Why Tesco is talking down prospects

By THIS IS MONEY
Updated:

 

WHEN things are going as well as they are for Tesco, the big problem is to try not to make it look too easy.

That's why chief executive Sir Terry Leahy is doing his level best to talk down prospects for the second half and harping on about the possible impact on the business of high oil prices and above-inflation increases in business rates.

None of this, in reality, is going to make much difference to Tesco. Sure, higher oil prices may impact consumer confidence and Tesco's retailing business but is the fact that petrol is a bit more costly really going to stop you driving to Tesco to do your weekly shop? And don't forget, Tesco is a petrol retailer in its own right, so higher petrol prices don't do it any harm.

No, the purpose of all the notes of caution is simply to temper enthusiasm for Tesco because too much success could in time prompt the attention of the competition authorities.

So far, at least, Tesco is a great British success story and, whatever Sir Terry says, the outlook remains pretty rosy. It already accounts for around £1 of every £7 spent in the UK high street and it has almost 30% of the grocery market as a whole. It was precisely this level of market share that has seen regulators block previous supermarket mergers in the past.

Sir Terry is well aware of the perils of too much success. He knows that the only possible fly in the ointment is that consumer groups, suppliers or, worse, politicians start to quibble at the prospect of an over-dominant Tesco. We've already had some preliminary bleating from Asda/Wal-Mart but it's hardly the best-placed company to whinge about the market size or dominance of a competitor.

Tesco itself says that shoppers can always choose to go elsewhere. Given Tesco's broadly based consumer appeal and the dearth of decent competition from Sainsbury or Morrison that's about the only real threat to its prospects right now. And it's not likely to enough to cause Sir Terry any sleepless nights.

• Guy Dresser is editor of This is Money.co.uk. This is his final column. editor@thisismoney.co.uk

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