The recession's impact on the UK's cut-throat supermarket sector will be laid bare this week when Tesco, the country's biggest retailer, unveils flat first-half profits.  

Tesco will say on Tuesday that pre-tax profits for the six months to the end of August were £1.46b compared to £1.45b last year, according to analysts' forecasts. It will be the first time since 1999 that interim pre-tax profits at Tesco have grown by less than 10 percent.
Like-for-like sales at the chain are expected to have grown by around 3.5 percent, a slower rate of growth than at Tesco's rival chains.  
Figures from Ocado, the online supermarket that sells Waitrose products, also show how tough the retail environment is. The internet retailer made a pre-tax loss of £32.6m over the year to November 30 2008, compared to a loss of £39.7m the year before, according to accounts just filed at Companies House.
Although it continues to be loss-making on a pre-tax level, Ocado's chairman Michael Grade, the outgoing ITV boss, said that the retailer made its first ever profit – £483,000 on sales of £338.4m – at the earnings before interest, taxation, depreciation and amortization (EBITDA) level.
UK supermarkets have been involved in a bitter battle for cash-conscious shoppers' money over the last year. As the credit crisis has reduced household incomes, the chains have stepped up their price-cutting, promotion and loyalty-related activity.
Consumers have benefited. Clive Black, retail analyst at Shore Capital, said that the rampant levels of competition between the “big four” chains – Tesco, J Sainsbury, Asda and Wm Morrison – make them “four of the best mass-market retailers in the world”.
But it has been a bruising time for the chains themselves. Tesco's figures this week will suggest a sharp slowdown in profit growth. For the last 10 years the supermarket, which is run by chief executive Sir Terry Leahy, has reported double digit profit growth at its half-year stage. This rapid growth has seen it increase its market share from 13 percent to over 30pc in little over a decade.
Analysts argue that Tesco's static profits are due to a higher-than-usual interest charge resulting from the increased debt that the company has taken on to fund its growth. Last year Tesco bought the South Korean chain Homever for £950m and bought out Royal Bank of Scotland from a banking joint venture for a similar amount. It borrowed money to do both of these, pushing its interest charges from £88m last year to an estimated £220m this year. Andrew Kasoulis, retail analyst at Credit Suisse, said that Tesco will bounce back in the second half.
“Relatively modest – by Tesco's high standards – first half growth is widely expected and so should not surprise, in our view. The second half is likely to see a return to much stronger double-digit growth as debt begins to fall,” he said in a note to investors.
However, figures from arch-rival J Sainsbury on Wednesday will highlight the relative weakness of Tesco's recent sales growth. Sainsbury's is likely to say that like-for-like sales in its second quarter grew by 5.5 percent.
In August Tesco launched 'Clubcard 2', a new version of its successful loyalty scheme, in which it offered shoppers double the amount of money-off points than usual. The promotion ended last week, although the tokens were valid for three months from the date of exchange.
(Source: Telegraph.com)