Can Tesco grow again in Britain?

Tesco trolleys

Tesco's results are a story in two parts. There remains momentum behind the group's overseas businesses and group sales in total rose more than 7% to a mind-boggling £72bn.

But the core of the group in the UK is in the doldrums, with trading profit falling 1% to £2.5bn.

There will be worse to come, because this year's profits will be reduced by the £600m of increased overheads to revitalise the UK stores, which includes the salaries of 8,000 new shop staff.

Which is why Tesco is agreeing with City analysts that in the current year, group profits will barely increase at all, even with further growth in Asia and Eastern Europe, and an expected reduction in losses at the group's controversial US business, Fresh and Easy.

Can the chief executive, Philip Clarke - who took over a year ago - restore momentum?

His analysis, he tells me, of what went wrong is that Tesco invested too little in its existing stores and even took money out of those shops, in part to finance the growth overseas. The implication is that with its 30% market share, Tesco took its British customers for granted.

So he is spending money to improve customer service, make the stores friendlier, and tailor the product range to what local people say they want (via the data they provide in their use of loyalty cards).

There will be fewer new stores - new selling space is being cut from 2.4m square feet to 1.5m square feet this year, a reduction of almost 40%.

Or to put another way, there been a bit of a shift away from getting bigger to getting better - which includes a so-called "refresh" of 430 existing stores, at a cost of £400m, to make them rather less clinical and intimidating.

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Stores will tailor product ranges to what local people say they want, via data they provide in their use of loyalty cards”

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Also, there will be a big expansion of what will be available over the internet, to 80,000 lines by Christmas, compared with 40,000 now. And Tesco is posing a direct challenge to Amazon, by increasing to 200,000 lines the products that other retailers can offer through Tesco's online marketplace.

Make no mistake: this is a turning point for Tesco and - given the group's market share and influence - arguably for the British consumer economy too.

Under its two previous leaders, Ian Maclaurin and Terry Leahy, Tesco went from challenger in the early 1990s to twice the size of its nearest UK competitor, by cutting prices and a whole series of innovations in product ranges and store design. For years it was not only the biggest store group by far in the UK but also the most admired and - arguably - the most feared.

Businesses have a lifecycle. There are very few examples of companies maintaining the kind of growth in mature industries that Tesco achieved. And once the growth ends, as Marks & Spencer and Sainsbury demonstrated in the 1990s, restoring it will certainly not be easy, and may prove impossible.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 20.

    here we go again - it's all about the GOD of GROWTH, how about the customer, value, service, quality & the staff.

    btw: Hope Bobby does a blog on the shareholder revolt at Citigroup - wonderful news at last!

  • rate this

    Comment number 19.

    Tesco's staff are "unhelpful and surely" because they are driven by internal measures to maximise profit & minimise cost (thus stuff the customer); this attitude flows up and down the management chain.

    The internal slogan "Seen to be Green" sums it all up, the outside world of supplers and customers are a cash-cow to be milked but also a threat to Tesco that has to be rebuffed.

  • rate this

    Comment number 18.

    Yes they can recover but only if they go back to doing the good things. It was a bad move to shrink their product range in the smaller stores and excuse themselves by saying 'there's no demand' and here in Wales when the carrier bag levy was introduced they simultaneously stopped giving green points for re-using bags! Sainsburys didn't. How mean can you get.

  • rate this

    Comment number 17.

    Of course Tesco can grow again. It will take time and careful strategy. I used to do most of my shopping at Tesco. I now shop there less and buy more at Aldi because they are generally cheaper and nearer to home. But they make Tesco feel like Fortnum and Mason. Tesco staff are no different from anywhere else. Some are good, some less so. Tesco are right to develop their online business.

  • rate this

    Comment number 16.

    People are at last realising what a poor experience it is shopping at Tescos. Our local superstore is on a par with an 80s eastern European set-up. No wonder Sainsbury and Waitrose are doing well proving that it can be done without the arrogance of Tesco who seem to think that what they want suits the customers.

  • rate this

    Comment number 15.

    My son graduated from uni last year with an hons degree in business and finance and like many in his position has taken any job he can which means he's now driving a dotcom delivery van for Tesco. His view is that the quality of Tesco management is appallingly inflexible, unimaginative and disinterested. Time for a major shakeup perhaps.

  • rate this

    Comment number 14.

    I think what Dibby said is correct.
    Tesco is no more bothered about the quality of the food they sell.
    several times I have seen rotting fruits on their shelf, and staff did not bother to remove them when reported. I think their thoughts are like, 'if someone takes them, tesco makes profit'.Tesco says half of the truth "Every little helps". The slogan should be "Every little helps Tesco richer"

  • rate this

    Comment number 13.

    Did they only make £2.5 billion out of us!

  • rate this

    Comment number 12.

    Tesco not only took their UK customers for granted, they took them for mugs- misleading price tags, reducing the volume of products while keeping the price the same, selling 'old' fresh produce that looks fine on the shelf, having just come out of cold storange,but turns within a day of getting it home. They are also no longer cheaper then their rivals. I stopped shopping there. Staff are rude.

  • rate this

    Comment number 11.

    At my local Tesco Express, I was served the other day by someone making a mobile phone call...

  • rate this

    Comment number 10.

    Surely there comes a size when constant growth is unrealistic? With 30% of the market already it's far from certain that the government would even allow them to grow any more.

    Perhaps shareholders should be happy with their already fairly healthy dividend income and not expect infinite capital growth?

  • rate this

    Comment number 9.

    I know Tescos are in decline the signs have been there for a couple of years ... since then it has no longer been possible to buy a simple snacking steak and kidney pie at any of their stores' cool counters

    ... however you can buy one in their competitors stores ... it is what drew my attention to the improvements in their competitor stores ... so now if I have a choice its not Tescos I visit.

  • rate this

    Comment number 8.

    One of the first things they need to sort out is the staff, our local Tesco supermarket has the most unhelpful and surly staff but I have also found the same attitude in a Tesco branch in the Republic of Ireland. Customer service should be a priority as well as re vamping old and tatty stores.

  • rate this

    Comment number 7.

    Another way of looking at Tesco's is the lead they give in the terms and conditions of their employees and their treatment of suppliers. In both cases there is much to account for. Consumers are manipulated in their purchasing decisions but I do not see any real difference between supermarkets including Waitrose and the Coop. The bringing of employment in new shops is countered by loses elsewhere.

  • rate this

    Comment number 6.

    They certainly have sufficient capability to turn it around - but it wont be easy. With marks and sparks it took a couple of false starts to get the business back on track. Suspect the same will be true here. Strategic work of this nature is hard, costly and uncertain.

  • rate this

    Comment number 5.

    I do not want Tesco's growing in the UK. They are the Dixons of grocery retailing with uninterested staff whose interests are last nights TV and the end of month pay packet. They display the typical UK attitude of their Directors - "sod the customer/shareholder" - milking customers and suppliers for ever more unmerited rewards. The unacceptable face of UK retailing - too big and too greedy.

  • rate this

    Comment number 4.

    Inevitable. When you are at the top the only way is down. Tesco's rivals have simply upped their game and are catching up. No surprise at all and shows real competion.

  • rate this

    Comment number 3.

    Can Tesco grow again in Britain? Probably but only eventually.

    We have seen Sainsbury and Marks & Spencer go through an identical experience where the boardroom loses touch with the customer. It takes years for this to become apparent and years to correct.

    The question we all need to ask is why? I would say its hubris.

    The banks are the same: arrogant and indifferent to the customer.

  • rate this

    Comment number 2.

    Of course Tesco CAN grow. But should we let it? Tesco could buy Sainsburys or Morrisons or even Asda from Walmart - so it could grow.

    But it should not grow.

  • rate this

    Comment number 1.

    Sainsburys has done it their stores are much nicer to go into and they have got a much better range mix also you are not constantly having to get around the large online shopping trolleys which are such an annoying feature of Tesco.


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