Saturday, July 22, 2017

Expert opinion: Tesco profit falls 6%

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Tesco’s business has taken a hit for the third year in a row as group level profits fell 6 per cent to £3.3bn in the year to 22 February while it posted a fall in its China and European arm.

The retailer is investing heavily into its multi-channel and customer data strategy and recently announced a £200m round of price cuts to stave off pressure from Aldi and Lidl.

As shoppers turn away from big stores and shop in convenience stores, Tesco have sub-let space to gym operators and discount department store Original Factory Shop in its largest stores.

Here’s what the experts made of the results:

Bryan Roberts, Retail Insights Director, Kantar Retail EMEA.

“While the decline in profitability and like-for-like UK sales comes as no surprise, it marks the end of a disappointing year for Tesco. Philip Clarke is coming in for a lot of harsh criticism from assorted commentators and ex-colleagues, but we hope that this is the end of the beginning rather than the beginning of the end for his tenure. He has made some tough but necessary decisions on international in particular, but there is still much to be done, in Ireland and Central & Eastern Europe in particular.

“In the UK, the two missing ingredients are clarity and consistency. The proposition, particularly in pricing, is muddled and confused. Tesco doesn’t necessarily need to have the lowest prices to recover – instead its pricing needs more clarity, predictability and transparency.

“Instore standards and execution are incredibly haphazard. Some Tesco stores, in and around London especially, are in the finest shape we’ve seen, while others around the UK are mediocre at best. While there is a lot of great work being completed by Tesco in areas such as online, convenience, digital and London, we are still awaiting some genuinely transformative efforts to regain momentum in Tesco’s mainstream supermarkets across the UK as a whole. Putting shoppers, rather than shareholders, back at the heart of the business would be a good starting point.”

Danielle Pinnington, Managing Director, Shoppercentric.

“Today’s Tesco news isn’t to be unexpected because such a big turnaround was needed and this takes time – especially with the discounters continuing to redefine the market. It isn’t simply a case of reclaiming old ground, but of working out the new landscape and defining which part of it is up for grabs. Despite the headline news however – there are glimmers of hope with the newly refurbished stores actually showing sales growth, and it’s extremely refreshing to hear a chief executive talk so openly and candidly about the need to differentiate beyond price alone.

Shoppers these days are of course constantly bemoaning the price of food, so no doubt that price wars in general will help their cause…but in isolation, they are unlikely to help individual retailers as all price wars do is encourage shopping around and disloyal shopping behaviour. No surprise then that Tesco’s latest price initiative doesn’t seem to have taken shoppers by storm, and that there is much still to do to define and own a point of differentiation that will tap into shoppers’ needs.

In addition the lack of impact of the new price initiative reinforces suspicions of a continuing disconnect between Tesco and shoppers – despite the fact Tesco has the treasure trove of Dunnhumby data at its fingertips. So are Tesco really listening to shoppers and finding solutions to their needs, or just coming up with ideas based on Tesco’s own business needs?

With so much choice now available shoppers are not just being savvy about price, but also savvy about where and when they shop. They are picking and choosing the stores that suit them based on their needs as individuals, whether it is about lowest price, best quality, bes

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