Tesco un-nerved?

Goldman Sachs have recommended that investors sell Tesco shares - a move which will probably cause ripples throughout the stock market, especially in the retail sector. Tesco's themselves are reported to be surprised at the note; but should they be?

Certainly there are signs that this, the largest of all UK retailers has been rattled, else why, for instance, would it wish to resort to law to protect its name both here and abroad. The reports from Thailand show how Tesco are sueing two individuals, one of them a former MP and secretary-general of the Thai Chamber of Commerce is being sued for £16 million; his offence it seems was to make speeches that Tesco disapproved of concerning the expansion plans that they have for Thailand and the effect that it would have on the small businesses in their local economy. It is true that both defendants have admitted that they mistakenly suggested that 37% of Tesco's revenues were derived from that country, but surely that cannot have been a good enough reason to issue a writ. Perhaps it was that the speech, Tesco's are reported to claim, insisted that profits of Tesco Lotus are not re-invested in Thailand?

It does seem like a sledgehammer to crack a nut - but then Tesco does seem to have had over six years of problems in Thailand, along with Carrefour, Boots and a number of others. Perhaps their nerve is a bit frayed or perhaps it is wrong in Tesco's eyes to have a different world-view and a different economic model than that favoured by Tesco. Thailand has been selected by Tesco to be their third largest national market - the Thai's are being most unco-operative and disobliging not to mention ungrateful to their would-be benefactors. Not that the Thai debacle is their only foray into legal territory - it seems that a company that the CEO of Tesco has described as being a charitable organisation is doing a strangely uncharitable act by proposing to undercut Tesco's prices to its customers and Tesco have threatened to report Ocado to the Advertising Standards Authority; heaven forfend! Tesco would surely never stoop to such measures as undercutting prices to develop a market? Ethicalcorp.com reported last July that Tesco Lotus had entered the school uniform market in Thailand with prices averaging some 20-30% less than the local market was displaying - I wonder if they could be sued for such practices?

Perhaps the charitable company, Ocado, will be forgiven for not understanding the rules of the game. In the Times (October 4 2006) Tesco claimed that . “We are confident Tesco has brought a lot of benefit to Thai consumers" and presumably they believe this because of the low prices that they attract consumers with; does the same principle not equally apply to consumers in the UK? Perhaps there is another underlying reason for all these jittery nerves?

Is there a nervous reaction to the poor performance of the new venture in the US? Is there a jitter or two because of the non-food performance in the UK? Perhaps the fact that the good burgesses of St Alban's are voting in their local press about whether the local town centre really needs another large Tesco store (the count is in on Tuesday and it's not looking good for Big T); I wonder how they feel about the couple in Solihull who have vowed never to shop at Tesco ever again because of a fiasco, where the couple ordered groceries and after non-delivery were promised a refund - and that was to take over a week to arrive! It could be none of these things, it could be that the leader of the Liberal Democrats, Nick Clegg, according to the Guardian (March 13 2008), is scandalised about the development of eleborate corporate structures for Tesco based in the Cayman Islands to save millions of pounds in stamp duty. It might even be that they are jittery because banking analysts are saying that with rising food prices the profits of food groups are going to be seriously squeezed - the chief economist at Lloyds TSB, Trevor Williams, is reported to have said that if inflation rises above 2.5% then Tesco will be in real trouble. It has to be recorded here that Tesco has an explanation for each of these little issues, whether their explanation is any more or less valid than the originator's claims is a matter for others to decide.

Tesco have a 30% share of the UK food market and above 30% in Thailand, I wonder why it is that they are quite so un-nerved by small retailer competition and the opinions of people who are trying to champion the cause of SME retailers? It makes interesting reading, but what does the future hold? It may be that the solidity of these mega-retailers that local authorities set so much store by are not quite as safe as was imagined. I speculate that with the worsening global credit situation, the rise in food and fuel prices accelerating the inflation rate in the UK and the predicted squeeze on profits that one probable outcome would be the closure of poorly performing stores in the UK. Which stores would be targetted - those which are in areas populated by the lowest income groups because they will not attract a high enough revenue or create a demand for a wide enough range of products. In short the stores that would be the first to go, would be those where the lcoal businesses have long since been forced out - the creation of new food deserts in our urban centres.