Britain’s biggest retailer has unveiled its new strategy to ‘put the love back in’ for customers. But can Tesco prove it can provide value for money, and a more positive shopping experience too?
Tesco hasn’t been having a good year. It’s already seen some £5 billion wiped from its share price in a single day, after the first profit warning for two decades. Now, with trading in the UK pushed down by pressure from more buoyant rivals, chief executive Philip Clarke has unveiled a £1 billion revival plan to, as he put it, “improve the shopping trip for our customers”.
Neglected stores are to get an overhaul: think lots of wood, warm colours and new graphics, along with thousands more staff. There’ll be a complete relaunch for Tesco’s own brand goods, some eight thousand products, which account for 40% of their sales. Tens of millions of pounds will be ploughed into their internet business, with the focus on new ‘click and collect’ centres rather than any more giant out-of-town stores. Even their slogan, ‘Every Little Helps’, is under review.
But what’s gone quite so wrong? Natalie Berg, from Planet Retail told Channel 4 News that many of Tesco’s problems were self inflicted, partly due to their obsession with price. “Underinvestment in stores is a major issue,” she said. “Because they were so focused on cost, they neglected their stores… and when you compare their prices to other big supermarkets, they are not always the cheapest. That didn’t leave them much else.”
It seems that Tesco just wasn’t ready for the aggressive response by their chief competitors, which not only tackled them on price, but managed to outdo them on image, too. Their market lead was dented by a more powerful performance by Sainsbury’s, which revamped it’s Taste the Difference range, while slashing prices at the bottom end.
Asda managed to chart a more upmarket course through a partnership with Leiths, while managing to undercut Tesco on many popular products. And at the top end, Waitrose has seen a strong performance translate into a rapid expansion around the country. In contrast, shoppers were singularly unimpressed by Tesco’s £500m Big Price Drop, which managed to alienate them by reducing their Clubcard loyalty points in exchange.
Tesco CEO Philip Clarke says he is going to 'put the love' back into Tesco reports Business correspondent Sarah Smith. That he wants to see more heart in the stores. But is it too late? We all know how difficult it can be to try to restore a loving relationship once the magic has died. Have we all conclusively fallen out of love with the Tesco mega brand?
In the middle of a revamped Tesco store in central London - purple and green paint, better lighting and a warmer temperature - the boss took questions about where it had gone wrong. He admits the UK stores have become unwelcoming and promises to do better. There will be more staff in future as well as better value products. But he told me things only have to change a little bit. It’s all about tiny degrees of change he said.
I asked him why people had such negative feelings about Tesco. Channel 4 viewers who contacted me on Twitter today complained the company are seen as takers not givers - contributing nothing to their local communities. One even called them "Grotesco". That’s going to take more than small degrees of change to address. Again Mr Clarke said small changes would make a big difference and claimed that local stores would soon be doing more for their communities - he didn’t give any specifics on that.
So what about the one big change that many customers would welcome? Getting rid of the self-service tills. Mr Clarke did admit that some people hate them. An 'unidentified item in the bagging area' is a scourge of modern society. But he claims most customers are getting used to them and that many people enjoy being in control at the checkout.
He is trying hard to look as though he enjoys being in control at the very time the Tesco announces it first ever drop in UK profits. And thinks he can get us to start enjoying shopping in his stores again.
But before anyone gets too sorry for Tesco, it is still the biggest private sector employer in the country, and the biggest food and drink brand, with around 18 million customers every week. It has siezed every opportunity to grow beyond its core business: first clothing, toys and electrical goods, then banking, telecommunications, and even a legal service.
Rapid expansion overseas, especially in China and Thailand, has proved lucrative, with profits in Asia up 22% to £737 million. However it hasn’t seen the same success in the United States, where the Fresh and Easy concept has been branded a disaster. After last year’s losses reached £180 million, major shareholders are putting pressure on Tesco to ditch it altogether.
But perhaps the biggest problem for Tesco is that it has just got too big. Ian Cheshire, chief executive of Kingfisher told the Telegraph: “It gets harder, the bigger you are to keep the momentum and growth…it is really critical that you have a real sense of purpose. If it’s purely transactional you don’t have an enduring relationship with customers, you’re just taking their money.”
And even though Tesco has given millions of pounds to charities and community work, it has attracted a far more negative image than its rivals: accused of land-grabbing, destroying the High Street, driving farmers and producers out of business, fuelling obesity. Trying to turn that around might require more than a bit of soft lighting and wood panelling in a bunch of new-look stores.
“The business model is broken slightly, but it’s not beyond repair”, says Natalie Berg. She believes Tesco has planned a sensible strategy, addressing the basics rather than attempting some grand new gesture. “There are lots of little things which they need to do better”, she says, citing the neglect of run down stores, and the lack of investment in the own-brand label that makes up such a huge percentage of their business.
But Tesco hasn’t turned itself into the global giant that it is, without knowing a thing or two about strategy. The decision to diversify into areas like banking and other services might appear to be spreading itself too thin, but that kind of business comes with a serious, 30% profit margin – way above the 5% margins in the grocery trade.
In the end, though, customers are looking not simply for cheap prices – they can get those at most supermarkets nowadays – but a brand, and a firm they can trust. Tesco analyst at Kantar, Himanshu Pal, said there wouldn’t be an overnight recovery. “It only takes one shopping trip to disappoint a customer, but it takes much longer to change perceptions and regain shoppers’ trust.”
Even for the nation’s biggest retailer, then, it’s not just about value – but values. Today’s shoppers might be thrifty, but at a time when they’re really spoilt for choice, quick fix cut price solutions simply won’t cut it.