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| Tesco: what the analysts say | Tesco: what the analysts say |
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| Clive Black at Shore Capital | Clive Black at Shore Capital |
| Philip Clarke, the CEO of Tesco, may look back on the year to February 2013 with mixed feelings. Yes this was the year that margins in the core business in the UK contracted. Yes, this was the year that the group's international "jewel", South Korea, hit a brick wall of sorts in the local regulator, so delivering a body blow to Asian returns, and yes, Tesco has reported a material 12.7% reduction in group trading profits to £3.284bn. | |
| However, these somewhat mellow headlines mask a year of considerable underlying progress for Mr Clarke and Tesco to our minds. Mr Clarke has had to go backwards to move forwards, reflecting a more challenged business and more challenging market conditions than his predecessors faced. | However, these somewhat mellow headlines mask a year of considerable underlying progress for Mr Clarke and Tesco to our minds. Mr Clarke has had to go backwards to move forwards, reflecting a more challenged business and more challenging market conditions than his predecessors faced. |
| Philip Dorgan at Panmure Gordon | Philip Dorgan at Panmure Gordon |
| The decision to exit the US is not unexpected and the main focus of these results will therefore be upon the shift in strategy to focus on generating positive free cash flow. We think that this will be taken well by the market, especially as it signals the end of the space race in the UK. We believe that there are three prime drivers of shareholder value: UK recovery; lower capital expenditure and higher returns; and the online opportunity. | The decision to exit the US is not unexpected and the main focus of these results will therefore be upon the shift in strategy to focus on generating positive free cash flow. We think that this will be taken well by the market, especially as it signals the end of the space race in the UK. We believe that there are three prime drivers of shareholder value: UK recovery; lower capital expenditure and higher returns; and the online opportunity. |
| Caroline Gulliver at Espirito Santo | Caroline Gulliver at Espirito Santo |
| Overall we think Tesco's strategy of transforming itself into a multichannel retailer is the right one, but the transition process away from being a hypermarket-led retailer will be painful and probably less profitable, both in the UK and internationally. | |
| Bryan Roberts, retail insights director at Kantar Retail | Bryan Roberts, retail insights director at Kantar Retail |
| While a lot of the headlines will be grabbed by the news on Fresh & Easy and by the ostensibly negative trend in profitability, we would argue that the decline in earnings is primarily a reflection of welcome and overdue investment in the core UK supermarket estate. | While a lot of the headlines will be grabbed by the news on Fresh & Easy and by the ostensibly negative trend in profitability, we would argue that the decline in earnings is primarily a reflection of welcome and overdue investment in the core UK supermarket estate. |
| Tesco is painfully aware that its core offer in grocery has become off the pace, and improvements in store design, merchandising, private label and marketing tell us that Tesco is earnest in its desire to regain lost ground. | Tesco is painfully aware that its core offer in grocery has become off the pace, and improvements in store design, merchandising, private label and marketing tell us that Tesco is earnest in its desire to regain lost ground. |
| Phil Dorrell, director of retail consultants Retail Remedy | Phil Dorrell, director of retail consultants Retail Remedy |
| From day one, Fresh & Easy was an unmitigated disaster for Tesco. The retailer is retreating from the States with its tail firmly between its legs. | From day one, Fresh & Easy was an unmitigated disaster for Tesco. The retailer is retreating from the States with its tail firmly between its legs. |
| Tesco's ignominious exit from the US will grab all the headlines but the truth is that even without the Fresh & Easy debacle the supermarket would probably still have seen its profits fall for the first time in 20 years. | Tesco's ignominious exit from the US will grab all the headlines but the truth is that even without the Fresh & Easy debacle the supermarket would probably still have seen its profits fall for the first time in 20 years. |
| The bottom line is this: Tesco took its eye off the ball in spectacular fashion and, in its goal to be a world-beater, forgot to take care of the basics. | The bottom line is this: Tesco took its eye off the ball in spectacular fashion and, in its goal to be a world-beater, forgot to take care of the basics. |
| John Pal, retailing expert at Manchester Business School | John Pal, retailing expert at Manchester Business School |
| There are no surprises with the results in the US. What seemed like a good idea, that was seemingly well-researched, just hasn't borne fruit. But this won't kill the company as Tesco has a generally good record at entering overseas markets. | There are no surprises with the results in the US. What seemed like a good idea, that was seemingly well-researched, just hasn't borne fruit. But this won't kill the company as Tesco has a generally good record at entering overseas markets. |
| Sir Terry Leahy may be used as a convenient scapegoat for the failure to gain traction in the US, but now that all the bad news is out analysts will be keenly monitoring Philip Clarke's strategy. | Sir Terry Leahy may be used as a convenient scapegoat for the failure to gain traction in the US, but now that all the bad news is out analysts will be keenly monitoring Philip Clarke's strategy. |
| Ajay Bhalla at Cass Business School | Ajay Bhalla at Cass Business School |
| The falling star of Tesco in the US is a harsh reminder that scale is not the recipe for sustainable value creation. For years, Tesco managers paid attention to perfecting the mix of supplier-driven cost efficiencies with low prices. While pursuing that mix, Tesco managers celebrated year-on-year growth and with much confidence ventured into the US market forgetting that the American retail landscape is a different ball game. | |
| While Tesco paid attention to making its US venture work, the UK retail market evolved quickly. Customer service and quality gained the upper hand over low pricing, and Waitrose and Sainsbury's emerged as the preferable destination for the growing middle-class segment. | While Tesco paid attention to making its US venture work, the UK retail market evolved quickly. Customer service and quality gained the upper hand over low pricing, and Waitrose and Sainsbury's emerged as the preferable destination for the growing middle-class segment. |
| Tesco's exit from the US is a reminder for managers of the dangers of going blindly for scale and cost leaders, the wheels of which are difficult to reverse if you need to change course to becoming a retailer known for first-class customer experience. | Tesco's exit from the US is a reminder for managers of the dangers of going blindly for scale and cost leaders, the wheels of which are difficult to reverse if you need to change course to becoming a retailer known for first-class customer experience. |
| Peter Saville, partner at advisory and restructuring firm Zolfo Cooper | Peter Saville, partner at advisory and restructuring firm Zolfo Cooper |
| Tesco misread the [US] market despite considerable research. By starting the Fresh & Easy venture from scratch, rather than acquiring an existing business, the subsidiary lacked efficiency and failed to capitalise on an existing presence. | Tesco misread the [US] market despite considerable research. By starting the Fresh & Easy venture from scratch, rather than acquiring an existing business, the subsidiary lacked efficiency and failed to capitalise on an existing presence. |
| When business ventures like this go wrong, it is important for retailers to act quickly by assessing which strategies or divisions of their business are no longer working and exiting before its too late. | When business ventures like this go wrong, it is important for retailers to act quickly by assessing which strategies or divisions of their business are no longer working and exiting before its too late. |
| Tesco's turnaround plan is set to reshape its British hypermarket portfolio and revive its domestic business. The grocer's recent decision to buy Giraffe is certainly a step in the right direction, along with its stake in coffee shop Harris + Hoole. By installing these outlets in its larger stores, Tesco will make more effective use of its vast floor space and become a more attractive destination for consumers. | Tesco's turnaround plan is set to reshape its British hypermarket portfolio and revive its domestic business. The grocer's recent decision to buy Giraffe is certainly a step in the right direction, along with its stake in coffee shop Harris + Hoole. By installing these outlets in its larger stores, Tesco will make more effective use of its vast floor space and become a more attractive destination for consumers. |