The Rise of a Green Grocer

03/08/2012 7:15 am EST


David Kuo

Financial Broadcaster, The Motley Fool (UK)

Like it not, this grocer is as ubiquitous as the sun in Southern Spain in the summer. Recently there’s been a lot of talk about how well it will fare moving forward—whether it’s time to sell or buy, writes David Kuo of Motley Fool Europe.

A few people have written off Tesco (London: TESO) after its pre-Christmas pricing strategy failed to attract the punters, who were rather more enamored by its rivals’ promotions. The price slumped, and is now sitting about 20% below its December level, at 318p. [That’s £3.18, or about $5, just to be clear—Editor.]

But we have news today of a new round of investment that is claimed will create 20,000 new jobs in the UK, as Britain’s top supermarket plans to improve existing stores and open new ones.

According to chief executive Richard Brasher, the net addition of 20,000 new staff will include full-time and part-time positions, as well as apprenticeships, and will be spread out over the next two years. Currently, Tesco is not saying how many of each kind of opportunity will be created.

Prime Minister David Cameron sounds impressed by the news, saying: "[Tesco’s] commitment to creating jobs and opportunities for young people at what is a difficult time for the economy is fantastic news for the UK as a whole and for those people [it] will help into work."

Others, however, are slightly more skeptical, pointing to the lack of detail and the difficulties in accurately making such predictions so far in advance.

Shoppers Coming Back
But there are other positive indications, too, as Tesco’s latest discount voucher promotion has started to draw people back, helping put the brakes on its falling market share figure.

Although Tesco cornered 29.7% of the market in the three months to February, which is down a tiny bit on the 30.3% it commanded in the same quarter last year, it enjoyed a 3.6% rise in sales in February, marking a strong reversal of January’s 0.2% fall.

And in other news, emphasizing Tesco’s worldwide presence, the firm’s Tesco Lotus Retail Growth Freehold and Leasehold Property Fund looks like it’s getting off to a strong IPO in Thailand, with investor demand pushing the flotation price up to the top of its expected range. At approximately £379 million, it’s Thailand’s biggest IPO in five years.

So what’s the outlook for Tesco now? Warren Buffett has famously poured lots more Berkshire Hathaway (BRK-B) cash into it, but ace investor Neil Woodford has taken a bearish stance and has sold out.

Which one of them will turn out to be right is something I’ll be keenly waiting to see, but I’m still feeling pretty bullish. The new jobs forecast is not a substitute for actual profit growth, but it is positive news.

And although we’re almost sure to have a pretty flat year or two from Tesco, I still think the longer-term future looks bright for such a strong international player.

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