Bad news for Tesco last week as poor UK Christmas trading results hurt their share price.
Previously Trading at over 400p per share they are now hovering around the 330p mark. Whilst disappointing for the grocery retailer (and its shareholders), i think its good news for both their competitors and the construction industry.
The construction industry relies on change; be it change of strategy, change of business model, or change of supermarket market share. All these things can create work for construction firms and consultants as they generate the need for changes to existing facilities, the need for new types of facilitites, as well as work resulting from re-brands and face-lifts.
I can see three areas in which the construction industry stands to benefit from Tesco’s recent dissappointing results.
1. Strategic Changes by Tesco
It is only last week that the results were announced but already Tesco is reacting by planning to change its strategy. I have read that there will be more of a shift towards internet based sales and also that stores will be more tailored for the demographic of a particular area (bluntly speaking more value beans in poorer areas and more Teso Finest range in affluent areas!)
A shift towards internet sales may resut in less new stores being built but the company will likley need more warehousing space, distribution facilities, and office facilities through which to process orders. There may also be the need for data centres and IT infrastructure to be installed.
Similarly, tailoring stores for a particularly location will create refresh/refurb work in existing stores. The desire to tailor indivdual stores may suggest a requirement for a stronger design input and a move away from generic standard designs. This could create opportunities for design and architectural consultants.
2. Expansion by Competitors
Sainsbury’s, Morrisons, Asda, M&S etc are likely to be buoyed by Tesco’s misfortune. They will certainly want to service their increased market share and lay foundations for further growth. This may result in these chains expanding with new stores and distribution centres.
Only recently, Morrissions have announced expansion plans and Asda have announced plans for 25 new stores, 3 Depots, and the refurbishment of 43 existing stores. It is likely that the others will follow suit, if they are not already doing so.
3. Shift In Global Focus
Like many global UK outfits, Tesco may choose to try to preserve the status quo in the difficult UK market and look overseas for growth. To be fair this is already happening to an extent and approximately a third of their sales and profits now comes outside the UK (I believe they operate in around 13 countries).
They are looking at opening around 25 new stores a year in China for example just to keep pace with the growing demand of the Chinese consumer. They are also making progress in India through their Star Bazaar venture. Having worked in both India and China I can vouch that the Chinese model is definitely tailored to the Chinese consumer (think live food) and the ‘supermarket’ model doesn’t really exist in India so they should do well there.
Overseas expansion by Tesco (and others) should benefit British contractors and consultancies. Many descions around these overseas ventures tend to continue to be made back in the UK and the descision makers want to take advice from people and teams they have worked with before.
Finally, lets not forget that Tesco remains an extremely successful supermarket business with a quality long term management trackrecord despite the recent results. Companies like this are always investing in innovation, best practice, and continuous improvement which will always yield opportunities for contractors and consultants alike.
