Another update, another set of gloomy results from Tesco. The pattern is now well established, and yesterday’s weak trading numbers didn’t come as a great surprise. But one thing that did surprise was the apparent lack of a forward strategy. What is new chief executive Dave Lewis going to focus on?
The issue of price is arguably the most important one in today’s grocery market. All grocers need to convey a “value for money” message, augmenting this with everyday low prices in order to stand up to the march of the discounters, Aldi and Lidl.
In many stores, Tesco makes it hard for consumers to extract value for money, using a multitude of vague promotional vehicles and messages that can be confusing for the shopper. It needs to simplify this, giving the consumer clear offers and deals in a way that’s easy to understand.
Consumers also face the problem of being able to find low-priced products across the store, especially in the larger Tesco Extra formats. There needs to be clearer range segmentation within categories, so that the low-priced products can be easily seen. Part of the issue is that consumers are often faced with a bewildering amount of choice within many grocery categories.
Tesco has taken steps to make it easier to shop by redesigning fixtures (for example, those that highlight premium parts of the offer), but there is arguably still too much choice. Editing down slightly across some categories would be beneficial for consumers, and also for Tesco’s efficiency.
But it’s not just the range that needs editing; Lewis must also look at the store estate, and how selling space is used. As the largest grocery retailer by some margin, and with an extensive estate with many huge stores, it is inevitable that Tesco will see further declines in its store productivity.
The challenge is to stem this decline as much as possible by looking to use space more effectively.
There are two main ways to accomplish this: introducing non-traditional grocery elements (which are not subject to the same price pressure as the core food market), and ensuring that footfall and spend are maximised.
Tesco is addressing the first point through its Harris + Hoole coffee shop and Giraffe restaurant, as well as beauty services like nail bars, and banking and pharmacy services. Naturally, there’s a debate over how relevant these services are to grocery shoppers, but Tesco’s diversification strategy in this area is correct.
Maximising footfall and spend also means ensuring that stores are attractive destinations, providing good customer service and, of course, the right mix of products at competitive prices. This is basic retail, but it’s something that Tesco has neglected in recent years. Former chief executive Philip Clarke started the job with a raft of store refurbishments, but Tesco still has a long way to go.
These are just a few of the items that’ll likely be on Lewis’s shopping list. But perhaps the biggest task of all is integrating these items into a coherent strategy to reassure investors.
Given yesterday’s share price calamity, that’s going to be quite a job.