THESE were bad figures, Tesco can’t get away from that. Britain’s biggest retailer reported its worst Christmas sales performance for decades on Thursday and warned it would see minimal profit growth next year. Down 1.3 per cent like-for-like (including VAT) in the UK was much worse than any other figures we’ve had from the major food retailers over Christmas. But this doesn’t mean that Tesco is finished.
The performance from Tesco outside the UK continues to be outstanding. Tesco is still the UK’s most successful retailer ever. Nor is it “the Carrefour of the UK”, although it is worrying to see the core UK business underperforming. It is, after all, central to everything Tesco does. So much of the development in the UK presupposes a solid performance from the basic food retailing operation. But that’s where the problems must be.
There’s an old saying that “retail is detail” and for a business like Tesco to start to underperform there must be several reasons. There’s no doubt that food retailing is highly competitive at the moment. Tesco is under threat from Aldi and Lidl as well as Asda at the lower end of the range, while Sainsbury’s Brand Match has affected customers at the upper end of the spectrum. To make matters worse, over a Christmas period which saw people trading up, there have been many adverse comments on product quality.
But for me a key reason has to be marketing.
Tesco highlights the lack of success of the Big Price Drop. Taking cash out of Clubcard and putting it into more focused discounts was the right way to go, though perhaps there should have been some real investment in lower prices as well and the overall execution was hardly compelling. To make matters worse, the adverse media comment about the campaign, questioning how some of the price reductions were achieved, must have undermined it too.
Tesco has been upstaged by Asda. It was wrong-footed by the price guarantee and its response was, to say the least, accident-prone. Tesco could have blown the campaign out of the water had it been prepared to combat it head on with a short-term investment in lower prices. Wal-Mart would not have wanted Asda to be loss-making for an extended period. Yet Tesco’s inept response played straight into Asda’s hands. Add to that Asda’s relaunch of the core own-brand, the development of the new supermarket format, an increased emphasis on quality and we have seen a strong recovery in market share.
By comparison, Tesco’s marketing looks stale. There has been an over-reliance on Clubcard and while the Clubcard data may be useful, for consumers the card is no more than a price promotion and one that is looking tired. Clubcard is expensive. Each Clubcard point ties up approaching 1 per cent of sales in funding it. That represents a substantial proportion of the company’s marketing spend. The decision to double the points on the card clearly had minimal impact. In fact there was one telling comment from Tesco’s new chief executive Phil Clarke in a recent conference call, that they launched the price drop “to increase customer loyalty”. “Loyalty card” was always a misnomer for the Clubcard, but one of the aims of the card was to increase loyalty and in that respect it no longer seems to be working.
Tesco needs to have a fundamental rethink of its whole marketing strategy. It should drop Clubcard altogether and focus all of its marketing effort on rebuilding customer trust and re-establishing itself as a consumer champion. It needs to take the high moral ground and ensure that if the media wants to attack it there are no open goals like dodgy promotional tactics even if that means taking a knock on margins through a further investment in price.
And don’t blame Phil Clarke for these figures. He hasn’t been in the top job long enough. The blame for what is happening now, and particularly for doubling the Clubcard points, has to go to Sir Terry Leahy. Phil Clarke must take responsibility for the marketing errors of the last few months, but he can also pose as the new broom and he needs to do so urgently.
In 1977 Tesco came out of saving stamps and launched operation checkout. It marked the beginning of the revival of the business. The business now needs similarly fresh thinking. It is in a far stronger position than it was in 1977, but if it is to regain its momentum in the UK it needs some similarly no-holds-barred approach.
There must be a renewed emphasis on product quality and a determined effort to restore trust in the business. And it needs a completely new marketing strategy to put that across to customers.
Richard Perks is retail director for Mintel.