Tesco - jam tomorrow?

Tesco store

One word leaps out of Philip Clarke's statement in Tesco's annual results - "sharper". He is talking about pricing but he is careful not to use the word "lower".

Maybe that is deliberate. Mr Clarke thinks that customer loyalty is not only driven by what an item costs. He thinks loyalty can also be driven by deals such as higher fuel discounts the more customers spend.

Some analysts, such as Louise Cooper, are sceptical. She questions whether Tesco has actually done enough on price to really move the needle for customers. A chilling statistic from a Retail Week survey yesterday was that 45% of 2,000 adults questioned thought that Tesco's prices had gone up in the last year.

Only 13% thought they had come down. Aldi and Lidl are likely to be laughing up their collective, nicely tailored German sleeves at that answer.

The question investors will be asking is "has Philip Clarke grasped the nettle" on the fundamentally changing retail market?

Investors have expressed "frustration" to me at the pace of change, pointing to the fact that the fall in like-for-like sales and profit margin squeeze accelerated in the final quarter of the year. Introducing restaurants to stores and selling iPad-style tablets appear, to some, to be marginal issues.

Mr Clarke has brought in greater capital discipline, which is welcome, a far better European distribution model and is still, of course, running a very profitable business. He is also in the right place on multi-channel distribution - the ability to buy Tesco products on any platform or in store.

He will now need to show how he is going to take the battle to the discounters which are slowly but steadily eating Tesco's lunch. In the end, that will be about how much the retailer invests in bringing down prices.

The danger for Mr Clarke is that he finds himself in no-man's land, neither a discounter nor a retailer that can ride the "quality" wave that has lifted Waitrose so rapidly. Mr Clarke says Tesco can be for everyone - but that general message may be hard to get across.

Tesco also has a problem of market saturation - there aren't that many parts of the UK (where Tesco creates 66% of its profits) that don't have a Tesco. That is unlike Asda and even Sainsbury's which can build market share by simply building shops.

There is no groundswell of opinion running against Mr Clarke at the moment among the investors I have spoken to. For each of the Big Four supermarkets, these are challenging times. A sobering thought is that Britain, with the arrival of Aldi and Lidl, is in a position of over-supply. Declining like-for-like sales, falling profits and lower margins may be something we are all going to have to get used to.

Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

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  • rate this

    Comment number 14.

    Pile it high, sell it cheap only works if you employ enough staff on the tills. Otherwise the customer exercises the put it down, walk away philosophy.

  • rate this

    Comment number 13.

    For me it's bye bye Tesco. You pull too many sharp tricks

  • rate this

    Comment number 12.


    Profits at the UK chain are £2.2bn in the year to 22 February,

    while at group level profits were £3.3bn

    Hardly a disaster is it


  • rate this

    Comment number 11.

    Tesco used to sell good quality items at reasonable prices and offer good service. Over the years their offerings have become poorer in terms of quality, value and service.

    Tesco try to compete across the whole market; from the premium quality end right through to the value end.

    Waitrose, Sainsbury's, M&S provide better quality.

    Asda, Lidl or Aldi are better value.

    Why go to Tesco?

  • rate this

    Comment number 10.

    Philip Clarke is the problem at Tesco.
    Disasterous foray into the USA which cost shareholders a lot of profits.
    Eased out anyone who doesn't agree with his master plan to turnaround the fortunes of Tesco.
    The quality of Tesco produce and meat is poor, the store replenishment is a shambles, trolleys not collected, very demoralised staff.
    Clarke must go off into the sunset.

  • rate this

    Comment number 9.

    Dirty aisles, overpriced food deals and - forget the promise we will open another checkout for a queue - 15 minute waits to pay.

  • rate this

    Comment number 8.

    Just as there's an obvious over-supply of shops and retail premises, perhaps there's an over-supply of supermarkets during the recession / depression.

    I think many people shop at Lidl / Aldi now and they won't go back to Tesco even when the depression ends. This is a permanent change to which Tesco has to adjust.

  • rate this

    Comment number 7.

    I do the majority of my shopping at Tesco. It offers huge choice and Tesco Finest Range is excellent.

    However where I believe Tesco has fallen short is with fruit and veg sold at Aldi at least 60% cheaper. Tesco fresh produce prices may as well be sold by Dick Turpin with there extortionate prices.

  • rate this

    Comment number 6.

    Amazing how big business still expects to make the same profit when the nation is in a recession.

    I am shopping in the reduced Isles, where I can buy a loaf of bread for 5p.
    But not at Tesco's.

    All retailers need to stop offering BOGOF deals and sell the stuff at half price.

  • rate this

    Comment number 5.

    Quite glad to see Tesco suffering.

    It serves them right for using Zero Hours contracts.

  • rate this

    Comment number 4.

    I agree with the first commenter Ali.

    Aldi/Lidl (and discounters like Poundland) don't try to offer "clever" deals like the quoted "higher fuel discounts", multibuys, points and so on. They just offer straightforward cheap pricing. The more complex - some would say deceptive - approach is where Tesco is going wrong.

  • rate this

    Comment number 3.

    I don't really like their scones so bit of a moot point if they give me jam tomorrow, suppose I could always put it on some toast.

  • rate this

    Comment number 2.

    Interesting counterbalance to your story today about the massive rise in the number of people using food banks - nearly a million people. While millions quite literally go hungry we discuss the profits of supermarkets. Thanks BBC.

  • rate this

    Comment number 1.

    I shop with Tesco every week and like their quality and pricing. What I hate is how they advertise a deal and when you examine it its not really good deal. There buy one get one free deals, for example, they always bump up the price of just one of the products to make it look like getting two is a good deal. However, if you only want and need one then its rubbish! You end up paying more!


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