Tesco: Keep calm and carry on?

Shopper putting Tesco bags into a car

Tesco is like a juggernaut with a puncture and a worrying rattle in the engine. It's still a pretty big lorry of course - let's not forget that it made £3.3bn of profits last year (admittedly down 6%) and still accounts for 29% of all supermarket trade in the UK (down from over 30%).

So why has there been the major fall in what are known as like-for-like sales - that's sales in its stores and online stripping out the effect of new stores opening (of which there are hardly any). Sales are down nearly 4%, and in the retail world that is significant. Tesco has not seen numbers this bad, it is admitting internally, for 20 years. One retail analyst from HSBC has said that the fall is equivalent to a million customers a week spending £25 less.

Some believe Tesco is becalmed in the middle ground, a no-man's land between Waitrose at the top end - sales up 6% - and Aldi and Lidl at the discount end, where sales are up 36% and 28% respectively.

But Asda, which may be expected to be suffering in the same way as one of the four big traditional retailers, is performing better with sales up. What's going on here?

Tesco chief executive Philip Clarke Tesco boss Philip Clarke has warned sales figures will take time to improve

Tesco is suffering from what is known as the deflation effect - it recently announced cuts in prices for core products like milk and eggs. That has a negative effect on like-for-like sales, which are based on total revenue quarter by quarter. You have to sell a lot litres of milk at £1 (the new discount price) to gain the same revenue from selling milk at, say, £1.50. Any volume increase takes a while to be reflected in the numbers. Asda bit the bullet more than two years ago with price cuts and is now reaping the benefits.

Philip Clarke, Tesco's chief executive, has said that Tesco's figures will remain pretty grim for a while. The deflation effect can take a whole year to work its way through, meaning there will be some pretty tricky quarters ahead.

Mr Clarke is betting that rather than take on the discounters at their own game - a game he thinks Tesco will never win - it is better to offer "Tesco for everyone". So, you can buy a litre of milk from Tesco, you can get a pretty cheap own-label tablet (the Tesco Hudl), you can have a coffee at a Harris + Hoole cafe, you can go to a Giraffe restaurant with your children, you can get an ISA from Tesco's own bank, online they sell not just Tesco products via "marketplace" but are plotting to be a competitor to Amazon by selling other retailers' goods as well. They have an online entertainment service, Blinkbox, a mobile phone service, 16 million Clubcard customers to cross-sell to, a huge petrol business . . . the list is endless.

Mr Clarke says that a long term focus on a wide range of products is the way to turn the business around. Of course, the core offer - the food - must also be up to standard and at the right price. Mr Clarke says that the board are wholly signed up to the strategy. Internally his mantra, I have been told, is "keep calm and carry on". The retail industry is still re-finding its feet after the 2008 crash. Tesco, Mr Clarke admits privately, was too slow to change.

His critics say that by the end of the year like-for-like sales will have to be on the way up if the chief executive is to feel comfortable in his job. Revamped stores will have to show growth. Online, a small proportion (around 7%) of overall sales, will need to show continued, profitable progress. The international businesses will have to improve.

With the share price under pressure (down 20% in a year) the big question will be whether the share holders - the people that own the company - will give Mr Clarke the time he says he needs.

Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

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  • rate this

    Comment number 26.

    Aisles and aisles of processed food: packets, tins, boxes... but their veg is limp, milk is milk, ditto eggs and I can buy these anywhere. Only thing going for Tesco and the other big 'uns is their car parks. And Lidl and Aldi have those.

  • rate this

    Comment number 25.

    A message not just to Tesco, but most other big businesses and upcoming companies - don't go public. Do not join the FTSE and do not become a company run by shareholders.

    Shareholders and The City only care about profits, and that's what the company becomes. A mindless, corporate money maker.

    Stay private and stick to the reasons the company was formed in the first place.

  • rate this

    Comment number 24.

    We used to use Tesco for our main shop every week, now we use Asda.
    Why? The staff are friendlier. Asda staff seem to be under less pressure from store management. You just don't get stressed staff on the checkout desperate for the end of their shift. We have a relative working for Tesco and he confirms the pressure on staff from local management and that must come from higher up the chain.

  • rate this

    Comment number 23.

    Until recently a loaf of Hovis and 4 pints of milk cost £2.00 in Lidl, in Tescos it was £2.80. They've now matched Lidl's price but people have woken up to fact they were overcharging and wont go back.

  • rate this

    Comment number 22.

    Price cutting is all very well but for many shopping is entertainment of a sort.

    Go down the route of Aldi and Lidl and soon it will be like shopping in Soviet Russia.

  • rate this

    Comment number 21.

    Austerity forced alot of people, including myself to shop cheaper elsewhere and frankly if the recover ever reaches my wallet I would not go back to paying more for the same quality.

  • rate this

    Comment number 20.

    "On the right path" to the receiver's being called in at Tesco. Well, we hope so anyway.

  • rate this

    Comment number 19.

    I just get fed up with ALL stores "promotions".

    I want to be able to just simply budget my money week in week out but it is near impossible due to constant price changes.

    A weeks shopping can change by £10/£15+ with some products increasing by £2/£3 or more before they are again "discounted". Its not just Tesco who do this.

    Shoppers want continuity & stability of prices

  • rate this

    Comment number 18.

    Every supermarket is terrible at stock rotation. for e.g. you usually get 2 days to finish a large bag of potatoes if you follow the best before dates. I bet this food is held in storage for weeks before it is put on the shelf. Both consumers and supermarkets would waste far less food if this was sorted out, but I don't think they want this. they want us returning 2-3 times a week

  • rate this

    Comment number 17.

    This is what happens where there is actual competition and not a cartel/monopoly, people have a real choice and use it. Banks, energy suppliers, transport, water companies etc... take note.

  • rate this

    Comment number 16.

    It's difficult to feel sorry for the likes of Tescos. For years they have been undercutting local services with their huge superstores. It's difficult for local butchers, bakeries, milkmen, hardware stores etc to compete and many have gone out of business. They appear to be getting some of their own medicine!

  • rate this

    Comment number 15.

    Shoppers aren't stupid and can see straight through Tesco's ghost price cuts for what they were, price increases.

    It seems that every little doesn't help any more.

  • rate this

    Comment number 14.

    Keep calm and carry on, well if thats your strategy then your going out of business, shoppers speak with there feet, you are doing it wrong, your prices are too high, its simple, your prices are not just slightly above the other superstores they are significantly higher, and its obvious right from the minute you step into the store....

  • rate this

    Comment number 13.

    Tesco's complex promotions, processes and systems, along with wasteful spending on frivolous things (remember the private jets?) highlight that they just don't care about the customer anymore. Combined with the city's need to continually increase profits and you have a company on the downslide.

    For cheaper produce at the same/better quality, you can go elsewhere. So I (and many others!) do.

  • rate this

    Comment number 12.

    There is growing competition and less money in many peoples pockets, it's obvious lower budget supermarkets will do better.

  • rate this

    Comment number 11.

    Poor quality and high prices make me shop elsewhere. And as someone else said, their strategy of swamping areas with shops is just a stain on neighbourhoods, so ugly and unncessary.

  • rate this

    Comment number 10.

    Perhaps Tesco should pay attention to what their rivals are getting right. Aldi charges me around a third less over my whole shop, their fruit and veg is cheap and fresh,and they have efficient till staff who whizz you through at speed. The whole experience is cheaper and faster, especially as I have to queue at Tesco to use one of the few remaining tills. Self Service promotes unemployment.

  • rate this

    Comment number 9.

    Waitrose soaring and Tesco plummeting....

    So even in the competitive world of food retailing, the good guys do actually win in the end?

  • rate this

    Comment number 8.

    I used to shop regularly at TESCO but now I don't for 3 main reasons - poor customer service, too much pandering to ethnic, religious and niche foods at the expense of food people actually eat, and the fact that the quality/sell-by dates is worsening.

  • rate this

    Comment number 7.

    I wish they would stop messing around with discounts and just offer a consistent fair price. I am sick of offers of "buy one get one half price" when the standard price has been inflated to cover the cost of the second. if you don't want 2 items, the only option is to pay over the odds for 1 or chose something else. shopping should be easy, not full of misleading traps


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