Tesco’s Irish arm its worst performer worldwide
Once a star performer with a profit margin far above the group average, Tesco Ireland's sales have now fallen to €2.56 billion
24 April 2015 | 0
Tesco’s Irish arm recorded the worst performance out of any the retailer’s businesses last year.
Annual sales at Tesco Ireland fell to €2.56 billion, an amount not seen for many years. Even in 2009, when the recession’s bite could be sharply felt, sales stood at €3.15 billion.
Although the 149 Tesco stores in the Republic of Ireland account for just 3.2% of the floor space of the retail giant’s entire retail portfolio, the latest drop is particularly noteworthy considering that for years Tesco Ireland’s profit margin considerably exceeded the group average.
The disappointing results follow the recent news that SuperValu has now overtaken Tesco as the leading multiple in the ROI, according to the latest Kantar Worldpanel market share figures.
Strong discount pressure
The Irish Independent reports Tesco’s finance director Alan Stewart told investors: “Our Irish business has faced strong discount pressure”. In particular, Dunnes Stores is believed to have upped the ante considerably by investing tens of millions in huge discount promotions.
Leading retail analyst Clive Black from Shore Capital told the Independent: “Ireland is a market where the discounters are more ingrained, with two strong local players that means there is no quick fix and investors will need to be patient.”
Improvements in availability,service, sharper prices and store layout are likely to be major areas of focus for the supermarket chain going forwards within the Irish market.
“Over time we expect to see a flattening of underlying sales in Ireland, probably further market share loss as Tesco doesn’t open any more stores, with profits following the sales profile,” Black added.
‘Early indications’ of improvement
Nevertheless with a 24.7% share of Ireland’s grocery market, Tesco remains a prominent player. Andrew Yaxley, Tesco Ireland’s newly-appointed chief executive, claimed the group is “already seeing early indications that we are moving in the right direction with an up-lift in customer loyalty and fresh produce volumes, which are important positive indicators of growing customer confidence”.
Joshua Raymond at www.cityindex.co.uk, also believes there is reason for Tesco to have tentative optimism within its core UK market. According to Raymond: “UK retail sales fell 0.5% in March when there had been expectations of a 0.4% rise, disappointing after a recent strong run. However, we should take this with a pinch of salt. UK consumer spending has proved fairly strong of late and should continue to strengthen with UK inflation at 0% and set to enter deflationary territory in the near term.”