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| Tesco rescue: has Dave Lewis's first year been a success? | Tesco rescue: has Dave Lewis's first year been a success? |
| (34 minutes later) | |
| On Dave Lewis’s first day in charge at Tesco he sent an email to the retailer’s 500,000 staff warning it had “urgent issues” to deal with. However, the supermarket boss could never have imagined the scale of the problems he would face at Britain’s biggest retailer. The discovery of a £326m black hole in its accounts and a continuing downturn in sales and profits transformed his task from a turnaround job to a rescue mission. | On Dave Lewis’s first day in charge at Tesco he sent an email to the retailer’s 500,000 staff warning it had “urgent issues” to deal with. However, the supermarket boss could never have imagined the scale of the problems he would face at Britain’s biggest retailer. The discovery of a £326m black hole in its accounts and a continuing downturn in sales and profits transformed his task from a turnaround job to a rescue mission. |
| On the first anniversary of Lewis becoming chief executive, we examine how he has performed against five key criteria identified when he was appointed boss and after the accounting scandal at the company was revealed. | On the first anniversary of Lewis becoming chief executive, we examine how he has performed against five key criteria identified when he was appointed boss and after the accounting scandal at the company was revealed. |
| Brand | Brand |
| Lewis was the first outsider to run Tesco since Sir Jack Cohen founded the company as a market stall in east London in 1919. | Lewis was the first outsider to run Tesco since Sir Jack Cohen founded the company as a market stall in east London in 1919. |
| With a background in marketing similar to former boss Sir Terry Leahy, Lewis’s prime task was to breath new life into the increasingly stale 96-year-old brand. | With a background in marketing similar to former boss Sir Terry Leahy, Lewis’s prime task was to breath new life into the increasingly stale 96-year-old brand. |
| Lewis had been the brains behind the “love your body” advertising campaign for Unilever’s Dove soap brand and ran other successful marketing programmes for the household goods group around the world — including one that forced rival Proctor & Gamble to pull Ariel out of parts of South America because the name became synonymous with lavatory seats. | Lewis had been the brains behind the “love your body” advertising campaign for Unilever’s Dove soap brand and ran other successful marketing programmes for the household goods group around the world — including one that forced rival Proctor & Gamble to pull Ariel out of parts of South America because the name became synonymous with lavatory seats. |
| Tesco was lost in the middle market when Lewis took over, with Aldi and Lidl grabbing market share from one side and Waitrose, Sainsbury’s and Marks & Spencer the other. The company had become renowned as “Tescopoly”, a dominant force that acted in its own interests rather those of local communities and customers. | Tesco was lost in the middle market when Lewis took over, with Aldi and Lidl grabbing market share from one side and Waitrose, Sainsbury’s and Marks & Spencer the other. The company had become renowned as “Tescopoly”, a dominant force that acted in its own interests rather those of local communities and customers. |
| So far, Lewis has sought to repair the brand by fixing the company itself, particularly its customer service. Extra staff have been added to the shop floor and prices have been cut. Lewis has pledged Tesco will only spend money on what customers can “feel” and claimed there was an “opportunity to go back to what made this brand great and a champion for the consumer”. | So far, Lewis has sought to repair the brand by fixing the company itself, particularly its customer service. Extra staff have been added to the shop floor and prices have been cut. Lewis has pledged Tesco will only spend money on what customers can “feel” and claimed there was an “opportunity to go back to what made this brand great and a champion for the consumer”. |
| A new marketing campaign and branding scheduled for this autumn should promote these changes. Lewis has hired a new advertising agency in BBH, the agency behind the long-running “Lynx effect” advertising campaign. | A new marketing campaign and branding scheduled for this autumn should promote these changes. Lewis has hired a new advertising agency in BBH, the agency behind the long-running “Lynx effect” advertising campaign. |
| However, Lewis’s efforts to rebuild the brand have been hampered by the accounting scandal. | However, Lewis’s efforts to rebuild the brand have been hampered by the accounting scandal. |
| Cutting prices and raising sales | Cutting prices and raising sales |
| With Aldi, Lidl and the likes of Poundland setting a new low bar in customers’ expectations on price, Tesco needed to strike back under Lewis in order to regain credibility. For too long, the UK’s biggest supermarket had let prices drift upwards as it tried to protect profits. | With Aldi, Lidl and the likes of Poundland setting a new low bar in customers’ expectations on price, Tesco needed to strike back under Lewis in order to regain credibility. For too long, the UK’s biggest supermarket had let prices drift upwards as it tried to protect profits. |
| Lewis began his campaign last Christmas, slashing the price of the “festive five” – bags of vegetables including carrots, potatoes, Brussels sprouts and parsnips – to 49p. The promotion was simple, widely advertised and made Tesco 65% cheaper than 2013 for those items – and at least 20% cheaper than rivals. | Lewis began his campaign last Christmas, slashing the price of the “festive five” – bags of vegetables including carrots, potatoes, Brussels sprouts and parsnips – to 49p. The promotion was simple, widely advertised and made Tesco 65% cheaper than 2013 for those items – and at least 20% cheaper than rivals. |
| The move helped Tesco enjoy a relatively strong Christmas. Since then he has cut 25% off key branded items including Hovis, Coca-Cola, Marmite and Tetley. Overall, Tesco has invested more than £200m into cutting prices and improving service. | The move helped Tesco enjoy a relatively strong Christmas. Since then he has cut 25% off key branded items including Hovis, Coca-Cola, Marmite and Tetley. Overall, Tesco has invested more than £200m into cutting prices and improving service. |
| All of that action helped Tesco improve its performance, which came in ahead of City expectations in its last trading statement in June. Where it had cut prices, goods were flying off the shelves. | All of that action helped Tesco improve its performance, which came in ahead of City expectations in its last trading statement in June. Where it had cut prices, goods were flying off the shelves. |
| Related: Philip Clarke to be interviewed by fraud office over Tesco accounting scandal | |
| However, the overall value of sales continue to fall – down 1.3% in the three months to the end of May. In a highly competitive market, turning things around wwill not be easy. Tesco may not be the worst performer in the market – that is Asda – but it continues to lose market share according to the latest figures from analysts at Kantar Worldpanel. | However, the overall value of sales continue to fall – down 1.3% in the three months to the end of May. In a highly competitive market, turning things around wwill not be easy. Tesco may not be the worst performer in the market – that is Asda – but it continues to lose market share according to the latest figures from analysts at Kantar Worldpanel. |
| Big stores | Big stores |
| Tesco’s famed land bank, built up in the days of Leahy, was once seen as one of its prime assets, striking fear into smaller competitors. | Tesco’s famed land bank, built up in the days of Leahy, was once seen as one of its prime assets, striking fear into smaller competitors. |
| Now that shopping habits have changed with the arrival of online grocers and the popularity of buying little and often from small local shops, Tesco’s collection of large stores seems more like an albatross around its neck. | Now that shopping habits have changed with the arrival of online grocers and the popularity of buying little and often from small local shops, Tesco’s collection of large stores seems more like an albatross around its neck. |
| But this is one area where “Drastic Dave” – a nickname from his Unilever days – has certainly lived up to his name. | But this is one area where “Drastic Dave” – a nickname from his Unilever days – has certainly lived up to his name. |
| Tesco has already closed 43 stores, although about half of them were little shops, and cancelled plans for another 49 in the UK. Lewis has not hung around in sorting out the unwanted porfolio. Sites in Scotland have been sold and millions of pounds handed to local councils in order to reach settlement on local developments now abandoned. | Tesco has already closed 43 stores, although about half of them were little shops, and cancelled plans for another 49 in the UK. Lewis has not hung around in sorting out the unwanted porfolio. Sites in Scotland have been sold and millions of pounds handed to local councils in order to reach settlement on local developments now abandoned. |
| The Tesco boss has continued where his predecessor started in downsizing stores by leasing out unwanted areas to other businesses such as gyms or retailers. | The Tesco boss has continued where his predecessor started in downsizing stores by leasing out unwanted areas to other businesses such as gyms or retailers. |
| However, Lewis has clearly recognised that such ideas can only take him so far and he still needs to convince shoppers of the attractions of his retail behemoths. | However, Lewis has clearly recognised that such ideas can only take him so far and he still needs to convince shoppers of the attractions of his retail behemoths. |
| Asset sales | Asset sales |
| A year ago, Tesco shareholders wanted Lewis to consider selling off peripheral assets such as streaming service Blinkbox, coffee chain Harris + Hoole and Giraffe, the restaurant business. | A year ago, Tesco shareholders wanted Lewis to consider selling off peripheral assets such as streaming service Blinkbox, coffee chain Harris + Hoole and Giraffe, the restaurant business. |
| However, the sale of larger businesses has moved to the top of the agenda. Tesco needs to raise billions to offset a collapse in profits and win back its credit rating after it was downgraded to junk by rating agencies. | However, the sale of larger businesses has moved to the top of the agenda. Tesco needs to raise billions to offset a collapse in profits and win back its credit rating after it was downgraded to junk by rating agencies. |
| Lewis announced that Dunnhumby, the data business behind Clubcard, was up for sale in January, yet it is still to be sold. Talks about Tesco’s South Korean business have also lasted all summer. | Lewis announced that Dunnhumby, the data business behind Clubcard, was up for sale in January, yet it is still to be sold. Talks about Tesco’s South Korean business have also lasted all summer. |
| Although loss-making Blinkbox has gone, the slow progress on sell-offs will be a disappointment for Lewis and finance director Alan Stewart. The protracted negotiations mean Tesco is expected to fail to reach the hoped-for figure of £5bn from selling Dunnhumby and Homeplus, its business in South Korea. This will frustrate the shareholders and analysts who claimed that, instead of selling assets, Tesco should have turned to investors for cash and launched a multibillion pound rights issue when its share price recovered earlier in 2015. | Although loss-making Blinkbox has gone, the slow progress on sell-offs will be a disappointment for Lewis and finance director Alan Stewart. The protracted negotiations mean Tesco is expected to fail to reach the hoped-for figure of £5bn from selling Dunnhumby and Homeplus, its business in South Korea. This will frustrate the shareholders and analysts who claimed that, instead of selling assets, Tesco should have turned to investors for cash and launched a multibillion pound rights issue when its share price recovered earlier in 2015. |
| Related: Tesco staff promised turnaround bonus if sales and profits rise | |
| However, Lewis has been more decisive in cutting costs. As well as closing stores and scrapping new developments, he has shut the company’s headquarters in Cheshunt, Hertfordshire, closed the defined benefit pension scheme and axed dividend payments. | However, Lewis has been more decisive in cutting costs. As well as closing stores and scrapping new developments, he has shut the company’s headquarters in Cheshunt, Hertfordshire, closed the defined benefit pension scheme and axed dividend payments. |
| Managing expectations | Managing expectations |
| Lewis is now running a company with different ambitions to the one he took over last year. He joined Tesco from Unilever a month earlier than initially planned after Sir Richard Broadbent, the chairman at the time, issued another profit warning and asked Lewis to take office immediately. | Lewis is now running a company with different ambitions to the one he took over last year. He joined Tesco from Unilever a month earlier than initially planned after Sir Richard Broadbent, the chairman at the time, issued another profit warning and asked Lewis to take office immediately. |
| When Lewis arrived, Tesco was forecast to deliver annual trading profits of between £2.4bn and £2.5bn. However, it eventually reported a record pre-tax loss of £6.4bn due to writedowns on the value of its stores and from the accounting scandal. | When Lewis arrived, Tesco was forecast to deliver annual trading profits of between £2.4bn and £2.5bn. However, it eventually reported a record pre-tax loss of £6.4bn due to writedowns on the value of its stores and from the accounting scandal. |
| Shares in Tesco surged after Lewis unveiled a radical turnaround plan in January, which included the store closures, but in recent weeks the gains made early in 2015 have been lost. Tesco’s share price is now 17% lower than when Lewis took charge – but higher than the lows it hit last December as the repercussions of the accounting scandal were felt. | Shares in Tesco surged after Lewis unveiled a radical turnaround plan in January, which included the store closures, but in recent weeks the gains made early in 2015 have been lost. Tesco’s share price is now 17% lower than when Lewis took charge – but higher than the lows it hit last December as the repercussions of the accounting scandal were felt. |
| Senior Tesco insiders are insisting it is a five-year job to get the company back on track and the City now appears to have bought into this outlook. | Senior Tesco insiders are insisting it is a five-year job to get the company back on track and the City now appears to have bought into this outlook. |
| However, Lewis must gradually show more evidence to shareholders and Tesco staff that the pain of the last year was worth it and that one of Britain’s leading companies is slowly getting back on its feet. | However, Lewis must gradually show more evidence to shareholders and Tesco staff that the pain of the last year was worth it and that one of Britain’s leading companies is slowly getting back on its feet. |
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