What’s the deal with Tesco?

Tesco Trollies, Karen Bryan, Flickr

Supermarkets. They’re there whether we’re craving chocolate buttons on a Sunday night, in need of anything from a wheelbarrow or scented candle, or just doing a weekly shop. And from the security (or lack of), through to just how questionably ‘earthy’ and exposed the fruit and veg look, right through to whether the junk food aisle is stocked with Reeses, Milka or Cadbury, where they are in the world makes all the difference. And we never realise just how fond we’ve become of our British favourites, until we’re on holiday in Spain offended at the on-the-go acrylic yellow couscous pots in place of a meal deal. But is the end of Britain’s ‘big four’ (Sainsbury’s, Tesco, Asda & Morrisons) really on the horizon?

Let’s take Tesco. The retail giant being ‘back in the black’ following 3 years of doom and gloom is certainly a step in the right direction, but looking back to a time when Safeway was still a big player in the grocery retail game, things were much less complicated. Nowadays, consumers’ options are endless. Do we skip the hassle and cost of a weekly shop and pop to the Co-op? Do we up our dinner party game and splash out in M&S? Or does online shopping from the comfort of our sofa seem altogether more appealing? Industry body ‘IGD’ reckons that by the time 2019 rolls around, we’ll all be spending far more cash in these more ‘convenient’ ways. And if the big supermarkets aren’t prepared for changing consumer needs, this could prove disastrous in terms of market share.

The discounters’ lower prices, and ‘no frills’ shopping experience all render them a pretty attractive modern day alternative

But which sorts of companies would be well placed to steal it? In recent years, Aldi and Lidl, the German discounters, have been prepared to step in where the big four are failing, thus placing increasing, near-impossible pressure on companies like Tesco. The discounters’ lower prices, and ‘no frills’ shopping experience all render them a pretty attractive modern day alternative, especially for families counting the pennies. Yet analysts suggest that beyond merely a consequence of austerity, their success can also be ascribed to their targeting of the ‘little but often shoppers’; clearing the shelves of brands that aren’t selling, even stocking copycat ‘big four’ produce. In other words, even if there’s a slight drop in quality, the savings passed onto shoppers compensate threefold. It’s a ruthless, focused and efficient commercial strategy, resulting in tremendous sales growth across both stores.

And this simplicity is where the retail giants have previously fallen down. Back in 2013, and with a view to investing in high-growth business, Tesco bought the ‘Giraffe’ restaurant chain for almost £50 million. With its laid back vibe and giraffe shaped straws, this move to render a Tesco trip family-friendly made commercial sense, on the face of it. Though alongside investment in a range of other businesses, and a move to fill shelves with everything from toys through to electricals, these strategic business moves couldn’t have come at a worse time. As online retail sales soared, Tesco, as well as the other members of the ‘big four’ clan, just weren’t seeing the sales growth they’d built the foundations for.

In a nutshell, the focus has been on edging back towards a more basic grocery shopping experience

And even though today Tesco still holds an impressive control of 28% of Britain’s grocery market, this knock-on industry uncertainty is reflected in the figures; whilst a 31% overall rise in shares this year has been promising, recent data suggests a fall whilst a 31% overall rise in shares this year has been promising, recent data suggests a fall of 7.6%.of 7.6%. In addition, throwback to 2011-12, when Tesco’s underlying operating profit hit 3.97 billion, the 944 million reported from the 2015-16 cycle seems a financial world away. So, ‘challenging and uncertain’ times for the store, in the words of its Chief Executive Dave Lewis. Yet his plan of action for supermarket salvation does seem to be working. And what’s he done so far to bolster Tesco’s position? In a nutshell, the focus has been on edging back towards a more basic grocery shopping experience: lower prices, improved customer service and more effective supplier relationships (hopefully putting an end to any further involvement with Britain’s Serious Fraud Office…). There’s also speculation that Tesco may sell a few of the side businesses.

So in the same way that back in 2013, Tesco’s CEO couldn’t have foreseen just how quickly we’d all start relying on Amazon or ebay, nobody can really predict what the future holds for those companies navigating a now very turbulent retail landscape. But whatever’s next for Lewis, for Tesco, or any of the ‘big four’, it certainly won’t be plain sailing.



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