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October 03, 2006

Is a monolithic Tesco a bad thing?

Tesco has announced half-year profits of over £1bn today, double what they were getting only five years ago. As usual, the news generated as much fury in the media as when the big banks reveal how much they’re ripping us off by.

But should we be getting uptight about Tesco doing so well? For one thing, almost all of the growth has come from the supermarket’s 949 foreign stores, which are growing three times faster than the UK ones. Having said that, second-quarter sales in the UK alone rose 6.6% (up from 4.5%), partly through the growth of non-food items.

Environmentalists and farmers will probably be up in arms. But are there advantages to having a dominant player in the market? Let me give you an example. Pressure groups can focus on beating one giant easier than tackling a thousand minnows. For instance, if you want better standards for cooped-up chickens, you’d have a much bigger impact trying to convince Tesco of the need for improvement than lobbying the thousands of butchers in the UK. When Tesco changes something for the better, they take between a fifth and a sixth of the grocery market with them.

True, the opposite can also occur. And despite Terry Leahy’s protestations, Tesco has had a major impact on the vibrancy of the British High Street. But we should give Tesco credit where it’s due. It’s commitment to Dolphin Friendly tuna (yes, even Tesco Value tuna is dolphin safe), minimum standards in agriculture, policies on GM and recycling is commendable, and has a big effect.

While we might shout at Tesco for being so dominant, we need to recognise that when they change something for the better, their influence spreads a long way. Not only that, but on many issues concerning the public, Tesco is starting to be a market-leader rather than a follower.

So well done to Tesco on making big profits: it’s not a natural reaction for Britons to praise such a feat. But Sir Terry Leahy mustn’t rest on his laurels. There’s many more battles which Tesco should be leading on.


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