Tuesday, 21 April 2009

Home win

Tesco’s financial results look like a win for the PR team as well as the finance director. On the face of it, the world’s third largest retailer looks an unstoppable behemoth. It has over 2,000 stores in the UK and in the words of the London Evening Standard, its profits have now “smashed through the £3bn barrier”. The supermarket, which also operates one of this country’s few successful banks, claims it is on track to double in size over the next ten years. That’s right: DOUBLE the number of stores, worldwide, before the end of the next decade. If Sir Terry Leahy managed to achieve this target in the UK, we’d have 64 Tesco stores in every city in the country.

A staggering thought. The Evening Standard certainly seems to think so. It put “Tesco to DOUBLE in size” on all its news billboards this afternoon. But consider the numbers—profits first. Did Tesco really smash through the £3bn barrier? Well, not according to the BBC’s Robert Peston. If you use the statutory measure of pre-tax profits, a measurement Peston prefers because “it's less amenable to manipulation”, Tesco’s pre-tax profits “grew by 5.5 per cent to £2.95bn, or 4.3 per cent after adjusting for a rogue 53rd week in the 2009 figures”.

Here are some more facts, which work well together in almost any order: journalists love round numbers. Three is a lovely round number. 2.95 is not. Good press officers tend to send out facts that appeal to journalists and that show the company in a good light. Shareholders like positive headlines.

Will Tesco really double in size? Quite possibly. Is this really as impressive as it sounds? That depends on your viewpoint. It would be impressive, if slightly incredible, if Sir Terry managed to double Tesco’s size in a few years. Four, or five years maybe. But ten? Worldwide? In order for the chain to reach its target, Tesco will need to expand its total shopfloor space by seven per cent a year.

Growth at that level, even maintained for a sustained period, is not quite as sexy as focussing on the DOUBLE part. Tricky, perhaps—especially in a recession. But not sexy. Not headline material. And in the aftermath of a recession there will be plenty of retail bargains to go around. Failed shops, petrol stations and superstores on the cheap, all over Europe. Possibly even a fall in land prices. Seven per cent per year is tough, but achievable. So how do you make sure the papers pick up the sexy part? Think of a number: 10, or maybe 12—that’s how many years we’ll need to achieve manageable growth of 7 per cent. And that’s how we’ll DOUBLE the size of the business.

Why does this matter? Well, talking about Tesco’s size is one way to distract attention away from the less than impressive performance of US subsidiary Fresh & Easy (which lost £142m). It’s also a great way to stop journalists writing headlines about the competition, which appears to be catching up. Tesco’s like-for-like sales grew 3 per cent in the year up to February 28. But at Morrisons alone, sales were up 7.9 per cent over a similar period.

A well-earned home win for the PR team.