Shore Capital analyst Clive Black told The Grocer that in the final days before Tesco’s accounting year finishes on 28 February, Tesco is being “particularly active and demanding” of suppliers and its own staff.
“Tesco is cutting its cloth to suit the market and conditions are deteriorating across the world,” Black said. “Management are setting the scene accordingly. They are being rigorous in managing costs in every orifice of the business.”
Tesco has already confirmed plans to cut capital expenditure to under £4bn in the next financial year. Black said Tesco was seeking a reduction in the order of £1bn, which it would achieve “by not installing planned mezzanines” and by scrapping plans for extending stores.
There will be “fewer refits” said Blue Oar analyst Greg Lawless. “Mezzanine floors are £15m a pop, so they’re not cheap.”
A Tesco spokesman denied it would stop extending stores and said it would be able to reduce cap-ex as the cost of building materials fell. “We will still be continuing to expand stores and build new stores - creating 10,000 new jobs in the process,” he insisted.
In the meantime, Tesco is trying to counter the effects of the weak pound in its Republic of Ireland business. In a letter seen by The Grocer, Tesco revealed it planned to stock more own-label lines in its Irish stores from British suppliers. “To facilitate planned growth in demand we now require you to deliver product direct to our DC in Dublin,” the letter said.
A supplier said the move was a short-term measure. “Whatever they’re buying in euros is costing them 30% more than in January 2007,” he said. “This isn’t a long-term strategic move, it’s opportunism.
A Tesco spokesman denied the move was currency related. “The change is due to increased customer demand. This is a long term change,” he said.