On the Heels of the Global Retailer's Fiscal Year Financial Report, Investment Bank J. P. Morgan Issues Critical Investment Note on Tesco PLC

Investment bank J. P. Morgan yesterday issued a less than positive investor note regarding United Kingdom-based Tesco plc, which owns and operates the 116 small-format, combination grocery and fresh foods markets in California (Southern and Bakersfield), southern Nevada and Metropolitan Phoenix, Arizona.

Tesco is the third-largest retailer in the world, after number one U.S.-based Wal-Mart Stores, Inc. and number two Carrefour Group, which is headquartered in France. Tesco also is the leading food and grocery retailer in the United Kingdom.

In the investor note, J. P. Morgan said Tesco's overall market basket pricing (everyday store prices) in the UK market is too high relative to its top competitors, which are Wal-Mart-owned Asda, Sainsbury's and the Morrisons supermarket chain, often collectively referred to in Britain UK as the "big four" supermarket chains."

Additionally, J. P. Morgan said in the rather critical investor note that Tesco-UK's promotional and related programs are "too complex," and that the retailer is making a mistake by letting "the margin dictate the strategy."

The investment bank's analysis was prompted in part we believe by quarterly UK market share numbers that were released on April 1, which found Tesco losing share to top rivals Asda and Morrisons, something the UK's leading supermarket chain has been doing for about a year.

Tesco continues to lose market share to rivals Morrisons and Asda, according to Nielsen data for the 12 weeks to March 21.

Sales in the UK food and grocery sector grew at 2.7% year-on-year in the first quarter of 2009, with the grocery multiples faring slightly better (up 4.4%) over the same period, according to Nielsen Scantrack data released on April 1.

Of the "big four" UK supermarket chains (Tesco, Asda, Sansbury's and Morrisons), Morrisons leads the pack with 6.9% year-on-year sales growth, followed by Asda (up 6.7%). Tesco continues to lose market share with almost a half percentage point decline to 27.6% for the quarter, with Asda and Morrisons each picking up 0.2 points, according to Nielsen.

Tesco's current market share in the UK is 30.4%. That's down from about 31.6% a year ago.

Asda and Morrisons, along with small-format, hard-discount retailers Aldi and Lidl, have been steadily taking share away from Tesco for about one year in the UK.

But at 30.4%, Tesco remains hands down the leading food and grocery retailer in Britain. For example, number two Asda has about a 17.6% overall share, while number three Sainsbury's has about 16%. Morrisons is the nation's number four market share chain. It has an about 12.5% total share of UK food and grocery sales.

Despite this fact, that Tesco retains a huge market share lead, the loss of share is a major concern for Tesco, or at least should be. In the high volume, low margin supermarket business, every share point represents lots of lost sales. And the fact key rivals Asda and Morrisons continue to take share away from Tesco on what now seems to be a regular basis should be serious cause for concern because its ongoing rather than sporadic share erosion.

Tesco plc is set to report its full fiscal year financial results later this month.

The critical report issued last week from J. P. Morgan, coming just prior to the annual end of the fiscal year financial reporting, isn't a positive development for Tesco.

Tesco's growing corporate debt

The investment bank also offered a critical analysis on Tesco's overall corporate debt position.

J. P. Morgan said it believes Tesco's debt will exceed its targeted amount of £8 billion (pounds). The global retailer also has a current corporate pension fund deficit of £838 million (pounds). In its note, the investment bank says it believes the pension fund deficit has soared to £2 billion (pounds).

The investment bank's analysts paint the added debt loads in rather negative terms in the investment note.

Fresh & Easy USA

J. P. Morgan also sounds an alarm in its investment note over Tesco's U.S. Fresh & Easy Neighborhood Market food and grocery chain. The investment bank predicts Fresh & Easy will post a loss of £100million (pounds) (about $150 million) in the next fiscal year.

Fresh & Easy Buzz basically agrees with that number, although we actually think Fresh & Easy's loss could be a bit higher than the £100million (pounds), or about $150 million.

Further, we don't see any signs that Tesco will stop burning cash anytime soon with Fresh & Easy, although it is conserving some cash by postponing new store openings and its launch into Northern California.

Margin issue

We aren't sure about J. P. Morgan's argument that Tesco is letting margin rule its strategy in the UK. While it is true the retailer has lost about one full point in market share to its key rivals over about the last year, in the grand scheme of things it isn't clear to us that reducing margins, which is the implication of the J. P. Morgan argument, would (1) have stemmed that market share loss and (2) been worth it even if hypothetically the result of a significant margin reduction would have been say losing only half the about 1% market share amount over the year.

Margins matter; even in a recession. A significant percentage of Tesco's market share loss over the last year has come from the German hard-discount grocer Aldi-UK, which operates a no frills, low price-focused model. We doubt margin reduction for Tesco would have stopped this. Aldi is fast-growing in the UK. However, because of its relative small store count in Britain is has only about a 3% overall market share, which is excellent for the number of stores the grocer operates in the country.

Another significant percentage of the market share loss comes from Wal-Mart-owned Asda, which is a discount-focused operator. While we think some margin reduction by Tesco might have prevented some share loss to Asda, it's important to note that Asda is doing lots of correct things these days in the UK market, and therefore market share is a logical result of the supermarket chain's excellent merchandising and operations performance over the last two years.

And Morrisons, which has been the leading gainer among the UK's "big four" supermarket chains for sometime, is on a roll; it seems to be doing everything right. Would margin reduction by Tesco, resulting in lower everyday prices in its UK stores, have been enough, or will it be enough, to stop Morrisons' roll? We doubt it.

Interestingly, Tesco has been reducing margins at least a little bit of late. It has to be because the retailer has been lowering everyday prices, putting greater emphasis on a lower margin discount store brand, and offering far deeper price promotions than it has in the past in the UK.

We suspect further price reductions are in store for Tesco as well. It will likely do what it has to to stem the market share loss in its home UK market, which represents a very high percentage of the company's overall annual sales and profits.

Fiscal year financials

But Tesco's release of its fiscal year financials later this month will help make more clear the margin issue. If profits are good, margin reduction as a way to stem the market share loss the retailer has been experiencing, will take second or third fiddle, in our analysis.

This month's annual financial report for the fiscal year ended on February 28 will also offer a better quantitative analysis of Fresh & Easy Neighborhood Market USA, although don't expect to see Tesco break out extensive, detailed financials for Fresh & Easy.

[Readers: You can follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]

Business & the Economy: The Wisdom of Warren Buffett: On Innovators, Imitators and Idiots

Warren Buffett is many things -- the second-richest person in the world right behind his good friend Bill Gates, who's charitable foundation Buffett is giving most of his $40-plus billion fortune away to; the founder of Berkshire Hathaway, Inc., the largest corporate holding company on the planet with ownership in over 100 companies; the world's most able and humble investor; an advisor to Democratic Presidential candidate Barack Obama; and as he is called when it comes to all things economic and financial, the "Oracle of Omaha" (as in the Nebraska city where Berkshire Hathaway is based and where Buffett lives).

Warren Buffett also happens to be among the largest (if not the largest) individual investors in Tesco plc., the United Kingdom-based global food and general merchandise retailer that owns and operates Fresh & Easy Neighborhood Market in the U.S.

Buffett holds about $1.4 billion worth of Tesco stock, which amounts to a 3% -to- 4% total ownership stake in the company, which ha annual sales of $94,621 billion in its most recent fiscal year. Tesco is the world's third-largest retailer, after number two Carrefour Group of France and U.S-based Wal-Mart Stores, Inc, which is number one. Buffett also owns between $1.5 and $2 billion of Wal-Mart Stores, Inc. stock.

Despite the current U.S. and global financial crisis and what looks like a resulting economic recession, the "Oracle of Omaha" is bullish on corporate America, along with business in other parts of the free world and China.

Buffett, who prefers to dine at one of the many Berkshire Hathaway-owned International Dairy Queen fast-food restaurants in the U.S. rather than at a fancy white tablecloth restaurant when he is on the road, has been the go-too-guy for numerous heavy hitters during the current financial and credit crisis and banking industry meltdown in the U.S. and abroad.

For example, the "Oracle of Omaha" serves as one of Democratic Presidential candidate Barack Obama's, who he supports for President, chief economic advisers. Republican candidate for President John McCain has even consulted Warren Buffett on the financial crisis, even though he supports Senator Obama.

In fact, during the last Presidential debate, when asked by moderator Bob Schieffer of CBS News to offer a few names of who he might choose as his Treasury Secretary if elected President, McCain mentioned only one name -- Warren Buffett. When asked the same question by the longtime CBS newsman, Obama also mentioned only one name, Warren Buffett, making sure to add Buffett is a supporter of his and one of his key advisers on all topics and issues economic and financial.

Treasury Secretary Henry Paulson has talked with Buffett about the U.S. Government's $700 billion financial services industry bailout program, as have the CEO's of a number of banks and corporations, including Wells Fargo, Goldman Sachs, General Motors and General Electric, to name just a few.

Buffett also is mobbed by everyday citizens and investors whenever he goes, all asking him for investment advise in these troubling economic times.

The "Oracle of Omaha" also is playing a major part in the current financial crisis in the U.S. In just the last two months he has made a multi-billion dollar investment in ailing investment bank Goldman Sachs, a $3 billion investment in General Electric, which is hurting because it's GE Financial Services division is feeling the credit crisis meltdown, and in his role as the largest individual investor in San Francisco, California-based Wells Fargo Bank was a major force behind the bank's $12 billion acquisition earlier this month of Wachovia Bank, which happens to be the financial services and credit card services banker for Tesco's Fresh & Easy Neighborhood Market.

In his Practically Radical column in today's Harvard Business Review Online, contributor Bill Taylor has a piece about Warren Buffett based on a one hour interview and discussion the investor had earlier this month with Charlie Rose, who hosts the popular Charlie Rose interview program on PBS.

In the interview, as Taylor writes about in today's HBR-Online, Buffett offered a simple yet insightful theory on how the U.S. got into the current financial mess.

Bill Taylor writes: "Leave it to Warren Buffett, one of the world's richest men, to offer the most valuable advice on this score. In a recent hour-long television interview, Buffet gave a masterful course on how the world got into this financial mess."

Taylor further writes: "At one point, his interviewer (Charlie Rose) asked the question that is on all our minds: 'Should wise people have known better?' Of course, they should have, Buffett replied, but there's a 'natural progression' to how good new ideas go wrong. He called this progression the 'three Is.' First come the innovators, who see opportunities that others don't. Then come the imitators, who copy what the innovators have done. And then come the idiots, whose avarice undoes the very innovations they are trying to use to get rich.

Buffet is too polite of a man to name the "idiots." But we can all guess who they are.

Click here to read Bill Taylor's full column (plus there are some interesting reader comments) in which he discusses Buffett's theory and offers some analysis of his own.

You can view Warren Buffett's interview and discussion from the Charlie Rose program at this link.

We don't see Warren Buffett accepting an offer either from Senator Obama or Senator McCain to be the next U.S. Secretary of the Treasury. At 75-years of age Buffett wants to continue running Berkshire Hathaway (he is currently picking a successor) and involve himself in other endeavors. It's not that the "Oracle of Omaha" isn't a patriot. Far from it. Rather, he is far more valuable in a role such as key advisor to a President rather than being put in the nuts and bolts position of Treasury Secretary. It would be a bad fit for Buffett to be in a nuts and bolts position like Secretary of the Treasury.

Secretary of Commerce might be an interesting position for Buffett though, particularly in an Obama administration because he has a strong relationship with the Democratic candidate who he supports for President.

Commerce has always been more of a ceremonial position, although it is a full cabinet department.

However, Commerce Secretary's who have had strong relationships to a President like Buffett has with Obama (Don Evans, the first Commerce Secretary for President George W . Bush and his longtime friend, for example), can be extremely influential and successful. Since Secretary of Commerce is less nuts and bolts than Treasury Secretary, it also allows a man for all seasons like Warren Buffett to impact a much wider range of economic, business and consumer issues than he would be able to do as Obama's Treasury Secretary, for example.

In fact, Commerce is the perfect position for a cheerleader for American business, which Buffett is. Not only could Warren Buffett continue to advise a President Obama (or even a President McCain) on key economic and finance-related issues as Secretary of Commerce, he could travel the U.S. and the world -- which he does already -- talking with corporate CEO's, investors and government leaders on a daily basis.

Buffett also would be a major confidence builder for U.S. business and the economy both at home and abroad. Additionally, the "Oracle of Omaha" already has relationships globally with Presidents and corporate chief that not even Obama or McCain currently have. And Buffett is widely respected throughout the world.

We can't think of a better Secretary of Commerce -- and one who should be given very broad portfolio by any President he serves -- for these trying times than the "Oracle of Omaha," Warren Buffett.

He is a man who not only rides (metaphorically) in the real "Straight Talk Express," but also only knows straight talk. Buffett walks the straight talk walk rather than just talking it.

The next President could use a trusted advisor like that. So could the country. And we think Buffett might just accept Commerce Secretary -- but would be reluctant to accept Treasury for the reasons we mentioned earlier.

Resources:

>Click here for a selection of related stories about Warren Buffett and Tesco plc. previously published in Fresh & Easy Buzz.

>Click here to view the Web site for Buffett's Berkshire Hathaway, Inc. (Notice how Buffett extends his belief in frugality and simplicity to the design of the company Web site.)

>Click here for a list of companies owned by Berkshire Hathaway, Inc. The holding company owns a number of companies in the food and grocery space, including convenience store wholesaler Mclane Company, See's Candy Company, International Dairy Queen and The Pampered Chef.

>Click here for regularly-updated polls on the U.S. Presidential race between Democratic candidate Barack Obama and Republican candidate John McCain. The election is only seven days away, on November 4, 2008.

From Groceries to Mortgages: Tesco Moving Aggressively Into the Financial Services Sector in the UK Despite (and Partly Because Of) Current Crisis

In this piece from today's UK Telegraph newspaper we just published to Fresh & Easy Buzz, the publication reports Tesco PLC, which owns and operates Fresh & Easy Neighborhood Market USA, has broken a UK corporate governance standard involving a conflict of interest by one of its corporate directors (who has resigned from the board) and the company's move into further aspects of that nation's financial service industry as part of its buyout earlier this year of the 50% share of Tesco Personal Finance held by the UK bank Royal Bank of Scotland (RBS). Tesco is now the 100% owner of Tesco Personal Finance, which is a division of Tesco PLC.

Tesco hasn't said it plans to make similar more aggressive moves into financial services in any of the numerous regions and countries it operates internationally, which among them includes other parts of Europe, Asia and the United States.

However, stranger things have happened. And, regarding the U.S., it's not like there aren't going to be numerous more failing banks put up for sale at fire-sale prices in the coming months as part of the festering financial and credit crisis gripping the country.

Perhaps the American taxpayer wouldn't mind an overseas company like Tesco PLC stepping in to acquire a failing U.S. financial services institution or two rather than having to foot the entire bill to the tune of at least 700 billion dollars like the bail out bill proposed, and defeated on Monday by the U.S. House of Representatives, by the Bush Administration and a bi-partisan group of Democrat and Republican Senate and House leaders.

A slightly amended version of that financial services industry bailout bill will be voted on tonight in Washington D.C. by the U.S. Senate, with hope that if it passes its version of the bail out, the House of Representatives will hold another vote before the week is out and pass the bill. See: Washington Post: Senate to Vote on Revised Financial Rescue Legislation.

The UK is currently experiencing its own version of the U.S. credit and financial crisis, along with sharing in the global economic fallout brought on by the serious crisis in the U.S., as is all of Europe and most of the world.

Read about it at the links below:

Telegraph.co.uk: Financial Crisis: The options for a bail-out of Britain's banks......The Age.com UK......Irish bank guarantee 'anti-competitive'......The Independent UK......Bankers warn £50000 guarantee is not enough......Irish Times......World media reports Government's 'extraordinary step'......UK Telegraph.co.uk......Financial crisis: David Cameron calls for truce with Gordon Brown ......Time Magazine: Washington Antics Dismay Britain's Conservatives.

Below are a few current articles about Tesco's aggressive new moves into the financial services sector in the United Kingdom, where Tesco is headquartered:

Business Week: Financial Services from Tesco

UK Times Online: Business big shot: Andrew Higginson of Tesco

UK Times Online: From lamb cutlets to current accounts

UK Scotsman: Tesco looks to cash in on the mortgage crisis

Finextra.com: Tesco eyes UK mortgage market

Brand Republic Web site: Tesco to make grab for mortgage market

Resources:

Related stories from Fresh & Easy Buzz

>September 30, 2008: News & Analysis: Tesco Reports Half-Year Financials; Reports Loss For Fresh & Easy USA and Sales Per Square Foot Averages

>July 30, 2008: Tesco PLC Acquires Royal Bank of Scotland's 50% Stake in Tesco Personal Finance; Goal is to Become A Retail Banking Leader

>April 4, 2008: Fresh & Easy Redux II: One of the 'Biggest' (and Most Interesting) Fresh & Easy Stories Not Being Reported (Except By Us it Appears) in the U.S. Media

>September 23, 2008: Investment News Break: Major Tesco Plc. Investor Warren Buffett to the Rescue

>June 2, 2008: Billionare and Major Tesco PLC Shareholder Warren Buffett Says He Wants A Democrat as U.S. President in November '08

>April 15, 2008: Billionaire Warren Buffett, the 'Oracle of Omaha,' is About $52 Million Richer Today on the Rise in Tesco PLC Stock Shares

>March 19, 2008: Global Business Leaders Name Tesco 'Most Admired' UK Company in Poll

>March 10, 2008: Billion Dollar-Plus Tesco plc. Stockholder Warren Buffett Says U.S. is in a Recession

UK Telegraph: Could Latest Incident Hurt Tesco's Recently Announced Major Move Into the UK's Financial Services Sector?

Tesco breaks governance standard
Tesco has lost a second non-executive director because of a conflict of interest.

By Amy Wilson
UK Telegraph
October 1, 2008

Mervyn Davies (pictured at far left in the wire rim glasses), chairman of UK bank Standard Chartered, resigned from the retailer’s board yesterday because of the potential conflict arising from Tesco’s expansion in financial services.

His departure will leave Tesco with 14 board members, six of whom are non-executive, including chairman David Reid.

Non-executive directors, excluding the chairman, should make up at least half the board, according to the Financial Reporting Council’s combined code on corporate governance.

Carolyn McCall, chief executive of Guardian Media Group, resigned in April after Tesco started a libel action against the Guardian, which was settled with an apology from the newspaper group.

The supermarket giant’s expansion plans include agreeing to buy out Royal Bank of Scotland’s stake in its Tesco Personal Finance business for £950m in July.

It is looking at offering mortgages and current accounts as the credit crisis cuts a swathe through Britain’s banks and mortgage lenders.

To beef up its presence in the sector, Tesco is moving finance director Andy Higginson into a new role as chief executive of retailing services, which includes the personal finance business.

The retailer plans to expand financial services in its international business, which is where it would come into direct competition with Standard Chartered.

The bank has high street branches across Asia, and Tesco has stores in China, Korea, Japan and Thailand.

Tesco said it has no immediate plans to offer banking services outside the UK.
Mr. Davies joined the Tesco board in 2003 and will leave at the end of the month. Tesco chairman David Reid said he accepted the resignation “with great regret”.

Tesco’s remaining non-executive directors are: Rodney Chase, chairman of Petrofac; Charles Allen, former chief executive of ITV; Karen Cook, president of Goldman Sachs in Europe; Harald Einsmann, a board member of Carlson Group; and Ken Hydon, also a non-executive director of Reckitt Benckiser.

A spokesman for Tesco said the breach of the corporate guidance was temporary.

“We are already looking for a replacement for Mervyn Davies and we are close to announcing a replacement for Carolyn McCall that will redress the balance of executives and non-executives”, he said.

(Photo credit: Justin Thomas, UK Telegraph.)

Tesco PLC to Report Interim Financials Tomorrow; Including Guidance on Fresh & Easy Neighborhood Market USA

Tesco PLC, which owns the Fresh & Easy Neighborhood Market grocery chain in the Western USA, will release its interim (quarterly) financials tomorrow in the United Kingdom.

Although Tesco, which is the number one food and grocery retailer in the United Kingdom and the third largest retailer in the world, is a bit under assault at home in Britain, primarily from Wal-Mart-owned Asda (the UK's number two retailer) and the small-format, no frills deep discount grocery chains Aldi, Lidl and Netto, industry analysts aren't expecting any major great surprises in Tesco's overall numbers tomorrow.

In terms of in the UK, which accounts for the largest portion of Tesco's global sales, the retailer's sales share has dropped slightly, from 31.7% to 31.5%, in the latest (released last week) market share figures. However, Tesco remains far and away the UK's leading retailer. Number two Asda has about 17.5% of the UK's food and grocery sales market share, for example. Number three Sainsbury's has about a 16% share.

Of most keen interest though is that Tesco has said it will report some sort of guidance tomorrow on the performance of its small-format, convenience-oriented, combination grocery and fresh foods Fresh & Easy Neighborhood Market USA chain, which currently operates 87 stores in Southern California, Metropolitan Las Vegas, and in the Phoenix, Arizona Metropolitan region market.

As we reported on September 26, it's unknown at present if Tesco will report any specific sales, profit or loss numbers to date for Fresh & Easy. We will have to wait until tomorrow to find out what form that guidance takes.

A number of analysts are expecting positive overall financials for Tesco PLC when its interim numbers are reported tomorrow.

US-based Citibank is predicting an 11% increase in trading profits to £1.39bn for Tesco, and second quarter same store sales growth of 4%, for example.

We've estimated per-store, per-week average sales of the 87 U.S. Fresh & Easy stores are currently in the $125,000 -to- $150,000 range. This is compared to a target of about $200,000 in weekly average sales Tesco had hoped its Southern California-based Fresh & Easy Neighborhood Market would be at at this point in time.

U.S. supermarket average sales per square foot in the U.S. are $11.27 per square foot, according to the Food Marketing Institute (FMI), the leading food and grocery retailing trade association in the U.S. Tesco's Fresh & Easy stores average 10,000 -to- 13,000 square feet in selling space.

Stay tuned for tomorrow's financials.

Reader Resources:

Recent related Fresh & Easy Buzz stories:

September 26, 2008: Tesco PLC, Fresh & Easy and the Numbers Game; Will Tesco Release Hard Numbers For Fresh & Easy Next Week? If So, Will They Be Meaningful?

September 26, 2008: News & Analysis: Employees At Two More Fresh & Easy Grocery Stores Could Soon Request UFCW Union Recognition From Tesco's Fresh & Easy

September 23, 2008: Investment News Break: Major Tesco Plc. Investor Warren Buffett to the Rescue

September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

September 16, 2008: United Kingdom Market Share Report: Small-Format Disounters Aldi and Lidl Gain, as Does Asda, Morrison's and Iceland; Tesco and Sainsbury's Lose Share

September 16, 2008: Tesco and Wal-Mart-Owned Asda Launch Price War in the UK; Small-Format Discounters Aldi, Lidl and Netto Nipping At Both Giants' Merchandising Heels

September 15, 2008: Wal-Mart's Chief Merchandising Officer Reiterates CEO's Words that it's 'Keeping Tabs' On Tesco's Fresh & Easy Today at Bank of America Conference

September 12, 2008: CEO's Can Say the 'Darndest Things': Wal-Mart CEO Lee Scott Says He Has Faith Tesco Will Succeed With Fresh & Easy; It's A Small-Mart World After All

Tesco in the United Kingdom: Small Grocery-Postal Shop Fires Back Against Tesco's Competitve Pricing on the UK Island of Bressay

Fresh & Easy Buzz Editor's Note: When it comes to competition, Tesco, the United Kingdom's leading food and grocery retailer with about a 31% overall market share, has a "take no prisoners" approach.

UK-based international retailer Tesco, which is the third-largest retailer in the world, is the parent company of Fresh & Easy Neighborhood Market USA.

However, that Tesco focus is normally reserved for its competing chain store retailers, ranging from number two Asda (owned by Wal-Mart), number three Sainsbury's and number four Morrisons, to other significant competitiors like the Co-operative Group (now the UK's fifth-largest grocery retailer), Waitrose, the small-format discounters Aldi, Lidl and Netto, and a few others.

However, it seems Tesco also has had a ressesive "Goliath" gene hidden within its corporate culture, as the story reprinted below (in italics) from yesterday's Sunday Mail.co.uk seems to suggest.

Tesco recently opened one of its supermarkets on the small UK island of Bressay, which is just a seven minute ferry ride away from the island village's long-established independent combination post office/grocery store. The Isle of Bressay is one of the nation's scenic Shetland Islands.

Such mail/grocery shops are common in small English towns. In fact, we've run a number of posts from the Village Postmaster, who runs a similar shop in the village of West Essex. The Village Postmaster often writes in his blog, Village Counter Talk, about being an independent retailer in what he calls the land of Tesco.

In fact, we wonder what the blogger-postmaster-independent retailer thinks about this latest competitive battle, pitting Tesco against one of the UK's fighting independent small shop retailers and postmasters. Something tells us we will find out in the comments section when he reads this piece.

We know how Brian Law, who runs the independent postal shop on Brassay Island feels, based on the Daily Mail story reproduced below.

Mr. Law, 65, fired back at Tesco when it ran a full-page newspaper advertisement undercutting the prices on a number of food and grocery items sold in his store, by matching the Tesco prices with the exception of being 78-p (Pence) higher, which he says in his media piece--a huge poster on his store window--makes his ~20-p (British Pound) market basket actually cheaper than Tesco's because shoppers save on the cost of taking the ferry to the Tesco store seven minutes across the water.

That's pretty good gorilla marketing on shopkeeper Law's part we think. And, as we recall, David beat Goliath in that particular historic fight. History suggests David did so not because he was mightier than Goliath--far from it. But rather to a large degree because he had the support of the locals who generally love to see an underdog win.

From yesterday's Daily Mail-UK:

Bressay shopkeeper takes on Tesco
Aug 3, 2008 By Billy Paterson

THEY have 270,000 employees, 2300 UK stores and their turnover last year was £46.6billion.

But supermarket giants Tesco have sparked an amazing price war with their smallest rival...the post office on Bressay Island (employees: two).

The David v Goliath battle commenced when Tesco began trading in Lerwick on the Shetland Islands last month.

Brian Law, who has run the village shop for 15 years, saw customers lured by deals that have made Tesco Britain's biggest supermarket.

While they placed full-page colour ads in the local paper, Brian's marketing budget only stretched to a homemade poster in his shop window.

It claims £20 of goods advertised by Tesco - a seven-minute ferry trip from Bressay - can be bought from his Mail Shop for £20.78.

But Brian, 65, says their shopping will cost less as they will save on transport costs.

He said: "My catchment area in Bressay is 160 odd houses and 400 people.

"In the run-up to opening their store, Tesco ran an ad showing a shopping trolley with food, many their own brand, which cost less than £20. I decided not to take this lying down and got the magnifying glass out, listed the goods and went round our wee shop checking the prices we charge for the same items.

"The total cost came to £20.78. That may be more than Tesco but for someone to take their wife and car over to Lerwick on the ferry costs £11.10. By shopping with us, people will save £10."

Brian's poster states: "The same goods in the Mail Shop, Bressay, £20.78.

No travelling. No ferry fares. No queueing. No hassle. The choice is yours.

No Tesco own brands."

Brian, who runs the shop with his wife Ann, 57, said: "It was all a bit tongue in cheek. It is not as if we are in direct competition with Tesco but the locals had a laugh and we had a good positive response."

A Tesco spokesman said: "This shows competition is alive and well in the retail sector and the true winners are the customers in the Shetland Isles."

Shetland Islands Council have hired a consultancy firm to carry out a survey on Tesco's impact on the islands' retailers.

SHOPPING LIST

The £20.78 Mail Shop shopping list of equivalent items in the £20 Tesco trolley is:

>Kellogs Corn Flakes £1.89
>Twin-pack kitchen roll £1.09
>Walkers crisps, six-pack .99p
>Hovis loaf £1.48
>Birds Eye garden peas £1.35
>Fabric softener 85p
>Bleach ..79p
>Washing-up liquid 75p
>Del Monte orange juice 89p
>Robinsons fruit juice £1.09
>French stick 92p
>Litre of milk 84p
>2 kilos potatoes £1.45
>500g mushrooms £1.41
>500g Flora margarine 95p
>1 kilo bananas 1.50
>Twin-pack toilet roll 89p
>Six eggs 90p
>Sponge cake 75p

Tesco PLC News: Tesco Shares Down Slightly On Q1 Trading Update; Lower Than Expected But Still Healthy First Quarter Growth

LONDON -(Dow Jones)- Shares in retail giant Tesco PLC (TSCO.LN) dropped 2% Tuesday after it reported a slowdown in U.K. sales growth for the first quarter and warned that U.K. consumers were becoming more cautious.

Tesco, Europe's third-largest retailer by sales, said in a trading update that total sales in the 13 weeks to May 24 rose 13.7%, although this was largely driven by growth outside of the U.K.

"Our international operations, helped in part by favorable exchange rate movements, have delivered an excellent start to the year... and the core U.K. business has once again delivered good growth in a market characterized by recovering competitors," the company said in a statement.

The group described its U.K. performance as "solid" with total sales up 9.4% in the period. Excluding sales of petrol and new store openings, however, sales were up just 3.5% - marking a slowdown since the start of the period.

The company said in April that same-store U.K. sales were up over 4% in the first five weeks of year. It is targeting a full-year underlying sales growth figure of between 3% and 4%."

Although food category performance has been good, our rate of growth in non- food has eased as consumers have become more cautious with their spending during recent months," the company said.

The market focused its attention on the downbeat U.K. comments and by 0724 GMT, Tesco shares were down 9 pence, or 2.2%, at 393 pence in a lower London market. Other retailers also lost ground.

Shore Capital analyst Clive Black said the more cautious comments on the U.K. may resonate around the market.

Finance Director Andrew Higginson said on a conference call with reporters that non-food sales in the U.K. were growing at a slower rate than food sales "for first time in a long while." Sales of "big ticket" items such as furniture were "slower than we might have liked," he said, "but overall we're pretty pleased."

Higginson added that Tesco's apparent underperformance compared with some U.K. competitors was not a cause for concern. "I wouldn't worry too much about that," he said.

"Asda and the discounters are having a moment in the sun at the moment," he added, " but we're taking share from most parts of the market."

Tesco accounts for nearly one-third of the U.K. grocery market, nearly double that of its two biggest rivals, Asda Group Ltd., a unit of Wal-Mart Stores Inc. (WMT), and J Sainsbury PLC (SBR.LN).

Higginson said that the 3.5% U.K. growth was partly driven by food cost inflation as well as volumes. He declined to provide figures but added that Tesco's inflation was "a good bit below" the sales growth figure.

The group operates around 3,320 stores, of which 1,990 are in the U.K. The remainder are in Ireland, the Czech Republic, Hungary, Poland, Slovakia, Turkey, China, Japan, Malaysia, South Korea, Thailand and the U.S. (Fresh & Easy Neighborhood Market).

International sales rose 27% during the first quarter benefitting from favorable currency movements. Stripping out this benefit, sales were 13.9% higher.

Higginson pointed out that this growth did not include any acceleration in space expansion - which will be weighted toward the second half of the year. The company is adding 9.8 million square feet of new selling space in its international division this year.

Just two new hypermarkets opened in Europe during the first quarter, out of a total of over 50 planned for the year as a whole.

Press reports recently have suggested Tesco is about to buy out Royal Bank Of Scotland Group PLC's (RBS) 50% stake in Tesco Personal Finance for GBP1 billion. Higginson declined to comment on the speculation.

Additional Reporting:

>Guardian.co.uk: "Sales growth slowes at Tesco as customers tighten belts"

>Associated Press: "Tesco PLC says 1Q sales up 13.7 pc but UK sales growth rate slows"

>Thomson Financial News: "Tesco's Higginson relaxed on UK market share"

>Times UK: "Tesco feels UK sales slowdown"

>Times UK: "Tesco non-food sales hit by consumer downturn"

>Motely Fool Financial UK: "Tesco Powers Ahead"

Tesco PLC News: A Man and His Dog Fight Tesco Over Pet Insurance

Patrick Weston (standing behind his protest sign wearing the suit) protests Tesco's not paying for his dog Fred's leg surgery outside a local Tesco store in his community. Weston, 61, says it's his first time ever protesting anything, but vows to return again and again to the store and protest until Tesco agrees to pay for Fred's surgery. (Photo: Courtesy: Suffolk Free Press.)

Patrick Weston, a 61-year old British man suffering from cancer, might be ill himself but his main concern is his beloved dog and companion, three-year old Fred, his Rottweiler dog.

According to this piece in today's Suffolk (UK) Free Press newspaper, Fred ruptured the cruciate ligament in his right hind leg while chasing a rabbit through a field behind his--and owner Weston's--home in Twinstead, UK.

Being a responsible pet owner, Patrick Weston had a pet insurance policy for Fred through Tesco's Personal Finance and Insurance business division. [As we wrote in this May 31 piece, Tesco also is in the personal finance and insurance business in a big way in the UK, along with being the nation's leading retailer.]

Therefore, when Fred's veterinarian told Mr. Weston it would cost ~2,500 pounds to repair the Rottweiler's ruptured ligament in its right hind leg, the dog's adoring owner wasn't worried about the cost despite his own health problems and related expenses, since he assumed his Tesco pet insurance policy would pay for the surgery.

But that appears to not be the case.

Read what Patrick Weston is doing about Tesco's denial of his pet insurance claim for Fred's leg surgery here in the Suffolk Free Press.

Tesco PLC News: Tesco to Buy Royal Bank of Scotland's Share of 'Tesco Personal Finance' Business Joint-Venture For About ~1 Billion

Tesco PLC, parent company of Fresh & Easy Neighborhood Market USA, plans to acquire Royal Bank of Scotland's 50% share in the two companies' personal finance business joint venture, tomorrow's UK Sunday Times will report.

Read the report from tomorrow's Sunday Times here.

For those not already aware, major UK retailers like Tesco and Sainsbury's operate finance and insurance divisions, as well as being major players in the Internet service provider and mobile phone businesses, along with their food, grocery and hard and soft goods retailing operations in the nation.

These finance businesses are full line operations--banking, loans, credit cards--rather than the limited ones U.S. retailer's like Target and others operate which are just divisions designed to handle their own credit card business with customers.

Tesco is the leading retailer in the finance and insurance sectors in the UK. Sainsbury's also is a major player, as to a lessor extend is Wal-Mart-owned Asda.

In Tesco's case, it's substantial finance industry business has been owned in a 50-50 joint venture with the Royal Bank of Scotland (RBS), one of the UK's leading banking companies.

According to earlier reports, RBS turned down Tesco's offer to buy its 50% share of the finance business last month. However, it appears according to the Sunday Times' report the deal is now on.

Tesco's personal finance arm makes loans, issues credit cards and offers other personal financial services to consumers, but not to corporate or business customers.

If it acquires the 50% of RBS's share as the Sunday Times reports indicates is going to happen, 100% ownership of the personal finance business will allow Tesco to not only control the business completely, but to make a number of changes and add numerous new lines of business that's it's wanted to do for sometime but has been unable to because of the politics of the 50-50 joint venture.

Tesco also is a major player in the consumer insurance business in the UK. It's insurance arm offers consumers health, auto and other lines of personal insurance. Tesco's insurance operations are part of Tesco Personal Finance. You can learn more about Tesco's personal finance and insurance business here.

In contrast, big U.S.-based supermarket chains and mass merchandisers like Safeway Stores, Inc, SuperValue, Inc., Wal-Mart and Target, aren't in the personal finance and insurance business at all, with the exception of the Target (and a couple others) example offered above.

In fact, last year Wal-Mart wanted to open its own U.S. bank and financial institution which would function somewhat along the lines of what Tesco, Sainsbury's and Asda do in the UK--offering loans and related products to consumers.

The objection was so strong from U.S. Federal Government financial services regulatory agencies, Congress and various consumer groups however, Wal-Mart pulled back and decided to only set up an operation similar to Target's, which only deals with the mega-retailer's own credit card customers.