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Tesco under pressure to win back customers with price cuts Tesco under pressure to win back customers with price cuts
(about 2 hours later)
Tesco is facing renewed pressure from the City to cut its prices as analysts say it needs to invest £450m in improving value for shoppers since it has become more expensive than Waitrose on many products. Tesco is facing renewed pressure from the City to cut its prices as analysts say it needs to invest £450m in improving value for shoppers because it has become more expensive than Waitrose on many products.
In the latest blow to beleagured chief executive Philip Clarke, who is expected to reveal another grim round of results next week, analysts said Tesco needed to reveal a radical new strategy to attract shoppers' attention and that his current plan to improve the look of stores and improve service amounted to "fiddling while Rome Burns." In the latest blow to the chief executive, Philip Clarke, who is expected to reveal another grim round of results next week, analysts said Tesco needed to reveal a radical new strategy to attract shoppers' attention and that his current plan to improve the look of stores and improve service amounted to "fiddling while Rome burns".
Analysts at Espirito Santo said Tesco was perceived at the worst of "big four" supermarkets on produce quality and value for money, the two most important factors when shoppers decide where to fill their baskets. The Espirito Santo SpendTrend survey covers 2,000 shoppers. Analysts at Espirito Santo said Tesco was perceived as the worst of the big four supermarkets on produce quality and value for money, the two most important factors when shoppers decide where to fill their baskets. The Espirito Santo SpendTrend survey covers 2,000 shoppers.
The City bank found Tesco was heavily reliant on a "baffling" array of multi-buy promotions, which sometimes mean shoppers pay more per kg than if they had bought a single item. Of 17 fruit and vegetable products assessed by analysts, it was cheaper to buy loose items rather than multi-packs in 10 instances including onions, leeks and closed cup mushrooms. But elsewhere, such as on plums, baking potatoes and oranges, shoppers must buy a bag or pack to get the best deal. While basic prices have moved up, Tesco shoppers are more reliant on such multi-pack deals to get the best value – with Tesco offering four times the number of such promotions as its peers. The City bank found Tesco was heavily reliant on a "baffling" array of multi-buy promotions, which sometimes mean shoppers pay more per kilogram than if they had bought a single item. Of 17 fruit and vegetable products assessed by analysts, it was cheaper to buy loose items rather than multi-packs in 10 instances including onions, leeks and closed cup mushrooms. But elsewhere, such as on plums, baking potatoes and oranges, shoppers must buy a bag or pack to get the best deal.
While basic prices have moved up, Tesco shoppers are more reliant on such multi-pack deals to get the best value, with Tesco offering four times the number of such promotions as its peers.
"We think Tesco could be dissuading customers to shop at the store because they end up wasting food and spending more than they initially planned due to this questionable promotional architecture," the analysts say. "We think Tesco needs to immediately address its pricing architecture to improve its price perception with customers.""We think Tesco could be dissuading customers to shop at the store because they end up wasting food and spending more than they initially planned due to this questionable promotional architecture," the analysts say. "We think Tesco needs to immediately address its pricing architecture to improve its price perception with customers."
They believe shoppers are increasingly concerned about wasting food, and are taking that into account when they assess whether they are getting value for money – making deals on multi-buys less appealing. They believe shoppers are increasingly concerned about wasting food and are taking that into account when they assess whether they are getting value for money, making multi-buys less appealing.
Tesco said there was little in the analysts' note that it recognised. "Six weeks ago we described how we are accelerating our plans to deliver the most compelling offer for customers and we are doing exactly that. This includes bringing down the prices of products that matter most to our customers and keeping them down," a spokesman said. Tesco said there was little in the analysts' note that it recognised. "Six weeks ago we described how we are accelerating our plans to deliver the most compelling offer for customers, and we are doing exactly that. This includes bringing down the prices of products that matter most to our customers and keeping them down."
However, the latest critical note echoes research released late last year by analysts at US broker Bernstein which said Tesco had put up prices at a faster pace than any other British grocer. It found that Tesco's prices were closer to Sainsbury's than the more value-conscious Asda. "Tesco is now in an impossible position: it is neither value nor quality, it is simply everywhere, and can't compete with either the quality or value retailers," said analyst Bruno Monteyne at the time. However, the latest critical note echoes research released late last year by analysts at the US broker Bernstein, which said Tesco had put up prices at a faster pace than any other British grocer. It found that Tesco's prices were closer to Sainsbury's than the more value-conscious Asda. "Tesco is now in an impossible position: it is neither value nor quality, it is simply everywhere, and can't compete with either the quality or value retailers," said the analyst Bruno Monteyne at the time.
Clarke is under considerable pressure to take action as Tesco continues to lose market share to discounters such as Aldi and Lidl as well as more upmarket stores such as Waitrose and Marks & Spencer in an increasingly divided UK food market. Earlier this week it was revealed that Tesco's sales fell 3% in the 12 weeks to March 30, according to analysts at Kantar, with only struggling rival Morrisons worse off. Clarke is under considerable pressure to take action as Tesco continues to lose market share to discounters such as Aldi and Lidl as well as more upmarket stores such as Waitrose and Marks & Spencer in an increasingly divided British food market. This week it was revealed that Tesco's sales fell 3% in the 12 weeks to March 30, according to analysts at Kantar, with only their struggling rival Morrisons worse off.
That disappointing performance came despite Clarke saying in February that he had speeded up his turnaround plan for Tesco with more store refurbishments in prospect and £200m of price cuts planned for staple groceries. That disappointing performance came despite Clarke's saying in February that he had speeded up his turnaround plan for Tesco with more store refurbishments in prospect and £200m of price cuts planned for staple groceries.
On Wednesday analysts at Oriel said the prospect of an upbeat story from management when Tesco unveils its full year profits next week "has been reduced to almost zero by what appears to be terrible current UK trading". The UK's biggest grocer is expected to unveil a 10% decline in trading profit to £3.2bn, and analysts at Shore Capital forecast there will be another decline next year to less than £3bn for the first time since 2009. On Wednesday analysts at Oriel said the prospect of an upbeat story from management when Tesco publishes its full year profits next week "has been reduced to almost zero by what appears to be terrible current UK trading". Britain's biggest grocer is expected to announce a 10% decline in trading profit to £3.2bn, and analysts at Shore Capital forecast there will be another decline next year to less than £3bn for the first time since 2009.
Oriel called on Clarke to come up with new ways to truly differentiate Tesco from its peers: "The strategy at the moment involves finessing the own label product whilst retraining the staff and giving the stores a lick of paint. This is fiddling while Rome burns." Oriel called on Clarke to come up with new ways to truly differentiate Tesco from its peers: "The strategy at the moment involves finessing the own-label product whilst retraining the staff and giving the stores a lick of paint. This is fiddling while Rome burns."
The pressure on Clarke ramped up last week when embattled finance director Laurie McIlwee quit. His departure came after weeks of speculation about a bust-up over strategy between the two men and murmers of McIlwee's difficult relationship with some in the City. The pressure on Clarke increased last week when the finance director, Laurie McIlwee, quit.
His departure came after weeks of speculation about a bust-up over strategy between the two men and murmurs of McIlwee's difficult relationship with some in the City.