“Sod This, We Give Up” Announce Tesco

Today’s profit warning wasn’t really that surprising and an initial haemoraghing of the Tesco share price was probably exaggerated by quite a jumpy market. However, the accompanying announcement about a scaling back of IT and store refresh projects is a worrying development for the long term future of Tesco and could signal the end of true mass market grocery retailing in the UK.

 The store refresh programme was always ambitious and, as I’ve pointed out a few times, it was hard to see how a load of wood cladding and wicker baskets could improve the aesthetics and sales of much of their older estate. An accusation that could be levelled at Tesco was that they were focusing too much on the easier stores which weren’t in that bad nick to start with or were more likely to deliver some tasty results for the city to munch on and keep the shareholders off their back for at least one more quarter.

Nowhere has this been more stark than their approach to their High Street/ City Centre Metro format. Here they have turned out some spectacular, cutting edge stores – but it’s easy to do that in locations like Tooley Street, Canary Wharf and, most recently, Hammersmith. But these kind of stores do no make up the vast bulk of the Metro estate – how would these initiatives work in Stretford, Halifax and Margate? The ambitious programme that established the Metro format between 1999 and 2001 refitted all but a couple of stores, bringing a high standard of store onto over 170 High Streets. There has been no indication of any plan to repeat that feat despite the fact that it is these stores who are in the front line in the battle against discounters and pound shops.

But why would a savvy retailer like Tesco ignore huge swathes of its estate? The answer lies probably in the business culture that we now have which is focused on delivering healthy quarterly numbers to appease the city. The fact that grocery has been, and always will be, a business that benefits from long term planning and thinking, is now forgotten. Arguably, the lack of close scrutiny on Asda has helped them get away with doing very little and reaping some benefits now as they’ve also not been pressured into making short term decisions to grab a quick buck.

If cost cutting is a necessity, they should perhaps look seriously at a nuclear option involving store closures. Running a store is an expensive business and as a result of their massive expansion, the return on space is getting painfully low. An Extra taking in a £1m/week costs not much more to run than an Extra taking £400k/week. And you don’t need 5 extras in 3 mile radius (as we have in East Manchester now). With a huge estate, the support services are clearly stretched. It also makes their dependence of making decisions using DunnHumby less viable as the data is based on lower shopper counts when you get to the granularity they now work at.

The business overall needs to get simple again – they owned that word once. They changed the aspiration for mass market grocery. It was more than “all things to all men”, it was offering the same choice to all. Now, the obsession with understanding customers to an incredibly detailed level means that they’re taking that choice away from many. The idea of some products only being available to customers in a specific demographic is bizarre and not why people used to love them.

The great shame is that no one wants to replace that role in the market – most are engaged in a race to the bottom, with a couple (plus the “Local” movement) looking to cater to only those who can afford choice and service.

Mr Lewis – please prove me wrong….

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