Tesco U.K. Woes Seen as Grocer Trails Aldi on New Space

Tesco Plc got planning permission for less new space than German discounter Aldi last year as Britain’s biggest retailer cuts back spending on stores to reverse a slide in profit.

Tesco, which is closing unprofitable outlets and slashing capital spending, won approval for 1.09 million square feet (101,000 square meters) of new space in 2014, about 55 percent less than its average over the previous four years, according to data compiled by researcher Glenigan. Aldi got permission to develop 1.13 million square feet, the data shows.

“That’s quite striking,” Allan Wilen, economics director at Glenigan, said by phone. Tesco is “targeting the convenience part of the market, whereas Aldi and Lidl are still pressing ahead with building up their network of more traditionally sized supermarkets.”

Tesco Chief Executive Officer Dave Lewis is trying to revive the grocer after the company’s shares fell 43 percent last year amid increased competition from the German discounters and a 263 million-pound ($398-million) profit overstatement that led to a fraud investigation. The retailer is shutting dozens of unprofitable stores as part of a cost-cutting plan that includes closing its headquarters at Cheshunt in England, Tesco said on Jan. 8.

Tesco declined to comment beyond what it included in the trading statement. An Aldi representative declined to comment on the report.

Tesco isn’t alone in cutting back its expansion plans. The U.K.’s nine biggest retailers won planning approval for 591 stores last year, a decline from 763 in 2013, according to the research. Though Tesco received permission for the most stores, 165, that’s down from 254 a year earlier. J Sainsbury Plc received permission to construct 119 new stores, a 43 percent reduction. Aldi and Lidl both sought to build more outlets than in 2013.

“We are always looking to grow our space and provide our retail offer,” Sainsbury’s said today by e-mail.

WM Morrison Supermarkets Plc, which said today that Chief Executive Officer Dalton Philips will leave after five years at the helm, won approval for 982,000 square feet of space, down from 1.3 million square feet a year earlier. The Bradford, England-based company said today it plans to close 10 unprofitable stores. Morrison didn’t reply to a request for comment.

The data show a shift toward smaller stores. The number of hypermarkets granted approval in the U.K. dropped to 10 last year from 25 in 2011, according to the data. The number of convenience stores allowed to be built rose to 405 from 256 in the same period.

Tesco scrapped 100 major store developments in April 2013 and instead focused on convenience store and online sales, the fastest-growing areas in food retailing.

Tesco will will probably be “a little more selective going forward,” Wilen said. Aldi and Lidl “feel they have got traction now and they’re looking to expand their programs. Both of them have aspirations to have much larger store space than they’ve got at present.”

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