Tesco eyes Mothercare, and more?

Tesco is eyeing up Mothercare after its shares took a tumble following a shock profits warning, according to City sources quoted in the Sunday Times. It claims that Tesco had already examined a bid six months ago.

Such a move would bolster Tesco’s plan to turn its out-of-town shops into destinations. This has seen the nation’s biggest grocer buy the Giraffe restaurant chain and take a major investment in the start-up Harris + Hoole coffee business.

The key issue for Tesco is to ensure that any such acquisition would help to optimise space in their large space formats, not only generating incremental traffic, but also equaling or exceeding their average selling intensity levels of £1,000/sq. ft.  Apart from the incremental traffic/sales, by taking well known retail brands in store, Tesco will dilute the 'Tesco domination' effect, rather in the way Aldi makes itself look like a 'normal' retailer through the use of surrogate labels...

Making acquired categories work to these levels means reconfiguring the category's original offer to focus more precisely on consumer-shopper need, fully factor in online potential and piggyback on supply chain efficiencies... In doing so, Tesco will so enhance category performance that they will draw share from independent, specialist retailers...

Taking these possibilities into account, NAMs in all categories not currently optimised by Tesco now need to assess the potential for similar acquisitions, and the consequent impact on their retailer portfolio balance...

Also bearing in mind that Tesco is in no mood to take prisoners...