Tesco 2007 Annual Report Download - page 14

Operating and financial review continued
12 Tesco PLC Annual report and financial statements 2007 Find out more at www.tesco.com/corporate
• Our Kipa business in Turke y, continues to grow strongly
and profitably and now has the capability and resources to
become a national business. We now have 15 hypermarkets
trading, with the majority now outside our base in Izmir,
including our first store in Thrace, with 24 more planned
for the current year. The early introduction of Express in
Turkey has also gone well, with 15 stores now trading,
including three in Antalya. We have invested in creating
the infrastructure for a business of scale – initially in
management and systems – and also in supply chain,
with our first major distribution centre (at Yasibasi)
covering 400,000 sq ft, planned to open this month.
United States We are on track to open our first stores –
under the Fresh & Easy Neighborhood Market banner – on
the west coast of the United States, as planned, later this year.
Our El Segundo office is now staffed by over 150 people and
the construction of our Riverside distribution centre on the
eastern edge of Los Angeles (LA) is on schedule. Site
acquisition for our 10,000 square foot convenience format
stores is also going well and we expect to be able to open
a significant number (at launch) across the LA, Phoenix,
Las Vegas and San Diego markets.
Recruitment and training of staff for the stores will begin soon
which, combined with the other pre-launch costs and initial
trading losses, will involve a planned rise in estimated US
start-up costs to around £65m in the current financial year.
Thereafter, as previously announced, we expect initial trading
losses to diminish and the business to move into profitability
during its third financial year of operation. Our intention
remains to commit some £250m of capital per annum to
the US going forward, although given the phasing of our
investment and the higher leasehold element of the early
stores, capital invested last year was lower – at £89m. We will
begin formal reporting of US performance separately within
our International operations from opening.
Core UK Tesco made further good progress in the UK; coping
well with recovering competitors by delivering an improved
shopping trip for customers. UK sales grew by 9.0% in the year,
including a like-for-like increase of 5.6%. Both customer
numbers and spend per visit increased.
We have continued to invest in the things that matter for
customers and although we can still get better, we have made
real improvements to the shopping trip:
• Our Price Check survey, which compares 10,000 prices
against our leading competitors weekly, shows that our
price position has improved again during the year (for
more information see www.tesco.com). In a market to
which food price inflation has returned for the first time in
several years, driven by the higher energy costs and strong
seasonal food prices, Tesco has invested more than ever
in helping to keep prices as low as possible for customers.
• The implementation of new checkout technology across
our stores means that we can now monitor and manage
the checkout service customers receive much more
precisely – by customer, by store and by the hour. As a
result, nearly 350,000 more customers a week receive
our ‘one-in-front’ checkout queue promise.
• On-shelf availability, which we measure using our in-store
picking of tesco.com orders, has also improved again and
more customers are able to buy everything they want when
they shop at Tesco. Although there is still scope to get better
– particularly during evenings and on Sundays – the most
marked improvement has been achieved in fresh foods,
which has seen a fifth consecutive year of higher availability.
• We’ve also introduced significant changes to our ranges in
response to customer demand. For example, we are selling
a much larger Organics range which is now fully integrated
into ranges across our stores – with sales up almost
40%; we have introduced over 1,000 new premium lines,
including a faster pace of new product launches for Finest.
• All of our eligible own-brand products now carry our
GDA nutritional signpost labels. We have created a system
that is easy to understand and practical to use and recent
sales data suggests we have made a genuine impact on
customer behaviour, which in turn has helped us to
improve and reformulate many Tesco products.
Step-Change We delivered efficiency savings ahead of plan
in the year – with £350m achieved through the Step-Change
programme, which brings together many initiatives to make
what we do better for customers, simpler for staff and cheaper
for Tesco. Most of these savings are reinvested to improve our
offer for customers. We aim to make similar incremental
savings in the current year.