Every Lidl doesn't help Tesco

 
Demonstrators outside Tesco AGM The Tesco board endured a prickly AGM, while demonstrators stood outside the conference hall

Sitting through a Tesco AGM, as I did this morning, one is struck not only by the passion of the - admittedly self-selected - audience, but also by its irritation.

After years of growth both in share price and dividend under Sir Terry Leahy, the former chief executive, shareholders in Britain's biggest retailer have recently become used to holding a stock which is declining in value.

The share price has fallen 14% in the last year alone.

As one individual shareholder at the AGM said, many small investors (and staff) rely on their Tesco shares to boost their income. Falls have a very real effect on people's wealth.

Others complained of empty shelves in shops and unhelpful staff - issues that Philip Clarke, the chief executive, said would be dealt with.

Of course, AGM audiences are an eclectic - and sometimes eccentric - bunch.

Future concerns

Mr Clarke was thrown by questions on refrigeration problems at a Potters Bar store and the specific growing seasons of oranges and apples in South Africa.

Overall, the atmosphere was as scratchy as a handful of brambles. Mr Clarke pleaded for patience and Sir Richard Broadbent, the chairman, admitted Tesco's share price performance had been "poor".

One shareholder, Anthony Lee, summed up the mood of many: "My concern is the direction of the company in the wake of the departure of Terry Leahy. My worry for the future is whether this board is the right board for the world of retailing.

"This is not a retailing board, and the chairman is not a retailing man." (Sir Richard's background is in Whitehall and investment banking.)

"I think for the future," Mr Lee continued, "Tesco has to think how does it best serve its customers and how does it best work in the radically changed retail environment, with Lidl and Aldi and other cut price retailers snapping at its heels."

Profits at Tesco are down, as are like-for-like sales.

And given that Tesco is now suffering the deflation effect of cutting prices (meaning less cash going through the tills) things are not going to feel much better in the near future.

After announcing a like-for-like sales fall of nearly 4% in June, the next three month period, one seasoned observer admitted to me today, is already looking "grim".

Discount push

It may have been coincidence, but today Lidl announced the creation of 2,500 new jobs to support its rampant expansion. Ronny Gottschlich, its UK managing director, said the discounter would expand from 600 stores to 620 by the end of the year.

Chillingly for the established retail giants, Lidl is looking to expand across the country and is also looking to nudge into more affluent areas.

The middle classes of Britain are starting to see the discounters as a smart alternative.

As Tesco's sales decline, Lidl's have climbed 20% since 2013. They are still a long way apart, of course - Tesco accounts for nearly 30% of the grocery market in the UK whilst the discount sector (made up largely of Lidl and fellow German operator Aldi) is about 5%.

Tesco's response has been to expand the range of services and products it offers.

Lidl sign Sales at Lidl and other discount supermarkets have been rising rapidly

Its supermarkets are now replete with coffee shops and restaurants. The banking arm is expanding. Tesco has its own tablet and mobile phone and offers video and music streaming via its Blinkbox service.

Others are trying a different route. Sainsbury's recently announced a tie up with the Danish retailer, Dansk Supermarked, to open a chain of discount stores under the old Netto brand.

I am told that Tesco did poke a finger around the idea of a similar discounter sub-brand but decided against the radical move.

That is understandable. In the public's mind, Tesco is a value brand already. Sainsbury's has a position in the market slightly closer to Waitrose, the premium brand which has seen robust growth in like-for-like sales.

The Netto deal will allow Sainsbury's to maintain that differential.

Sub-brands can also have a horrible tendency to go wrong. British Airways' relationship with its now defunct discount brand, Go, was a constant source of discomfort. It was eventually bought out by its own management and then sold to Easjet.

Long term

Mr Clarke used the AGM to lay out his stall - not, it must be said, to particularly rapturous applause. When he said he wanted Tesco to be loved by its customers, one shareholder waspishly pointed out, "you're not Madonna".

Mr Clarke persevered. "It's not happening overnight," he said of the reform programme. "The changes we are undertaking are the most radical for generations."

That might be overdoing it a little. Mr Clarke is not trying to build a new version of the Hadron Collider - he's trying to put a retailer back on its feet.

Until that happens, the chief executive will have to face a lot more meetings with grumpy shareholders.

 
Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

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  • rate this
    0

    Comment number 200.

    All those savers queuing up outside Northern Rock understood what a bank collapse means. Forget the bankers; the government was bailing us out. Much of the money in our bank accounts doesn't really exist.

    The issue is sharing the cost of this. The more illusory money you have in your account, the more you owe the collective us. Yet we're certainly not all in Waitrose together, right?

  • rate this
    0

    Comment number 199.

    Tesco has been a byword for cheap and nasty for years. The Germans have been doing cheap and decent for decades. It amazes me that Tesco manages to maintain the market share it does, given its appalling stock and the way it treats its suppliers. I suppose the British have come to appreciate food far more in recent years and Tesco's share price reflects this trend.

  • rate this
    +1

    Comment number 198.

    Have you seen the inflated prices at Tesco Express, just extortionate!

  • rate this
    0

    Comment number 197.

    ref 195. John_from_Hendon

    Got to agree, everyone has to cut back on our food shopping to keep up with all our other ever increasing day to day costs of living

    All because of the government bailing out the fat cat bankers

  • rate this
    +1

    Comment number 196.

    192.Fortune "Tesco directors are paid seven figure remunerations to make quality decisions - they know what they are doing."

    You really haven't much idea how the world really works do you?

    You fit the definition of mug punter to a 'T'!

  • rate this
    -1

    Comment number 195.

    Some of you don't seem to understand...

    The Government has made you considerably poorer (to support the corrupt banks) so you spend less on essentials and as the market leader in providing these essentials then, Tesco hurts.

    Grasp that and you are on the way to wisdom.

    Further, if the government had not made us all poorer then Tesco would have done better. The fact it hasn't proves the case!

  • rate this
    0

    Comment number 194.

    @187, DemoDave averred:
    "Tesco has a value brand which has packaging resembling prison bars, which no one wants to be seen carrying around."


    Oh, dear.

    Tesco Value, and its associated design, was done away with more than two years ago.

    See the BBC Magazine article entitled "R.I.P. Tesco Value":
    http://www.bbc.co.uk/news/magazine-17622856

  • rate this
    +3

    Comment number 193.

    Tesco's have become complacent, it's as simple as that.
    It the differentiation that has caught it out. Public are are not so sophisticated to note the differences. Cheap and simple is good for the majority....rest is for smaller minority such as M&S.
    Tesco not sure which camp they are in!!!

  • rate this
    -6

    Comment number 192.

    All these armchair critics make me chuckle.

    Tesco directors are paid seven figure remunerations to make quality decisions - they know what they are doing.

    There is a reason that the board of directors of Tesco's have risen to their positions and all you commenters' likely have low level jobs.

  • rate this
    +1

    Comment number 191.

    they cut too many corners over the years to make more margin and people have realised theyre selling crap now. The sooner they go down the better.

  • rate this
    0

    Comment number 190.

    We all know companies are trying to make a profit but do they have to squeeze every last penny out? Over £1 billion is such a massive amount.

  • rate this
    -1

    Comment number 189.

    I try to avoid Tesco supermarkets at all costs.

  • rate this
    +2

    Comment number 188.

    177. BBC LEFT WING BIAS OK
    Round my patch I can use 5 if I can be bothered to drive a maximum of 4 miles
    ---
    You can *drive* max 4 miles to 5 supermarkets? Is that in a mobility scooter or a full-sized car?

  • rate this
    +1

    Comment number 187.

    The Tesco business model is like a slow car crash. The two major discounters have a far faster turnover .- shelves in a supermarket have a specific cost and Aldi and Lidl empty them faster and have far lower overheads in terms of staff and premises. Tesco has a value brand which has packaging resembling prison bars, which no one wants to be seen carrying around. Tesco may be too big to change.

  • rate this
    +2

    Comment number 186.

    I work for a UK food manufacturer and supplier to many of the supermarkets, including Lidl and Tesco. The latter are by far the most abusive of the power that they hold. I haven't spent a single penny (apart from the odd figurative one) at Tesco in nearly 3 years. Don't miss it all.

    Like Lidl....you can buy a single pack of whatever you like without feeling you are being ripped off.

  • rate this
    0

    Comment number 185.

    The larger supermarkets thought that consumers were complete mugs and that they could get away with above inflation price increases.

    Eg, I used to buy a pack of 4 yoghurts from Morrisons which each weighed 350g during my weekly shop.

    A year ago, Morrisons increased the price of the yogurt by 10p and trimmed the pots to 300g.

    Yummy as it was, that annoyed me and I now split my shopping.

  • rate this
    +1

    Comment number 184.

    170.Last Socialist

    Lidl fresh was good..now dumped in grade 3/4 fruit & hope cussys won't notice..
    ---
    I think most fruit is graded on appearance not on how healthy it is or what is tastes like. Most Lidl/Aldi shoppers are there to save money and have grown out of worrying about what the fruit looks like if they can save a few bob.. They will sensibly forego a bit of beauty for price.

  • rate this
    +3

    Comment number 183.

    TESCOS HURTS BRITISH PEOPLE

    I am amazed at how much cheaper ALDI is to TESCOs.

    It's probably 30% cheaper every time I go in there. And the environment is much calmer, in TESCOS its very stressful with every label trying to get your attention to buy.

    TESCOs has lied to me about how much things really cost.

    And made huge margins off me.

    Why should I go back to a company that shafted me ????

  • rate this
    0

    Comment number 182.

    You can get male swimwear which is popular in Germany in lidl


    It's oddly coloured thong style speedos with a large beer gut to go with..... Says it all

  • rate this
    +1

    Comment number 181.

    Bought some shampoo from Tesco today, £2.69. Normally get the same brand from The Pound Shop (the clue to the price is in the name). Tesco you should be ashamed.

 

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