Billionaire value investor Warren Buffett made headlines (when doesn't he!) when his company Berkshire Hathaway Inc. first purchased shares in leading UK supermarket chain Tesco PLC in 2006.
In what has definitely been a rarity for the famed investor, Buffett has actually lost money on this investment and it's recently been reported that he's now exited most of his Tesco holding at a loss. No doubt Buffett has learnt lessons from his experience with Tesco and it's likely there are lessons for shareholders in Australia's two leading supermarket owners Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) too.
Despite its significant market share, the share price performance from Tesco has been less than stellar for many years. Over the past decade the stock is down around 14.5%, while over the past one and five years the share price is down around a whopping 40%. Overall, not what investors would expect from such an established retailer.
More bad news
Tesco's latest quarterly results last week have done nothing to quell investors' concerns – the share price has dropped 9% in the past five days. Amongst the negatives in the quarterly release were news that sales declined across all operating regions, a trading update was given which downgraded the company's guidance for the current year, and shareholders were told to expect a 75% reduction in the interim dividend. Ouch!
Competition the cause
Many observers of Tesco have blamed competition from the likes of German-based Aldi as the cause of much of the firm's woes. Given Aldi also has an ambitious roll-out plan for its Australian business it's vital that shareholders in Woolworths Limited and Wesfarmers Ltd (the owner of Coles) understand the drivers of Tesco's problems and remain alert to them in an Australian context.
