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Tesco contract awards take a nosedive

Tesco contract awards have dropped in value from £608 million in 2011 to just £76m in the first five months of this year, according to data from construction intelligence business Glenigan.

The figures were revealed in the same week major retail contractor and Tesco supply chain member ISG announced a reduction in the dividend it was paying to shareholders. The contractor plans to pay a final dividend of 4.6p (2011: 10.7p) making a total for the year of 9.0p (2011: 15.1p).

ISG cited a fall in supermarket and retail work as well as pressures on the construction industry for the decision.

Glenigan reported that Tesco awarded 56 contracts in 2010, which rose to 73 in 2011, but the supermarket giant has signed off just six projects between January and the end of May 2012.

The research, shared exclusively with Construction News, followed announcements by major retailers that they are pulling back on expansion plans and focusing on refurbishment and smaller stores.

Glenigan reported that the total value of contracts awarded by supermarkets was £600m across 79 schemes from January to May, compared with £1.27 billion over 281 projects in the whole of 2011.

It shows that some food retail clients are increasing the value of their contract awards, including Sainsbury’s, which awarded a total of 38 contracts worth £139m in 2011, down from 47 in 2010, but has awarded 20 so far this year worth £258m.

Glenigan economics director Allan Wilén suggested that Sainsbury’s was focusing more on refurbishment and extension work outside of its traditional South-east heartland.

Asda has signed off nine schemes during 2012 to date compared with 28 in 2011, but has already spent £61m compared with £80m overall last year.

Morrisons awarded £89m-worth of contracts in the first five months of this year compared with £190m in 2011, while Waitrose awards have amounted to £41m in 2012 so far compared with £66m in 2011.

Marks & Spencer and Lidl did not sign off a single project in the first five months of this year.

Click on graph to enlarge

Supermarket contract awards 2011 2012 ytd

EC Harris head of retail Colin Turner said the sector was now “a new game, with new rules”.

Mr Turner said supermarkets were focusing on smaller projects, closer collaboration between property, procurement and the supply chain, and gainshare arrangements.

CN revealed last month that supermarkets are also venturing outside of their traditional frameworks into the open market to save on cost.

“It’s a great time for contractors to pitch in for new clients, especially the big five, including Waitrose,” he added.

In a trading update ahead of its end-of-year results, ISG said a reduction in the spending plans of UK supermarkets and banks in the second half is expected to continue into 2012/13.

Another firm with a retail focus, Morgan Sindall, said it expects to “encounter margin pressure as a result of the highly competitive market” for some time.

Mr Turner advised contractors to share insights early on about where the opportunities are to cut cost and waste, including what the retailer can do to help, and to be clear and open to clients about economies of scale.

He added: “Cost innovation is the name of the game. Lead on this and you will win more supermarket work.”

An earlier version of this story mistakenly read that ISG would not be paying a dividend to its shareholders. Construction News would like to clarify that this is not the case.

 

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