Tesco focuses on beauty division growth

- Last updated on GMT

Related tags: Tesco, Asda, Wal-mart

As a global shift emerges towards increased hypermarket sales of
toiletries and cosmetics, there seems to be little standing in the
way of Tesco's health and beauty sector cashing in on the growing
trend.

Tesco's group sales rose by 18.7 per cent to £33.6 billion in the year to 28 February, and although part of the increase came from an additional week's trading compared to 2003, sales would still have been 16.7 per cent higher at £33.0 billion on a comparable 52 week basis.

The non-food business grew rapidly during the year, and Tesco now claims to be biggest UK retailer of certain products - in the baby goods market, for example, it claims to sell more than specialists Boots and Mothercare combined. DVDs and clothing were other major centres of growth in the UK market.

Part of the success has been attributed to Terry Price, who joined Tesco a year ago, having undertaken a strategic review of the group's non-food operations, believing the company to be too driven by promotions and not selling enough own-brand product.

Price embarked on an overhaul of all non-food sales - such as health and beauty, entertainment and homewares - increasing Tesco-branded product where possible, repositioning the goods on an everyday-low-prices format in line with the grocery business and reformatting stores.

"Clothing has moved on in the last couple of years but all the rest of non-food has not done so. Our strategy was not consistent. Previously about 85 per cent of our non-food turnover was sold on special offer. We have reduced that dramatically and we are seeing massive uplifts in like-for-like sales where we do so in all departments,"​ said Price.

Tesco recently raised £1.6 billion for future expansion though a share offering and property sales, and while it has wasted little time in putting this cash to good use (with acquisitions in the UK and elsewhere), it has not relied entirely on new stores for growth.

In the UK, for example, sales rose by 14.2 per cent to £26.4 billion during the year, of which 6.7 per cent came from the company's existing stores. This in turn was driven by a 6.6 per cent increase in volume sales, allowing the company to remain highly price competitive - an important factor in a market seen as becoming increasingly price orientated this year as both Tesco and Asda react to the wide ranging price cuts at Safeway following its takeover by Morrisons.

The Tesco.com online shopping portal continued to thrive, posting a profit of £28 million, up from £12 million the year before, making it one of the few profitable retail websites in the supermarket sector.

Tesco is by far the most international of the UK supermarket groups, with operations in Asia and central Europe. Sales from the international division were up 29 per cent during the year overall, with European sales rising 27.5 per cent to £3.8 million and Asian revenues rising 31.1 per cent to £2.8 million.

The international arena is likely to play an increasingly important role in Tesco's growth strategy, with over 100 news stores planned for the current year, not including potential acquisitions. The company made its first foray into the Turkish and Japanese markets in 2003/04, and China and the US could well be on the agenda this year.

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