Wednesday 22 April 2015

Tesco has worst results in its history.

Tesco has lost a gazillon-megabillion of pounds. Or , more factually, made a £6.38 BILLION loss.
They have lost about one quarter of the defence budget. Staggering loss.

A few years ago i asked the readers if they really had fallen out of love with Tesco. The response was an almost universal YES. Which was surprising as Tesco was, and still is , the biggest beast in the retail park. So someone must be loving them?

Retail analysts have been giving their ideas on what's gone wrong and also what Tesco needs to do to put things right.
Here are some ideas.

Tesco should consider closing 200 under performing supermarkets/superstores and focus on growing the more profitable remaining 700 stores.

Pretty standard response. Analysts always use the close unprofitable option as first response while we figure out a better answer. Closing stores isn't easy. These mega stores have thousands of workers. They may have leases, although Tesco often own the land. They may not save that much on the economies of scale and distribution run. It all depends where they are and how much they lose. 

“Tesco needs to recognise how much the retail landscape has changed, and adapt its strategy accordingly. It’s been focused on ‘big box cathedrals’

That is true. But it wasn't so true 5 years ago when Tesco was really losing ground to rivals. And Tesco pioneered the Metro shop. People are buying lesss and often. But Tesco does that too. 
Moving away from its 'big shop' units isn't going to help them today when they still have all those units. 

“It’s hardly surprising that Tesco is in this position, when customers can not only buy cheaper in Aldi and Lidl but also get a better customer service, like in-store sampling.

This is the idea that the smaller stores do more samples of their food and brand awareness - promoting products and getting customers involved.  I never like this idea. Its training heavy and requires a higher skilled and more motivated staff to carry it through. Older readers may recall I counseled COMET against this 'superior customer service' idea, which they tried as an answer to online purchases. Comet are no more, whilst Currys, who did a different thing, survived.
Its a hard thing to do. And I can't see selling a lot more of a new type of  cheese will plug the billions hole.

Tesco is struggling because of increased competition.

Well du'h! Does go on to say about the fuel price wars..which is a good point. Also says the clubcard isn't the power weapon it once was and although 40% of people use a loyalty card, they may have more than one. 

And should say ..60% don't use a loyalty card at all.. Tesco needs those 60%. 

 Tesco has an epic database and it should look at how this data be used.

This is interesting. The idea is the consumer has a standing order and a delivery of basics comes round without having to do anything. Then the customer tops up with items that are on the lorry. A sort of mini supermarket that comes to you. Described as a 21st century milkman.
The real idea is to dump hundreds of poor selling products from the stores and have a much slicker targeting of data. 
I'm not wild about the idea except for the bit about data focusing. Tesco made themselves off the back of their use of technology, that gave them an edge over Sainsburys. They could do so again.

Tesco has a number of larger stores that are costing a fortune. So a key priority for Tesco has to be making better use of these bigger stores.

This, I like the most.  If Tesco can find a good fit partner to take space in their gargantuan stores, that lowers the cost of those stores all round. Who is a good fit? I'd be knocking on Primark's door. Or I would if Primark wasn't owned by a rival. But a similar , celebrated clothing retailer.
TK Maxx? Sports Direct? Next ? Or stuff it full of service industry type nailbars, coffeehouses, hairdressers, computer repair, fast and medium food outlets. Get some rental in and some alternative customers. 
M&S and Tesco had a very fruitful partnership a while back. They each took separate units on a retail park, but with a shared atrium. Could do such things again. Halfords needs footfall. Tesco doesn't have much overlap with them.
Or niche retailers. Soaps and gifts. Furniture. Beds. ..

Its an idea. Not easy. But immediate.


Any ideas that you might have to turn around the retail giant?


john miller said...

Quality is crap.

When I'm cooking a fried breakfast I have to scrape the bacon off the extractor fan its so thin.

Blue Eyes said...

Just what we need, more nail bars and hair studios.

I used my local Express for a click-and-collect and it was pretty good, saved going to the sorting office or getting a delivery to the office.

Could they not build flats on top of the big shops? Solve two problems at the same time. That is what Sainsbury's are doing in Battersea.

Sackerson said...

Reculer pour mieux sauter. I understand a lot of the "loss" is property value writedowns, which will help with their tax bill and give them a nice low start for next year's rebound. The new guy is cutting a swathe through middle management. Be prepared for an oh-gosh media surprise at the resurgence.

Antisthenes said...

Home delivery is growing whilst store visits are declining. The answer I believe lies in reducing store numbers and encouraging ordering on line for either collection or delivery. Thereby reducing costs and making shopping more convenient for customers.

purplepangolin said...

We live in a rural area and use their delivery service all the time. At one point, it was the only supermarket that would deliver out as far as us. Now, they all do. Their delivery staff are more polite than the ocado people, which is a plus. Their website could do with improvement though. It needs to be much more responsive.

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Anonymous said...

For me a big problem with Tesco is they need to sort out the people that work there.

Of all the supermarkets Tesco seem to employ the highest percentage of the most unfriendly, unhelpful and stupid people out of all the supermarkets.

I still occasionally go to my local Tesco for the odd few bits I can't get elsewhere but it's made tolerable by the fact they introduced a decent scan and shop system which means I can usually shop without any human interaction - which helps.

Bill Quango MP said...

John Miller : I don't use Tesco much myself. Mostly as its slightly further that the others.
But I have never thought Tesco quality was up to much. Never sure why people loved it so. It was always leading on ideas.

BE: Or tattoo specialists or massage areas.The idea is things that can't be sold online.
Post services is one growing idea. Tesco tried having full post offices in stores a good while back. But abandoned them as a Post service is a lengthy, labour intensive, tiny profit business.

But..if they have the space.Expect more of them.

In general, although I praise it, the renting space idea rarely works. If a unit is too big..make it smaller. Tesco owning outright much of their own stores and land, can do this far easier than anyone else.

Sackerson: 100% agree. This looks like a get all the bad stuff out of the way in year one. Ready for prosperity in year 2-3.
Something our coalition government were urged to do, by all on here.

Antisthenes: You are correct and also incorrect. There is a market for a quick pop shop. A local store with just the things you want for then next 2 or 3 meals and snacks.Local and convenient and quick. The challenge is turn the mega stores into local stores.

And the danger is once the boom {?} returns , fickle consumers want shops full of ipads and TVs and blu-rays and skateboards and who knows what?

dearieme said...

We've not had a Tesco delivery for ages - the unintelligence of their website finally persuaded us.

Mainly we pop into Sainsbury's, or Waitrose, or the Co-op, or Aldi, or M & S: whoever we happen to be near. Anyone with enough storage space could do the same.

Not Asda, because of the revolting muzak.

Tip of the week: the Co-op's crusty white cob - absurdly delicious bread for a supermarket.

Blue Eyes said...

BQ I know, but the high streets are full of "service" shops already. There is no lack of high street retail space!

My local big Tesco could make itself more attractive by becoming a bit more upmarket, or by competing a bit better with Aldi/Lidl. The store's current problem is that it isn't a very pleasant shopping environment but neither is it grim-and-bear-it cheap.

Budgie said...

All the big supermarkets engage in tricks to make you buy, or make you buy expensive stuff. People hate it, even if they can't actually spot it. That is one reason why Aldi and Lidl have grown, plus they are trying harder with adequate quality but lower prices.

As well Tesco appears to have lower/the same quality as Asda but at near Sainsbury prices.

dave said...

The solution is in their property bank. The country needs housing. Release their property to build more houses and whack a Tesco parade of shops in the middle of them. Bring the local store concept back and bobs your uncle, Tesco's a winner again. People shop more often and buy less each time now, so the closer a shop is the more likely they are to visit that one.

Double points if they hang onto the houses and turn themselves into landlords too.

dave said...
This comment has been removed by the author.
andrew said...

I think it is more a comment on the ephemerality of fashion and branding.

10 years ago everyone thought it was a really good idea to go to a massive store once a week and spend lots of money once.

Tesco had 'basics' and 'finest' and 'every little helps' and everyone thought they were great.

Now we think it is a really good idea to go to a small store 2-3 times a week and spend less money more often.

Tesco are seen as just nasty in terms of the shopping environment and quality and lidl are cheaper and everyone thinks they are awful.

Part of the change is secular, modern houses do not have room for a larder / chest freezer etc.

Part a convenience thing, I suspect we are buying (even) more ready meals

Part a demographic thing, older people like pottering on down to the shop and ferreting for bargains, rather than planning a military operation

Part a realisation that if you have a job/children, you have better things to do.

How do you fix things?
Ask yourself, who is Tesco for - mention Waitrose, Sainsbury, Lidl and you immediately have an idea of what they should do well and who they should appeal to. I dont get a clear image for Tesco.

Make a choice, the days of finest and basics and being all things to all people are gone.

As they have scale, I would suggest attacking the bottom end as it is easier to sell 'cheap' than 'nice middle class fluffy'

Sainsbury have spent years building images and branding around people - John Cleese, Jamie Oliver etc and you may not like these people, but you cannot be against nice primary school lunches - good food - and that is what a supermarket sells.

Tesco have no 'personal' image that I can think of. This may well be due to the fact that they were/are so tech driven they see the numbers rather than people.

They need to get a bisto family - it does not have to be a celeb, just someone you can identify.

Technology - yes, their website could be better. Others have said this.

Delivery service. Everyone does this now.
They have lots of shops all over the place - make use of that.
They need to do something the others cannot.

What about a 1 hour delivery timescale from order on the web to delivery to where you are (not necessarially at home).
Others think that the van could bring a shop to your door - have a basic stock. I think most of the time you are not at home.

Give people a reason to go to the big shops - or get rid of them.

Expect more free (for 2h) creches, expanded non-food offerings, cinema (they own blinkbox?)

Put a post office in every branch

Be careful

At the bottom of it all, they have a market cap of about 19bn, net assets of ~3.5bn - so about 15bn intangibles
Could you build another tesco for ~4bn equipment and ~15bn for branding, staff training, software etc etc.
At the moment, yes.

THere is such a drive to so something that they may well end up doing something vv dumb

Blue Eyes said...

Drones! Andres, we need drones!

Also, free coffee like in Waitrose. Cup holder on the trolley.

I should run Tesco

Blue Eyes said...

Ok my typing is turning into CU's.

Sebastian Weetabix said...

Tesco is the epitome of nasty, soulless, numbers-driven managerialism. They fuck their suppliers, sell the shittiest quality food, and screw everyone on price with their prestidigitation around "offers", and their competitors caught up. I sold their shares when they bought a corporate jet. That sort of willy waving is always a bad sign. But the worst thing is the service. My missus swore she would never shop there again after the daft old biddy on the till started flicking through a magazine (licking her fingers to turn the pages, if you please!) she was attempting to buy.

As to how to fix it... Lewis is doing the right things. Shutting head office, closing loss-making stores, dumping fripperies, rationalising, reducing margins. They have one thing going for them - scale. They should use it. A little bit of customer service wouldn't go amiss either, like teaching staff not to stare vacantly at shoppers before shrugging their shoulders and mumbling 'dunno'.

When you think of their purchasing power and scale they should be the cheapest store bar none. Right now you can certainly buy better but it's hard to pay more.

Jan said...

One thing they could do immediately at the click of a button in head office is to do away with the ridiculous coupons for 3p(or similar) off your next shop which they give out at the till. This must add up to a substantial amount across all their customers and are a complete waste of time especially the cashier's next time you shop there as they end up punching in the long number as the bar code rarely works.

This would be a very quick win.

Jer said...

Until this week they were comfortably the best place to buy beer.

So I can't see why they are in trouble...

Bill Quango MP said...

Superb responses. I used to do this retail analyst business for a living. And some of these comments are very well considered. the quality of the C@W readership ! Gold stars and pints of old moorhen all round.

Dearieme: That pop into who's closet is a big part of the problem. The weekend shop is not popular.
On bread, I think you may have a really good point. All the supermarkets do bread. But much of their baked in store bread is just heated up in an oven.

We have all been to France. We all say ..Why can't we get bread like this at home?

Give space over to actual baking of breads and pies? On the premises?
Its a big ask as its not something that is easy to centralise control of. But Tescos pay their top big shop managers a fortune. They are more than capable of creating a really great tasting section in store.

BE/Budgie + others.
There is an image problem. Who are they trying to attract. Not cheap enough for the masses. Not quality enough for the discerning. In retail..that is a very bad place to be.

SebW: Agree with much of that. Tesco pricing is unbelievable.
For example - BQ Industries sells those lithium battery, LED torches
at £3.99.And makes 100-150% profit on each one. So we could do them at £3 and still be an ok line on margin.

Tesco sells the same torch for £5 or £6. They must be buying them in from China for probably only 25-50% of what I pay for them.

I find once you move from the price war items, Tesco is expensive.

David Edgar: The problem is the high street has died as the same time as the outlet parks. previously it was the ut of town killing the high street.
Now its the 'tinternet and home delivery and less splurge money doing for both.
And remember these mega stores are not THAT mega. Not sure a cinema would fit into that many.
But the concept is still valid.

Bill Quango MP said...

Anon ; That human interaction problem. Tesco do seem to be failing on customer service. Which is a bit odd. Supermarkets do a lot more training than very many other retailers. And finding happy Eastern Europeans to work instore has never been easier.

Andrew - comment of the week.

I cannot think of Tesco's celeb without googling it. I know Morrisons and Sainsburys from memory.

1 hour delivery? As Be says NOT THE DRONES!
{We must do a post on drones one day. And try to figure out just how they could possibly work at all and how they could possibly be cheaper than a man with a van?}

Creche and Post office and dry cleaning and shoe repair etc are all drivers of footfall. But in practice they cost or under perform compared to just putting beans out. Often, eventually, the stats show that the increased footfall hasn't improved the profits.

However, that was in the old days. And this about the new days where footfall chasing might be much more important.

I would like the return of the cafe. Fully wified and TV'd up.

Sticking a Costa in seems to have worked for the upmarket supermarkets.

Website - long while since I used it but I remember it being the worst of them all. Tesco should be good at IT. And if they aren't they can pay someone who is.

Jan: I don't know why they stick with this 3p off. i suspect they know the majority of us never use it anyway. Co_op are always giving me vouchers. I don't think i've used one for anything.

And beer. Alcohol was a major driver of the Tesco revolution.
It hasn't changed very much as far as i know.

Bill Quango MP said...


1. find a niche again

2. Cashiers to smile a lot more and don't mess about

3. Sort out the website

4. Seek alternative uses for excessive retail space but no nail bars or tanning salons.
{surely a Toni and guy wouldn't be a problem?}

5.Stop taking the piss on non essentials prices.

6. premium service on delivery and products at a higher price
{they aren't going to do this - but it never hurts to offer a solution you know will be rejected. Confirmation of direction, see?}

7. Shut the losers. Sell off the land and build houses.


Someone send this to Tesco and tell them our fee is usually around £100k. But as we know they are in trouble .. £75,000


Blue Eyes said...

Better yet, can't CU get some investors together and organise a buyout? Philip Green, BQ, and a board vote for the readers of C@W?

CityUnslicker said...

BE - Tesco is not being looked at due to its disastrous overseas adventure. The UK used to subsidise this but now the UK cahs cow is in trouble the whole business is lossmaking in the round.

The property thing was a bit of a sideshow effort as really Czech, Chinam Thailand and Korea are all underperforming.

Plus the UK.

No one is looking at Tesco, no one. That says a lot in itself.

phil5 said...

Get rid of the team that regularly reorganise the shelves. It costs money and hacks people off when they can't find anything. Waitrose don't do it; their fish/tinned tomatoes/toilet paper is always in the same place.

andrew said...


I like the idea of drones, but more in the woodehouse sense.
Where can I sign up for that?

On the vague subject of condemning Tescos to irrelevancy and thus imminent demise, I remember asking what the point of WH Smith is in about 2005 and
so far have been v.v. wrong.

Anonymous said...

The quality of a lot of their stuff is atrocious - we use them due to a 10% discount (deceased family member worked there, so we get a privilege card) but not for milk, meat, fish or most fresh veg. Milk is the same price at the local co-op, but of much better quality, and we've a butcher and a fishmonger on the doorstep offering more expensive equivalents, but of several orders better quality.

People do still do weekly shops there, especially families, a tie-in then with the likes of Amazon to be a pick up point would seem to make sense. That would even work with home delivery and local shops too, and you could see a tie-up with them so you can make Amazon purchases through your Tesco account even within store, local store or online.

Google love to slurp data, so Tesco's database would doubtlessly be of interest.

Plenty of scope for them, just needs a bit of thought and imagination and willingness to take a few risks.

Electro-Kevin said...
This comment has been removed by the author.
Anonymous said...

Hi everyone :)

As a quite large for me (loss making) shareholder of Tesco but not so large now, very interesting thread.

I sold 50% of my holding shortly after they killed the dividend and there was a bit of rise. Keeping the other half for possible recovery.

My main thought is mentioned above "Who is Tesco for now" 20-30 years ago (that sounds awful) but with a large family, no online, we did the Mega-shop, there was the Montly Mega-Shop, which was 2 trolleys worth and I always had to go to drag trollies and herd kids! In the 80s this single shop cost IIRC £120-£140 and we mostly went to Tesco, it was "about right" for us. Then the wife topped up during the week.

The "Family" (at max) back then was 4 Kids, 4 cats, 2 dogs (Blimey we must have had some energy back then!) which raises another question - Does that size of family exist in the numbers it used to?

Now with just us two and 1 cat, the mega-shop is pointless and probably is for many other people, they just dont need that much stuff in one hit and as mentioned possibly can't store it.

(Timbo614) trying to keep his new computer "clean" and unaffiliated to any email address, identity or profiling :)

Blue Eyes said...

Jeremy Clarkson for the relaunch campaign.

Bill Quango MP said...

Timbo !! - You can't be anonymous.

use the name/url not the anon.

And a good point on storage. Ma Quango had 2 chest freezers in the garage when her 4 children were growing up. 7 of us in the house + cats and dogs.

I don't see those big ugly body-disposing freezers about anymore. Ours is only 2 drawers and an icebox and isn't enough. But it does.

Phil5 - That has been on the discussion boards. I recall hearing the Tesco chairman a while back saying they were moving the stock around as they were trialing best placements.
It was a temporary thing and they should probably have stopped it by now.

Tesco really only move the summer/winter Xmas/Easter valentine / around . Everything else stays put.

Tesco stores are freezing. Notice the fleeces worn by everyone who works there. Even the managers and supervisors who are on admin work.

Anon: On the quality issue - there own brand basics have never been known for quality. Just price.
But to be fair I bought a pack of cooked chicken from Asda to have with some takeaway chips tonight.

The chicken doesn't taste of anything at all. it could be water its so bland.
Don't really know if Tesco is any better of worse.

Mrs Q insists we get everything from Waitrose. Or M+S.
Nothing I can do will persuade her otherwise. All I have managed to do is to stop her buying standard non-food basics from there. I get those - from Asda or Morrisons whilst I'm hunting out the best snacks.

Budgie said...

BQ, please assure Mrs Q that M&S ready meals are made on the same production lines as every other supermarket's. The recipes are slightly different but that's all.

dearieme said...

As someone above said, the milk at the Coop is unusually good. I asked why once. "Different cows" I was told.

"Until this week they were comfortably the best place to buy beer." They seem to have stopped stocking Hoegaarden in small bottles, which is great loss to us. In fact, the last time my wife visited they didn't even have the large bottles.