Tesco 1Q Sales Up 12 Percent; Nonfoods Cited

LONDON - British supermarket giant Tesco today announced that its first-quarter sales increased 12 percent as the company reduced prices and added new nonfood items, Bloomberg reported.

Revenue at U.K. stores open at least a year went up 7.8 percent in the 12 weeks ended May 22, compared with a 5.8 percent increase last year, according to c.f.o. Andrew Higginson.

Tesco is stocking clothes, housewares, and DVDs to tempt customers to spend on more than food when they shop. The company also slashed prices on items such as toothpaste to stay ahead of Wal-Mart Stores Inc.'s Asda chain.

In addition to lowering prices and bringing in new nonfood items, Tesco is adding clothes in a bid to snare more shoppers. U.K. residents spend 40 billion pounds, or U.S. $73 billion, annually on nonfood items, more than a third of their grocery hauls. The company also plans to add about 1.5 million square feet of new space in the United Kingdom for selling nonfoods next year, half its total expansion, Higginson says.

The company has launched a Tesco Value line of inexpensive nonfood items to complement a similar grocery line. The Value brand, started in 1993, is the biggest in U.K. food retailing, according to the company.

Tesco has more than 950 British stores, compared with Asda's 265. British supermarkets' expansion is limited by government curbs on the development of greenfield sites.

In April the grocer said it would increase its work force by 6 percent this year and open more than 100 stores around the world as competition among U.K. food retailers heats up in the aftermath of Morrison's takeover of Safeway Plc in March.

Tesco has raised 1.5 billion (U.S. $2.8 billion) pounds through the selling shares and bonds this year for adding supermarkets and hypermarkets in such countries as Hungary and South Korea. That will aid the retailer in taking on Wal-Mart and Paris-based Carrefour SA, Europe's biggest retailer, as they expand internationally.

Tesco, which has expanded outside the United Kingdom since 1993, now has nearly half of its floor space overseas. Tesco is the biggest hypermarket operator in Hungary, Poland and Slovakia, and three of its five biggest stores are in Asia, two in South Korea and one in Thailand.

Sales outside Britain went up 18 percent in the first quarter, according to the company, with all countries where Tesco operates contributing to the gain. Tesco's sales last year amounted to 33.6 billion pounds (U.S. $61.7 billion).

In other Tesco news, farmers and environmentalists have accused the retailer of not paying farmers enough for their food. They told company directors that low prices paid to farmers for milk and other products were part of the reason that approximately 4,500 farmers went out of business annually, and they requested that Tesco pay them fairer prices that would support rural communities and the environment.

Tesco chief executive Terry Leahy responded that the company was doing all it could to help farmers to be successful, because the company had a vested interest in maintaining a healthy supply chain. He added, however, that the firm's actions were at least partly influenced by factors beyond its control, such as exchange rates, government policy, and movement in global agricultural prices.
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