Wednesday, 18 April 2012

every little helps

Overall, group pre-tax profits rose 5.3% to £3.8bn in the year to February.But profits at the UK operation fell 1% to £2.5bn compared with the year earlier. Tesco also said that UK sales fell by 1.2% in the second half of its financial year.

Woe is the world. Tesco Super conglomerate, the Microsoft of the food world, has not made as many billions as previously. All good things come to an end. Upward trajectory is impossible to maintain indefinitely.

But why did profits fall? People spending less? The internet? The departure of Terry Leahy? The backlash against evil billionaire corporations wanting to sack their workers and hire unpaid jobseekers? Farmer's markets?

Doubt it.

More likely is the rather honest answer from chief executive Philip Clarke "Tesco didn't put enough into the stores and maybe took a little out".

What he means is they have not carried out refurbishments of tired stores. Not employed enough staff to man the checkouts and fill the shelves. They haven't kept an eye on competitors who have been moving away from the bags of fresh produce, to loose. Bags of bananas and carrots fit the Tesco logistics well, being able to send them to any size store.
But customers don't necessarily want 10 carrots or 6 apples. They want 1 onion and a few spuds for a stew, and other supermarkets have been seeking out this higher profit margin customer.

Its good that Tesco realise that they need to do something. Often large chains just blame the recession. Or fashions. Or stock levels {as M&S claimed yesterday. Something that just doesn't ring 100% true.Winter stock sales have been very poor because of a very mild winter. I know of a firm that almost went bust this winter, purely because they sold only 1/4 the volume of heavy winter lines they sold last year.} Or rents or something.

When Tesco took the king of the supermarkets crown from Sainsbury's twenty years ago, Sainsburys did not react quick enough. It did not see the threat. It wasn't overly concerned. they had been king for decades themselves. They always would be. But one year their new hi-tech, just in time, replenishment failed and customers, unable to buy the milk they had gone in for in the first place, switched to Tesco and found them cheaper.
And bigger. And with more variety. They've been there ever since.

I'm not a Tesco shopper. The Morrisons cheaper fuel means they get my business. But I did go to Tesco recently. Mrs Q insists that Waitrose is no more expensive than similar products from Tesco. And she's ex -M&S foods so wont accept lower quality.
I very much doubted this. So off to Tesco I trekked. First thing was, it had far LESS variety than the same size Waitrose store. Little in the bakery. Less in the deli. Probably more frozen meals and such, but Mrs Q avoids them, so no chance to check.
Overall Tesco was the winner, but by a slim margin. Slim enough not to bother about unless your budget is very tight.

When I used Tesco, years ago, they were miles cheaper. Even with Mrs Q's M&S 15% discount it was still cheaper to get a pint of milk from the next door Tesco than off the M&S shelves. Either Tesco have overly increased their prices or their rivals have reduced theirs. I expect its a bit of both.

Tesco will address this rapidly. They'll be back with super profits again soon.

17 comments:

Blue Eyes said...

I agree with this. A few months ago I was in my local Tesco and something (can't remember what) irritated me. I remember thinking "Tesco has peaked" because whatever the minor irritation was it was a mistake that the all powerful Tesco Machine should not have made and it reminded me of The Great Sainsbury's Stock Shortages of 2006 (or whenever). The figures bear this theory out.

I go to Tesco because it is the closest big shop. If I had a car I would drive the extra half a mile to the bigger better brighter Sainsbury's.

Many of the things which make the decisions for people are trivial so can be fixed easily. A couple more check-out staff at busy times, making sure there is fresh wholemeal bread on the bakery shelves, ensuring the offers are actually offers not this "two for the price of two" nonsense which Tesco often suffers from.

ivan said...

I find it interesting that Tesco are beginning to think about having fruit and veg available unpacked, the supermarkets here in France have been doing that for as long as I've been here (20 years) and sell more produce because of it.

Regarding Blue Eyes comment about bread. My three local supermarkets have bakeries as a part of the establishment and if you want a particular bread that is on their list but not on the shelves all you have to do is ask and they will have it ready for you by the time you have finished your shopping.

Sebastian Weetabix said...

We stopped using Tesco. The quality of the meat was getting worse and worse, but the final deal breaker was they started adding salt to the soda water! Disgusting. Been going to Waitrose ever since.

andrew said...

Not so sure.

There seems to be a fairly widespread bias (possibly too strong a word) against Tesco amongst a range of people (parents and younger friends).
No-one actually seems to like it or seems to know what it's distictive value is.

20 years ago as poster said, it was cheap
5-10 years ago it was 'value'

Now, it is more like taxes, some of your money goes there, but not with any great enthusiasm.

In a small way think Tesco forgot that everyone has a choice and for the first time in many years, the competitors are offering a real choice.

As Sainsburys found out 20 years ago, once the tide turns, it is very hard to turn it back.

Dick the Prick said...

Are we just measuring ubiquity here? Differentiation of superstores? Blighty is swamped. They can be a very good exporter, 17% wasn't it? Napolean had it right. ASDA fucking rocks!! Wool trousers are expensive and in fucking Huddersfield it takes the piss - £40, made in Mandalay? Hmm... buildings are still here though, wouldn't take much effort if shit hits the fan.

Bill Quango MP said...

BE: Yes, know what you mean. The local giant hyper tesco is good for electronics, dvds, video games, phamacy products and basic cheap clothing but its food has always been a bit poor. I once went to buy something really easy like ribena. There was, in a space a small supermarket might occupy, shelves and shelves of ribena light, ribena orange but no ordinary. Assuming this to be a cock up, I went again a few weeks later and it was the same.
There were other items missing from the range too. Tassimo. Rye bread and other similar types of products. Cocktail sausages and other everyday M&S type middle class snack foods were lacking.
I began to feel too middle class for Tesco.
But that shouldn't have prevented me doing the usual trick of buying toilet rolls, toothpaste, crisps and so on at Tesco. But the saving just wasn't worth the effort.

Ivan: I'm a big fan of Carrefour, which is the world's Tesco. They are everywhere except here.
But they are continental in design, as they should be. No self respecting french housewife wants to buy a pack of fish fingers. She wants fresh fish. Same with fruit.

Whether this trend for loose produce will continue i don't know. Is it freshness, or lower price causing it?
{For the supermarket there is a greater profit / item in selling one banana than selling a bag of 5. But greater revenue from selling the 5.}

SW: yep. The children like sausage rolls. they were just terrible. If no one eats them, there's no saving. Sainsburys was way better.

Andrew: Quite agree about the 2 for 2. Sometimes its worse. £1.50 each or 2 for £3.25.
But that effects them all as prices move so quickly, and offers change.

Agree also about the beginning of the decline. But Tesco have the talent,will and resources to deal with it. And they recognised a problem early. it took M&S years to acknowledge they were doing something wrong. A firm I worked for never acknowledged that others were muscling in and it went from £60 million to £1 million market value in just 5 years.

Also, younger people when they want a phone or a TV have Tesco on their visit list.
It never, ever occurs to me. I'm barely aware that they sell such stuff.
I'd always go to a garden centre or DIY store for a BBQ.
Many, many families think Tesco as a first call.

£1 in £9 is spent there. They own UK retail completely.
Rivals have a steep, long, tiring, dangerous climb just to get to base camp stage 1 on Tesco mountain.

Bill Quango MP said...

DP. Why are you buying wool trousers? {BTW - we fought Napoleon because he wanted in on our wool trade. Kicked his butt.
Then in about 1840 cotton came along and no one wanted heavy, hot, itchy wool trousers ever again.

Well...almost no-one.

Graeme said...

just kicking in with my random observations about Tesco...

fresh fruit and veg - their bins are full of the stuff that the guy with the market stall sells you, when the nice stuff is out front. It is shrivelled and wrinkly at best and you have to buy it in big packs.

The meat is - I want to know who buys such horrible looking meat. I blame it on Ctulhu.

Cheese - long rows of slabs of Somerset Cheddar, Norfolk Cheddar, Orkney Cheddar...no real cheese in sight. Where is the cheese?

Beer - mega discounts on non-beer such as Stella Artois (it's not a premium brand in Belgium by any stretch of the imagination) or various Mexican varieties. Who would ever buy Mexican beer if they had a choice?

I think Tesco have gone down the route that M&S did a decade ago - they have gouged the suppliers so much that they are getting supplied with garbage. There is no real value there at all.

Blue Eyes said...

I think Graeme you might have a good point there. A friend of a friend was launching a new drink a few years ago and went to see the appropriate people at the big supermarket chains. Sainsbury's drove a hard bargain on price and then Tesco just said "we'll give you 10% less then whatever Sainsbury's said they will pay you".

That only works when there's no competition. When people moan about the way that Tesco treat suppliers I always say well if the supplier is selling a quality product then the supplier will be able to negotiate, only when the quality drops do you have to beg a "bastard" to buy it. Tesco sausages get worse and worse, now I think about it.

As for cheese, Sainsbury's have a decent selection. My local Tesco had a good cheese area but after a revamp it was made much smaller and merged with cooked meats.

This is an interesting discussion actually. I have been a cheerleader for Tesco in the face of the hand-wringing lefties who claim Tesco is destroying the economy. But now I've stopped to think about some of the quality issues I'm thinking "maybe I should give Sainsbury's another try"!

This is how quickly confidence can evaporate.

On the consumer electronics front, Tesco is excellent though. I recently sold an ancient used phone via Mazuma for significantly more than a similar replacement could be bought in Tesco!

Mark said...

I was looking at the tesco share price thinking the company looked under valued. Still sound finances, rising year on year, low debt etc etc. The thing that I battled with though was that I don't shop there. If I had a choice I would (and do) shop at Sainsburys). Tesco's is my bab up. Been there a handful of times over the last few years.

The thing that I noticed is that I seemed to spend a more money t tesco than sainsburys and come away with less. The few times I have been there pop in an spend easily £30 on a handful of stuff. I don't know how it works but to me Sainsburys has always been a better overall "value" shop. The other thing I noticed (maybe in line with the "middle class" statement above) that if I had a certain brand in min for some products, tescos didn't have it. I feel that tesco seem to almost point you to the brand they are willing to sell (I wondered if some suppliers had exclusivity!)

Steven_L said...

ASDA beats Tesco by a mile. Take value midget gems for instance. Both establishments sell a sub-35p bag, just big enough to make you feel sick as you finish it. Tesco do the soft ones that taste like soap. Whereas ASDA do the traditional hard ones, where the blacks are licquorice flavour, that cost £1 per 100g in the sweet shop.

Tesco did the cheapest stubby beers for a while, but ASDA have cottoned on and are offering 20 for £6.10 as well now. ASDA also have a 35cl bottle of Laphroaig (just the right size) for £12.

Then there is ASDA's fresh pizza counter. It's fabulous and you feel like you are helping keep someone in a job when you have them prepare your dinner in front of you.

If you're lucky enough to have a hot oven, ASDA will sell you a 12'' deep pan pizza dish for £1.80. This was the best two quid I've ever spent. My popularity in the commune has risen 10 fold since I bought it.

I'd been using Waitrose for a year while I had no car. Now death is back on the road it's ASDA all the way!

Bill Quango MP said...

BE: So really no fan of Tesco either. It seems we're not anti. Just not enamoured. That's dangerous for Tesco.
My Sainsbury is a good 30 minutes away so i rarely go. But i am impressed when I do. Some decent clothing too. Slightly better, if dearer than George. But good. Esp for kids.

Graeme: good points. And you're right on the cheese. there is a deli in my village in a 200 sq ft shop, that is only slightly larger than a Tesco trolley, that has a better range than the local Tesco.

I believe the problem is a bit planagram/logistical.

The best sellers top 20 contains
1. cheddar
2. Mild cheddar
3. ex mature cheddar
4. cathedral cheddar
5. edam

So a giant tesco gets all of the top 20. A smaller unit just gets the top 5, which are very similar.
Its a common problem with centralised planning.{Go to a Co-Op and its the same - Cheddar city.}

I thought Tesco would have a degree of flexibility to prevent it. But maybe since they've gone down the Metro/mini mart route they've removed manager ordering.
I don't know, but it might explain it.


Mark -- there shouldn't be exclusivity. Cadbury/schwepps will supply everyone. Walkers crisps are everywhere. But there may be. Probably is on beers.
Another person who doesn't rate Tesco.
So we'll keep an eye. i still expect them to solve these issues. And their overseas expansion is still phenomenal.

S_L: Ada? Ok .. its OK. But I don't often go there. Don't really eat Pizza.
Used to go to the big Asda in Roehampton.
Managed to convince my 'only Tesco blue label' flatmate to go 'upmarket' to Asda.

He thought he was in paradise.

Graeme said...

again strictly anecdotal but a friend in California loves Fresh and Easy - the Tesco brand there - except there is no outlet close by. She likes the range and freshness of the produce - one of my complaints about Tesco UK - and the range of teas and stuff that you don't find in the USA. It's like it is fitting into the Waitrose niche in the US...which is interesting/odd.

Graeme said...

btw...my local Asda serves up superb meat. The prices are keen and the range of stuff is good - although again the cheese is unremarkable. But my local Asda is way smaller than the Tesco and yet the meat and veg are miles better for a comparable price.

Tesco might have manoeuvred themselves into competing against Iceland, Lidl and Costco. It is tough to see them picking up again, in my view.

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