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Tesco considers putting its 'more extreme' projects on hold

Supermarket giant Tesco is “keeping an eagle eye on costs” and may put some of its “more extreme” developments on hold in light of the economic downturn, its chief executive has admitted.

Speaking at the British Council of Shopping Centres annual conference in Liverpool, Sir Terry Leahy said Britain’s biggest retail chain – like most companies – was being hit by the current climate and its affect on consumer confidence.

He failed to disclose any Tesco projects which may in fact be shelved, but said that during a recession “some of the more extreme developments can be put on ice for a while”.

Sir Terry added: “This economic challenge is the most severe many of us will ever have experienced. But you can get through it. In a downturn, if you are brave, you can make good development progress.

“It means keeping an eagle eye on costs and investment. The phrase I use for this is ‘resetting the business’. That means not clinging on to plans that sounded good a year ago.”

Despite the downturn, Tesco still continues to post positive results. In its interim statement, for the six months to 23 August 2008, the group said it increased pre-tax profit year-on-year by 11 per cent to £1.44 billion.

A report released by grocery sector analysts IGD earlier this year predicted Tesco would double its portfolio of stores by 2012. It estimated that, in the UK and overseas, the chain would comprise some 6,600 stores - double its current level.

Sir Terry said the company would actually “make most relative progress” during the downturn, working on basic development plans that may have fallen to the wayside during strong economic times.

However he publicly criticised developers, saying in some cases they were too focused on “getting contracts signed” and securing the best yield they could.

He said: “My advice for developers is to work with retailers to jointly focus on the consumer. Between them they can create a successful [development]. But it doesn’t always happen.”

Sir Terry also called on the Government and local authorities to be understanding during the recession.

He said it was crucial planning officers understood that some styles of mixed-use – particularly those with a large element of residential – “won’t be feasible” during the downturn.

He added: “Sensible adaptability on both sides will help.”

And called on the Brown Government not to add any extra “regulatory burden” on retailers, citing the planning reforms it has this week been arguing in the Competition Appeals Commission.

Tesco has faced the Competition Appeals Tribunal, which began today, over planning reforms which could jeopardise its future building projects.

The case, which has been dubbed “Tesco versus the rest”, has seen it challenge rivals Asda, Marks & Spencer and Waitrose head on over a competition “test” proposed by the Competition Commission earlier this year.

Tesco sought a judicial review in opposition to the test, which the Commission has recommended should be applied prior to the construction of any new supermarket.
If introduced, supermarkets could face planning restrictions in applications "if there is a high level of concentration [of retailers] in the local market" and if the retailer making the application holds a substantial part of the market.

Its rivals, who were given permission to speak at the three-day hearing, have – at least in part – supported the planning reforms recommended by the Commission.

If Tesco is unsuccessful, it is understood the proposed test could be implemented by late 2009.

Sir Terry said the introduction of a test would only “increase cost and reduce competition”.

He called on the Government to not only lower regulations, but to also lower taxes and energy costs to stimulate future development.

Sir Terry said: “Make no mistake: we are all facing a considerable challenge in the months ahead. As we batten down the hatches, we need government to be on the side of all businesses, small and large, helping us through the storm, so we can continue to create jobs and to invest.”