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
    +14

    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
    +10

    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
    +10

    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
    +8

    Comment number 63.

    Tesco has changed the way we shop.
    Spirts are sold in 70cl bottles not 75ml, much of it is 37.5% not 40%. beer in 275ml bottles not 330ml. Slice bread has thicker slices per loaf. Loo roll has wider centers. Kitchen roll has smaller sheets, Biscuits smaller diameter. Salads packed in Nitrogen."Fresh" veg means unprepared. "Fresh" meat means unmatured. Mature cheese means acidic.Etc Etc Ect.

  • rate this
    +7

    Comment number 122.

    Every Lidl helps

 

Comments 5 of 160

 

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