UK supermarket giant Tesco has reported a steady rise in half-year profits despite the tough retail environment.

The company made group profit before tax of £1.43bn in the 26 weeks to 23 August, an 11.3% increase on the same period last year.

Group sales increased 14.1%, buoyed by robust international sales which were up by 26.8%.

Excluding petrol, like-for-like sales – which strip out the impact of new stores – were up 3.7% in UK stores.

Like-for-like sales grew 4% in the second quarter, an increase from growth of 3.5% in the first quarter.

Chief executive Terry Leahy said Tesco was “at its best in tough markets” and could respond to the changing needs of customers.

“The same number of people are coming, they’re just hard up and need to spend a little bit less” Terry Leahy

“That’s why we have been able to make good progress this year, despite facing into powerful economic headwinds and carrying planned start-up losses in the US,” he said.

“Our business is strong, broadly-based, increasingly international and, I believe, well-placed not just to cope with the challenges which lie ahead but also to grasp the growth opportunities open to us by continuing to invest in our strategy.”

The results were “very much in line with expectations” said Blue Oar Securities analyst Greg Lawless.

Increasing competition

Tesco has dominated the supermarket sector in the UK for some time.

However, the credit crunch and tighter household budgets have meant cheaper alternatives such as Lidl, Aldi and Asda have been eating away at Tesco’s UK market share, which currently stands at more than 30%.

Tesco has responded by releasing a new range of some 400 low-cost products last week in order to maintain its position in the market.

“The same number of people are coming, they’re just hard up and need to spend a little bit less,” Mr Leahy told the BBC.

He conceded that in non-food sales had seen better times – in the UK they grew 4% during the first half, compared with 8% growth in the second half of last year – but said this was “part and parcel” of being in the non-food market.

The supermarket’s chief executive added that he expected growth in European and Asian markets to carry Tesco through the difficult trading period.

Internationally, Tesco said its Fresh & Easy stores in the US – which are in their first year of trading – had seen good sales, with the “average running at $11 per square foot per week which is already substantially higher than the US supermarket industry average”.

Tesco serves more than 20 million customers every week.

News reported by The BBC

Discount supermarkets are seeing sales grow as cost-conscious consumers in the UK look to save cash, figures suggest.

Aldi, Lidl and Netto saw their combined market share rise to 6.1% – their best ever, while Iceland also snared more of the market, TNS Worldpanel said.

And there was a suggestion of customers turning away from more expensive shops.

Nielsen data showed Marks and Spencer’s share of grocery sales had fallen 2.1% in the four weeks to 8 August, while Waitrose’s market share grew by 0.4%.

MARKET SHARE OF UK SUPERMARKETS
Tesco: 31.6%
Asda: 17%
Sainsbury’s: 15.8%
Morrisons: 11.1%
Somerfield: 3.7%
Waitrose: 3.8%
Aldi: 3.0%
Lidl: 2.4%
Iceland: 1.7%
Netto: 0.7%
% sales of total grocers in 12 weeks to 12 August 2008
Source:TNS Worldpanel

Aldi and Lidl – which sell just one brand of most products – have run an aggressive expansion plan across the UK.

Aldi saw sales grow 19.8% during the 12 weeks to 12 August compared with the same period a year ago, TNS Worldpanel said, while Lidl was 12.3% up and Iceland added 14.4%.

Tesco and Sainsbury both saw slight falls in market share, down from 31.8% to 31.6% and 16.1% to 15.8% respectively.

Asda saw its share rise to 17% from 16.8%, while Morrisons edged up to 11.1% from 10.9%.

‘Disproportionate’ suffering

The data gave the “clearest picture yet that retailers with a clear price message are posting the strongest performances”, said the director of research at TNS Worldpanel, Ed Garner.

“It is worth noting that this growth is entirely driven by new stores and new shoppers – spend levels for existing shoppers remain unchanged and quite low compared with the top four”.

Meanwhile, retail analyst Nick Bubb said that the top-end food operators had suffered “disproportionately” in recent weeks as customers tried to make savings.

News reported by The BBC

Tesco shareholders have not backed proposals to improve welfare standards for chickens championed by TV cook Hugh Fearnley-Whittingstall.

The chef wanted investors to adopt new standards for rearing birds, but the plan got fewer than 10% of votes at its annual general meeting in Solihull.

Mr Fearnley-Whittingstall and other chefs have highlighted what they say are appalling conditions in some farms.

Tesco says it is sourcing more chicken from farms with the highest standards.

Mr Fearnley-Whittingstall called the backing he garnered for his proposals a “significant showing” and denied that his efforts had been wasted.

For the plans to have been passed, Mr Fearnley-Whittingstall needed 75% of the shareholders’ votes.

High-profile campaign

Mr Fearnley-Whittingstall, star of food shows including Back to River Cottage, and a Tesco shareholder, has highlighted the plight of chickens in many intensive indoor battery farms.

“I would love to pay more for food if it increased the quality of life for these animals but at the moment I can’t afford it” Sue, Tunbridge Wells

He and other celebrity chefs argue that conditions in such farms are unacceptable and that supermarkets are partly to blame for this for selling chickens too cheaply.

He had urged shareholders to support his motion, which would have required Tesco to adopt higher minimum standards for chickens it purchases.

Had the proposal been backed by shareholders, Tesco would have had to adopt the RSPCA’s freedom farm standards on how birds are fed, exercised and transported.

Farms approved by the RSPCA for meeting “higher welfare” standards are able to carry the freedom farm logo on their products.

Tesco says it has adopted such standards on a growing number of its farms, but that to do so universally straight away would force up the price of chickens and that this would be unpopular with families already facing higher shopping bills.

Mr Fearnley-Whittingstall said he was “disappointed” that Tesco had chosen to “abdicate responsibility” on the issue of poultry welfare to the government and shoppers.

But he said he was encouraged that “significant changes” were taking place “behind the scenes” in Tesco’s policies and called on the UK’s largest supermarket chain to take the lead in establishing a forum to discuss general poultry welfare issues.

“The way chicken has been sold in this country has been a bit of a secret for some time,” he said.

“I would like to see some real change from Tesco in the coming months.”

‘High standards’

Tesco, which accounts for more than a fifth of all intensively reared chickens sold, was criticised earlier this year when it cut the retail price of its standard whole chicken to £1.99.

Tesco said its welfare standards were “amongst the best in the world” and that the share of higher welfare chicken it sold had risen 70% in the past year.

“We have been working hard for a while to increase the amount of higher welfare chicken we sell and the recent debate over chickens in the media has helped raise awareness of the choice available to customers,” a spokesman said.

Shareholders pressed Tesco bosses on a range of issues

But it added: “A large number of our customers are on a tight budget and rely on lower cost foods to feed their families. We believe it would be wrong to remove these options for them.”

Corporate governance firm PIRC, which backed Mr Fearnley-Whittingstall’s resolution, said it had not expected to win the vote but that it had raised awareness of the issue.

Higher standards would create a “more enriched environment” for chickens and would ultimately be healthier for customers, it added.

Other issues debated at the meeting ranged from calls for union recognition at its new US stores to allegations of low pay for workers employed by global suppliers, particularly in India.

News reported by BBC