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
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    Comment number 160.

    It's interesting, the claims that times are hard and trade thin. I've just 'phoned round to buy a new car. Only one of the three traders bothered to get back to me within the agreed interval with a price. No one's imported sufficient to meet demand. Meanwhile the manufacturer struggles to profit. I've just left a quiet pub through grim music. "Sorry but we like it" said the bar staff.

    Erm...

  • rate this
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    Comment number 159.

    Bideford has an ASDA and a TESCO the only reason i shop at Tesco is because ASDA carpark is always packed but Tesco is always remakably mostly empty. There are some things i buy from both stores but on the whole ASDA is cheaper bigger and a better. The Tesco store is just located in the wrong place and the prices are too high for most things so i pick and choose between the stores.

  • rate this
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    Comment number 158.

    145 Nautioner - you are trying to make anti-corporatist anti business world view fit a set of much more set of positive facts. Its hard. A big british business is changing its model to respond to customer choices. If its succesful it will continue - if its not it will fail to be replaced by alternatives that are better aligned with customer preferences. Its capitalism working. Get over it.

  • rate this
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    Comment number 157.

    It's very difficult these days to get full-fat yoghurt in any supermarket. Damn food fascists.

    Bored of bashing shops now.

    When is RP going to report on the Barclays shareholders rebellion? I much prefer bashing bankers.

  • rate this
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    Comment number 156.

    Oh dear looks like Tesco are in for a difficult period after reading the comments on this discussion board. I've got to say I'm not surprised they have become very complacent. Most friends and family feel that Tesco has changed over the last couple of years, taking us for granted and profiteering. They have taken over many towns but don't do anything for local communities!!!!

 

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