Why Profits Matter

tesco2Is a supermarket company entitled to make a profit? Of course it is. Does a supermarket company’s adoring public care about the profit the business makes? You bet. How do customers get to hear about a supermarket company’s profits? Well, if the supermarket company in question is listed on a Stock Exchange and is therefore obliged to follow forecasting and reporting rules stipulated by that exchange, then the answers to all sorts of questions, including the ones about profit, can be found in the paper and on the web.

The Tesco finance team appears to have temporarily misplaced its abacus.  Tesco has overstated  its half-year profits by £250million was. Analysts suggest this to be  ’principally due to the accelerated recognition of commercial income and delayed accrual of costs’.

Aha! Here are my 5 pence worth.

‘Commercial income’ is retail-speak for money generated through supplier deals, be that case allowances, shelf allocation fees, weekly promotional activity or catalogues. The term ‘accelerated recognition’ suggests that monies handed over by suppliers amounted to less than was contained in the forecast at the beginning of the financial year. And the only way that can occur is if the supplier agreements are incentive based; i.e., determined by the volume of stock the retailer manages to move through his promotional activities.

Why would a retailer not be able to move the amount of stock they had forecasted? How about – because he is loosing market share…

A retailer’s accounts are finely balanced between the money he pays for goods, the price he charges their customers, the fees he can demand from his suppliers for granting improved access to shelf space in numerous variations, the competitive position taken in the marketplace and market share percentage achieved. Wheels do not come off overnight. But when the first wheel is as loose as it appears to be at Tesco and if the operator is as significant as Tesco, then a fundamental shake-up of the market place is not an unrealistic expectation.

Comments

Comment from jack
Time April 11, 2016 at 14:47

this is the comment section