LET’S keep things in perspective here. Tesco isn’t exactly struggling, although you wouldn’t know it from the bad publicity that has plagued it since a profit warning in January. Group profit of £3.83bn was up by five per cent last year on revenues that were seven per cent higher at £72bn. A distressed retailer this ain’t.
Even in the UK, the source of its recent woes, it is still by far the biggest supermarket, with a market share of 30.2 per cent, compared to 17.9 per cent for Asda, its nearest rival. Its margins are still double those of most competitors.
That doesn’t mean the direction of travel in its domestic market isn’t troubling. Sales excluding new store openings, VAT and petrol have been falling all year, with each quarter bringing a sharper decline. Sales on this like-for-like measure fell 0.1 per cent in the first quarter, then 0.9 per cent in the second, a further 0.9 per cent in the third, and 1.6 per cent in the fourth. A primary school maths pupil could spot the pattern.
It would be wrong to lay the blame squarely at the feet of Philip Clarke, who has been in post for just over a year. Tesco has been ceding share since the end of 2007, when its slice of the market peaked at 31.2 per cent. Retailers of this size don’t sour so quickly. Sir Terry Leahy, Clarke’s predecessor, might have left the c-suite at just the right time, but he too must shoulder some responsibility.
The curse of complacent incumbency is the culprit. Years of underinvestment in its supermarkets and sales staff are beginning to show, as is the sizeable distraction of its largely successful international expansion. A collapse in demand for the kinds of non-food items that Tesco had made large inroads into, such as flatscreen TVs and hi-fis, has also taken its toll.
There is much common sense in Clarke’s turnaround plan. He will spend more on staff, especially those manning the fresh produce counters, a strategy that has already seen a group of 200 pilot stores buck the trend by posting like-for-like sales growth of 1.1 per cent since Christmas. Some tired stores will be tarted up, more will be spent on the group’s website, and product ranges will be refreshed and repriced.
While Clarke’s heart is in the right place, he isn’t putting enough money where his mouth is. The £1bn investment is small beer when you consider the scale of the group’s business. By the end of 2013, just a quarter of its stores will have been refitted. In fact, when you allow for the huge reduction in store openings – Tesco will add 38 per cent less new space than it did last year – UK capital expenditure is actually going down.
So the pace of change will be slow. Clarke, who yesterday promised only “modest progress”, admits as much himself. Investors who look in the preserves aisle for a jar of their favourite raspberry spread shouldn’t be surprised to find a sign that reads Jam Tomorrow.