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.

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  • rate this

    Comment number 20.

    It is disgraceful that the Monopolies Commission has not brought Tesco to heel years ago.

    Tesco are almost single handedly responsible for killing the High Street, lowering food standards and making towns BORING!

    We always try to buy in small local shops for vegetables and cheeses as the quality is far higher than Tesco can supply. Our local grocer knows the farmers who supply him personally.

  • rate this

    Comment number 19.

    Who sold us lasagne made with horse meat? - Tesco. Says it all!

  • rate this

    Comment number 18.

    It isn't about shops, it's about what people can afford and at the moment people are struggling to make ends meet; that is why shops like Aldi and Lidl are booming. Even Netto is coming back to the UK

  • rate this

    Comment number 17.

    I'm not surprised. The branches are scruffy, the produce inferior and the staff show no interest in giving good service. Sainsbury is a clear step up, and waitrose a joy in comparison. In fact I find the Asda staff better. Tesco isn't what it was.

  • rate this

    Comment number 16.

    Seven words which make me not want to spend my money with Tesco: 1 &2) High profits, 3, 4 & 5) zero hour contracts and 6 & 7) tax avoidance.

    As there is a lot of choice where I live, luckily I don't have to add to their profits which are still astronomical.

  • rate this

    Comment number 15.

    Phil Clarke was never the right man for the top job and the company will not flourish under his 'guidance'.

    Get back to basics, good product choice, good quality and good prices. Put some theatre back in the stores, people don't like shopping in warehouses!

  • rate this

    Comment number 14.

    It's all cyclical, testing how bad things can get before the punters revolt, Aldi breezed in here last year with cheap prices and decent service and started to wipe the floor with Morrisons - who were otherwise unchallenged in the area.
    Now Aldi's staff appears to have been cut and queues form at the checkout. Meanwhile, having looked into the abyss, Morrisons are getting the business back.

  • rate this

    Comment number 13.

    Does anyone have any stats re Eastern Europeans. Do they mainly shop at lidl or aldi?

  • rate this

    Comment number 12.

    Tesco are their own worst enemy. My local shop has large signs on the back wall stating Butcher, Bakery, Pharmacist, etc which just trumpets the shops they have closed down locally.

    It is disgraceful that they have been allowed to wipe out the diversity of the high street with their unfair buying power. They have even helped closed down Comet and other electrical retailers.

    Downsize Tesco NOW.

  • rate this

    Comment number 11.

    Thrilled to see this nasty, predatory giant is starting to lose its all-powerful grip.

  • rate this

    Comment number 10.

    i work for Tesco but I'm not contractually allowed to say anything negative in social media so i won't...

    all is well and everything is hunky-dory

  • rate this

    Comment number 9.

    Lidl and Aldi are the Junckers of the supermarket world.
    Backed by Merkel.

  • rate this

    Comment number 8.

    I personally prefer to shop at Lidl because of national politics. My perception is that in England the supermarkets (through their extensive lobbying network) tell the government what to do. In Germany it seems to be the other way around!

  • rate this

    Comment number 7.

    Why do the BBC refer to Lidl and Aldi as "discounters", when in truth they are simply retailers who don't use the Dick Turpin handbook for mark-ups on their products

    You'll notice the big supermarkets are starting to "discount" too as the threat from these other two grows by the week

  • rate this

    Comment number 6.

    The quality of Tesco's food has gone down so it is no wonder it is losing to the discounters. In hard times no one cares if there are expensive choices in store, the customers take the cheapest option. I used to shop at Tesco but they have discontinued many vegetarian lines so I shop elsewhere now. The delivery service is also pretty average.

  • rate this

    Comment number 5.

    Lidl and Aldi have been on Britain's high streets and retail parks for 20 years. If Tesco (and others) are losing market share to them, they only have themselves to blame for dismissing them as upstarts and niche traders. This may have been true once, but no longer.

  • rate this

    Comment number 4.

    Complacency is a terrible thing,and a factor in TESCOs admittedly minor decline.Local stores near me in Hull have shelves often empty,product choice has plummeted,cynically value items are left unstocked while expensive ones are re-supplied,the stores themselves have cluttered untidy aisles.Its an increasingly shabby looking brand for a company the turnover of which exceeds the GDP of some nations

  • rate this

    Comment number 3.

    tesco still has too much fat. staff are demoralised by management. it offers 'money back' via clubcard which means its charging too much in the first place if it can give money back. it offers discounts to car owners via petrol so all those without a car subsidise those who do. Lidl and aldi have no shareholders to pay, pay their staff better, often have better goods for cheaper price. doomed.

  • rate this

    Comment number 2.

    It's a question of trust. Price, quality, Value.

    Where Waitrose sits at the top (Trust not price) and where now Tesco's has slipped to the bottom below the normal mid-range and now below Lidl and Aldi

  • rate this

    Comment number 1.

    There is another angle...

    During a 'depression' grocers are one of the few sectors that continue to do reasonably well, but as it ends they do less well.

    Is Tesco's result a further indication of the end of the 'depression' and put further pressure on the fools of Threadneedle Street to return interest rates to ordinary levels (i.e. 5% NOT 2.5%)?

    I think it is!


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