TESCO PREPARES FOR COMPETITION WITH WAL-MART

JAMES FALLON

LONDON -- Tesco here isn't afraid of Wal-Mart.

The U.K.'s largest food retailer said it is prepared to compete with the Bentonville, Ark.-based retail giant both in Great Britain and on foreign shores.

On the homefront, Tesco said it will announce plans for its biggest price-cutting initiative ever. The company said it is stepping up its price-cutting campaigns with plans to invest $162 million in price cuts this year. The move closely followed an announcement by Asda, which was acquired earlier this year by Wal-Mart, that it plans to rollback the prices on at least 4,000 products by the end of this year and on 10,000 products by the end of 2000. Allan Leighton, Asda's chief executive, said the goal is to bring U.K. prices into line with those of Wal-Mart in the United States. In some cases, this would mean price cuts of close to 50%.

Tesco also said it is entering Asda's general merchandise territory with the trial launch of an Internet-based service at its London flagship store on which it will sell compact disks, books and videos it doesn't sell in its stores. Tesco also is considering adding consumer electronics products at a later date. "We will be the world's biggest on-line grocery retailer and we intend to become the U.K.'s No. 1 e-commerce business," vowed Terry Leahy, Tesco's chief executive.

Tesco said it plans an aggressive drive of its own into hypermarkets, non-food categories and overseas territories. Leahy discussed the company's expansion plans in announcing a 19.7% increase in after-tax profits to $443.9 million (274 million pounds) on a 9.9% rise in sales to $14.76 billion (9.11 billion pounds) for the half year ending Aug. 14. This compares with after-tax profits of $370.9 million (229 million pounds) on sales of $13.42 billion (8.29 billion pounds) in the corresponding period a year earlier.

Leahy said 36% of Tesco's floor space will be overseas by the end of next year as the company continues to expand in central Europe and the Far East.

"The consolidation process is just beginning," Leahy said. "We thrive in competitive and changing markets wherever we operate and we are on our way to being one of the major international retailers."