Former Tesco boss Leahy plans to double stores of bargain chain B&M in latest discount blow to Big Four supermarkets
- B&M aims to double number of UK shops from the current 400 to 850
- It expects to create 2,500 jobs and add a total of 50 shops by April
- It is in talks with the owner of Homebase to buy stores being auctioned
Tesco’s former boss is giving the beleaguered supermarket another kick by giving it a new discount rival as his B&M chain plans to double its number of stores amid growing sales and profits.
Sir Terry Leahy said there was scope for doubling B&M's size in a few years, from the current 400 UK shops to an estate of 850 shops across the country.
Liverpool-based B&M, which floated in June with a £2.7billion market value and trades under the B&M Bargains and B&M Homestore brands, is a Woolworths-style discounter. It sells canned and packaged food, homeware, furniture, electricals as well as clothing, pet and baby products, and garden items.
Bargains: B&M sells canned and packaged food, homeware, furniture, electricals as well as clothing, pet and baby products and garden items
The retailer opened 20 stores in the first half of the year and expects to have added a total of 50 shops by the end of March next year, with the creation of 2,500 jobs.
The firm has held talks with the owner of Homebase to buy surplus stores being auctioned and said it was in active talks with six different retailers to buy stores and expand beyond its B&M shops. Home Retail, owner of Homebase, has said it wants to shed some of its stores.
The audacious expansion plans announced by Leahy are going to hit further the 'Big Four' supermarkets, which have suffered competition from cheaper stores like Adli and Lidl and local convenience stores.
Discounters have proved successful among cash-strapped shoppers in recent years, stealing customers from Tesco, Morrisons, Sainsbury’s and Asda, which in turn have been slashing prices in an attempt to win back shoppers.
Prices at the checkout are now cheaper than a year ago and sales in the supermarkets have fallen into decline for the first time since records began 20 years ago, figures from Kantar Worldpanel revealed yesterday.
Meanwhile, discount supermarkets have continued to gain market share over the past three months, Kantar said.
Troubled Tesco has issued several profits warnings and is being investigated for having allegedly pulled forward payments from suppliers and pushed back bills to inflate its profits by £263million.
Expansion plans: Sir Terry Leahy said there was scope for doubling the discounter’s size in a few years, from the current 400 UK shops to an estate of 850 shops across the country
B&M has stores throughout England, Scotland, Wales and Northern Ireland, mostly in out-of-town locations, and counts more than 16,000 staff. Its chief executive Simon Arora said he plans to move B&M from being a ‘regional’ retailer to a ‘national’ one as ‘half of the UK doesn’t yet have a B&M within reasonable distance’.
He said: ‘We remain very pleased with our new store programme, which is delivering healthy earnings growth and exceptional returns on capital.’
B&M also has 49 stores in Germany, after having recently acquired an 80 per cent stake in Jawoll, a variety goods retailer based in the country's north west.
The news come along B&M’s half results, which showed revenues increased 29.7 per cent to £739.8million in the six months to September 27, while on a like-for-like basis the UK sales figure rose 4.8 per cent.
Underlying earnings lifted 34 per cent to £73million but higher costs linked to the flotation and a recent refinancing caused a bottom-line loss of £16.4million. Shares were down 0.25p at 269.75p.
Surplus: B&M has held talks with the owner of Homebase to buy surplus stores being auctioned
Chief executive Simon Arora said: ‘The retail environment in both the UK and German markets remains highly competitive.
‘However, our disruptive business model, and the value for money we offer our shoppers, gives the board confidence that B&M can continue its successful track record of growth.’
Sir Terry said: ‘B&M has delivered good momentum in sales, profits and cash generation during the first half whilst at the same time pushing on with rapid store rollout and investing in new infrastructure and team capability to support this long-term growth.’
Sir Leahy, who was Tesco’s chief executive from 1997 to 2011, helped Britain's biggest supermarket to flourish, envisioning its international expansion and pioneering out of town stores.
B&M raised eyebrows in June as it emerged Leahy’s stake is held through a fund registered in the Cayman Islands.
The prospectus showed the UK-based retailer has its tax domicile in Luxembourg, and the main shareholders have links to the tax-efficient Cayman Islands.
Leahy is a senior advisor to US investor Clayton Dubilier & Rice, which owns a large chunk of B&M.
Simon, Bobby and Robin Arora, who bought the chain in 2004, got another payday from the flotation, having already received an estimated £900million when they sold a controlling stake to private equity firm Clayton, Dubilier & Rice in December 2012.
Selling shareholders, including the Aroras and funds managed by CD&R, pocketed about £1billion in the flotation, while the company itself received £75million.
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