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Tesco Turnaround Gathers Momentum

Geoff Riley

14th April 2018

Having experienced a turbulent few years with profits falling and the fallout from an accounting scandal, there are signs that Tesco plc is returning to financial health with with a 28 percent increase in operating profits to £1.64bn.

The business has for a long time enjoyed a dominant position in the UK food retail sector but their market share has come under threat from the rapid growth of the deep-discounters such as Aldi and Lidl. The business also suffered from heavy investment in "big box" hypermarkets - many out of town - which came before the explosive growth of internet shopping and a decisive shift of consumer preferences towards smaller stores that were more manageable for people who favour more frequent shops. Tesco became a classic example of a business that had over-reached itself and was suffering from diseconomies of scale.

Now the numbers are becoming more favourable to Tesco. Group sales rose last year by 2.3% to £51.0bn and the company has achieved nine consecutive quarters of like-for-like sales growth.

They are more than a third of the way towards reaching a target of cutting £1.5 bn a year from their operating costs. Over a hundred property sites have been sold realising £290m and they have simplified their customer loyalty scheme whilst rolling out a new contactless Clubcard. 

But perhaps the biggest game changing for Tesco in the years ahead is the £3.7bn purchase of the UK's largest food wholesaler Booker. Tesco is keen to extend their food sales to tens of thousands of hotels, restaurants, cafes and offices and the purchase of Booker could be a game changer for the business.

Tesco Turnaround Gathers Momentum

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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