Tesco Is Still the Best Supermarket in Britain

LONDON -- 2012 was a terrible year for Tesco (LSE: TSCO  ) (NASDAQOTH: TSCDY  ) . It suffered the ignominy of a profits warning and a tumble in its share price. Many said that, rather like Sainsbury 20 years ago, Tesco had peaked and its best days were behind it.

I remember writing an article outlining the many challenges that the company faced. Could the retail giant ever recover? Many, including myself, were skeptical. After all, the investing landscape is littered with the skeletons of once-great companies.

One of the contrarian plays of 2012
Fast-forward a year and it's been a long road, but Tesco has made a decisive comeback. CEO Philip Clark has really shown his mettle. A year ago, he was an unknown quantity and many were worried that he was "no Terry Leahy." But so far he has worked impressively to turn the company around.

He has reinvigorated the Value range, shown real aggression and intent in sorting out the company's price competitiveness, and he has brought Tesco's poorly performing U.S. operations to a stop.

While initially avowing that I would not buy its shares, I was impressed enough to buy in last year while the share price was still beaten down. Like many other wise Fools who bought in at this time, I am now sitting on a tidy profit. With hindsight, the company has actually turned out to be one of the contrarian plays of 2012.

Expanding across product ranges and markets
For me, Tesco is still the best supermarket in the U.K. It provides the widest range of products, from its Value range, its standard products and its Finest range, to branded goods. It provides produce that is, quite simply, cheap but high quality.

Its offer extends beyond groceries to health care and beauty, electrical, furniture, clothing, and financial services -- it provides a breadth that no other retailer can match.

Tesco has already successfully taken its business model abroad, out to markets such as Thailand, South Korea, and Eastern Europe. As the supermarket giant enters markets such as India, China, and Latin America, we can expect these growth markets to make up a larger and larger proportion of its profits.

And that's it. The key test was always whether Tesco could successfully defend its home turf while investing to expand abroad. The company has now shown it can, and this has anchored its recovery and will enable it to grow and increase profits steadily in the years ahead.

Free now
Tesco's strength in the U.K. and abroad has attracted investors from all around the world, including the Sage of Omaha, master investor Warren Buffett. Buffett is an expert at picking shares that are unloved and thus cheap but which have good growth potential.

If you want to find out what it was about Tesco that convinced Buffett to invest in it, please read our FREE report, "The British Business That Warren Buffett Loves."

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