Tesco retreats as Clarke puts the brakes on
Supermarket pulls out of the space race with plans to slash spending and cut prices
TESCO’S chief executive pledged yesterday to put the brakes on its UK expansion and spend £200m slashing prices as Britain’s biggest grocer seeks to revive sales and win back falling market share.
Speaking at an investor conference, Philip Clarke laid out his latest turnaround plan, which he is counting on to tackle fierce competition from discounters and counter changing shopping habits as consumers move online.
Clarke said the company will halve the amount of new space opened this year to just 700,000 square feet, from 1.4m square feet last year, signalling the end of the space race that supermarkets have been locked in for over a decade.
Tesco also plans to reduce the number of one-off promotions and invest £200m instead in keeping the prices of everyday items such as carrots and cucumbers consistently low.
“There is a lot of volatility on pricing in the UK market right now and what we want to do is stabilise our pricing further,” Tesco’s UK managing director Chris Bush said.
“We will still have promotions but they will be fewer than we had in the past and will be more focused on genuine deals that customers can trust,” he added.
The move will be seen as a direct response to rising competition from discounters as well as Asda, which has already pledged to spend more than £1bn on price cuts. The retailer scrapped vouchers altogether last year. Tesco will also take on online rivals like Ocado by opening more click and collect locations and introducing one-hour delivery slots.
The changes mean that Tesco will sacrifice its industry-leading profit margin target of 5.2 per cent.
“The margin will be what it will be,” finance chief Laurie McIlwee said yesterday. “I can’t give a specific margin because there are some uncertainties in the market … We need the space to operate, we don’t want to be backed into a corner.”
Capital expenditure will also drop by £500m this year to no more than £2.5bn a year for the next three years, its lowest level for 10 years, as the group opens fewer large stores and focuses instead on ramping up its store revamp programme. This compares with £6.6bn of spending at its peak in 2008-09.
Like its mid-market rivals, Tesco has been squeezed at both ends by upmarket rivals Waitrose and Marks & Spencer, as well discount retailers.
But Clarke argued yesterday it could still be “the broadest church and yet the most targeted retailer”.