality, sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far.”

For as long as Ireland’s economy grew, Tesco seemed unassailable in the market and conducted itself accordingly.

The profit margin here around 2008 was in excess of 9 per cent, a time when the group margin was under 6 per cent.

This was then an expanding chain whose annual Irish sales first exceeded €2 billion in year to February 2005 and delivered revenues just shy of €3 billion within three years.

Revenues of €3.15 billion were achieved in the year to February 2009, when acute malaise had already taken hold in the Irish economy. Tesco has had a rocky time of it in Ireland ever since, proving just how difficult it is to turn around a very large business at a time of economic crisis.

Including VAT but excluding fuel revenues, like-for-like Irish sales declined 6.3 per cent in the fourth quarter of the financial year. This followed a 6.2 per cent in the third quarter, a 7.3 per cent drop in the second and a 5.5 per cent drop in the first.

Excluding VAT, the Irish arm had revenues of €2.69 billion in the financial year to February 2014. Like-for-like Irish sales declined in each quarter that year, dropping 6.4 per cent in the fourth quarter, 8.1 per cent in the third, 4.4 per cent in the second and 3 per cent in the first.

Tesco’s like-for-like Irish sales dropped 1.4 per cent in the fourth quarter of the year to February 2013 and 0.3 per cent in the first. Like-for-like sales here have not increased since the spring and summer of 2012.

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