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| Tesco turns stale as competitors freshen up ideas | Tesco turns stale as competitors freshen up ideas |
| (about 9 hours later) | |
| The troubles just keep on mounting for Tesco. | The troubles just keep on mounting for Tesco. |
| Stagnant sales, falling profits, boardroom turmoil and now a £250m hole in its profits forecast. | Stagnant sales, falling profits, boardroom turmoil and now a £250m hole in its profits forecast. |
| No wonder shoppers and investors alike are questioning what was, until recently, the undisputed king of UK retailing, revered as much for its gargantuan sales as its continual innovation. | No wonder shoppers and investors alike are questioning what was, until recently, the undisputed king of UK retailing, revered as much for its gargantuan sales as its continual innovation. |
| So where did it all go wrong? | So where did it all go wrong? |
| Innovation | Innovation |
| From humble beginnings selling army surplus food in the aftermath of the First World War, Tesco's stranglehold on the UK's food retailing sector began to tighten in the 1990s. | From humble beginnings selling army surplus food in the aftermath of the First World War, Tesco's stranglehold on the UK's food retailing sector began to tighten in the 1990s. |
| It was one of the first major retailers to understand the power of loyalty cards - not just in boosting sales through discounts but in using vast amounts of customer data to help tailor individual shopping experiences. Tesco's Clubcard has since proved a blueprint for reward schemes countrywide. | It was one of the first major retailers to understand the power of loyalty cards - not just in boosting sales through discounts but in using vast amounts of customer data to help tailor individual shopping experiences. Tesco's Clubcard has since proved a blueprint for reward schemes countrywide. |
| It was a pioneer both in introducing smaller convenience stores in towns and cities under the Express and Metro brands, and in differentiating own-label products with its Value and Finest ranges. | It was a pioneer both in introducing smaller convenience stores in towns and cities under the Express and Metro brands, and in differentiating own-label products with its Value and Finest ranges. |
| Tesco was also at the forefront of online shopping, understanding the importance of home delivery in the internet age. | Tesco was also at the forefront of online shopping, understanding the importance of home delivery in the internet age. |
| In short, it "understood its customers and implemented this understanding on the shop floor," says Neil Saunders at retail research group Conlumino. | In short, it "understood its customers and implemented this understanding on the shop floor," says Neil Saunders at retail research group Conlumino. |
| "Its marketing was both clear and compelling." | "Its marketing was both clear and compelling." |
| From snapping at the heels of Sainsbury's in the mid-1990s, Tesco's share of the market hit almost a third by 2006, almost twice that of its erstwhile rival. It was opening new stores in the UK at a rapid rate and embarking on a substantial overseas expansion plan that helped it become the world's third largest retailer. | From snapping at the heels of Sainsbury's in the mid-1990s, Tesco's share of the market hit almost a third by 2006, almost twice that of its erstwhile rival. It was opening new stores in the UK at a rapid rate and embarking on a substantial overseas expansion plan that helped it become the world's third largest retailer. |
| There was, it seemed, no stopping this retail leviathan bent on global domination. | There was, it seemed, no stopping this retail leviathan bent on global domination. |
| 'Startling decline' | 'Startling decline' |
| And yet things have turned sour remarkably quickly. | And yet things have turned sour remarkably quickly. |
| Sales have been stagnant for the past four years while pre-tax profits have fallen significantly - to £2.3bn this year from £3.6bn in 2011. Last year, market share fell below 30% consistently for the first time in eight years. Perhaps most worrying of all, Tesco's share price has fallen by more than 40% in the past 12 months. | Sales have been stagnant for the past four years while pre-tax profits have fallen significantly - to £2.3bn this year from £3.6bn in 2011. Last year, market share fell below 30% consistently for the first time in eight years. Perhaps most worrying of all, Tesco's share price has fallen by more than 40% in the past 12 months. |
| Investors would normally pile in to a blue riband stock after such a startling decline, but as Garry White, chief investment commentator at Charles Stanley stockbrokers, says, some City investors are already referring to Tesco as a 'value trap' - a bargain stock that fails to perform. | |
| Some reasons for the supermarket's dramatic fall from grace were outside the retailer's control, others less so. | Some reasons for the supermarket's dramatic fall from grace were outside the retailer's control, others less so. |
| The financial crisis and subsequent recession focused consumers' minds on value and led to the rise of discount chains - primarily Germany's Aldi and Lidl - at the expense of the established UK supermarkets, primarily Tesco. | The financial crisis and subsequent recession focused consumers' minds on value and led to the rise of discount chains - primarily Germany's Aldi and Lidl - at the expense of the established UK supermarkets, primarily Tesco. |
| At the same time, changes in shopping habits meant consumers were less willing to visit large out-of-town hypermarkets - the kind Tesco had invested heavily in - when they could get their groceries delivered at the click of a mouse. | At the same time, changes in shopping habits meant consumers were less willing to visit large out-of-town hypermarkets - the kind Tesco had invested heavily in - when they could get their groceries delivered at the click of a mouse. |
| Perhaps more importantly, Tesco became "complacent", according to Mr Saunders. | Perhaps more importantly, Tesco became "complacent", according to Mr Saunders. |
| "It became a bit arrogant about its position, lost its customer focus and stopped innovating." | "It became a bit arrogant about its position, lost its customer focus and stopped innovating." |
| He also argues the company became too focused on profit and stopped investing in stores and customer service. This lack of investment became all too obvious on the shop floor. | He also argues the company became too focused on profit and stopped investing in stores and customer service. This lack of investment became all too obvious on the shop floor. |
| Tesco also lost a lot of money, not to mention management time, on expensive overseas projects such as Fresh and Easy, its failed foray into the lucrative US market. | Tesco also lost a lot of money, not to mention management time, on expensive overseas projects such as Fresh and Easy, its failed foray into the lucrative US market. |
| Finally, the company seems to have lost its way - where once there was a clear vision and identity, now there is indecision and confusion. | Finally, the company seems to have lost its way - where once there was a clear vision and identity, now there is indecision and confusion. |
| As Fraser McKevitt, head of retail and consumer insight at research group Kantar Worldpanel, says: "There has been no big innovation for a long time, while nobody knows what [the company] stands for." | As Fraser McKevitt, head of retail and consumer insight at research group Kantar Worldpanel, says: "There has been no big innovation for a long time, while nobody knows what [the company] stands for." |
| The appointment of marketeer Dave Lewis as chief executive following the short and ultimately unsuccessful reign of Philip Clarke recognises as much. | The appointment of marketeer Dave Lewis as chief executive following the short and ultimately unsuccessful reign of Philip Clarke recognises as much. |
| "Tesco has a major brand problem and Mr Lewis understands brands," says Mr McKevitt. | "Tesco has a major brand problem and Mr Lewis understands brands," says Mr McKevitt. |
| 'Radical solutions' | 'Radical solutions' |
| But what can he do to help Tesco turn the tide in a retail landscape that has changed considerably since the chain's heyday? Not only is the market more fragmented and more competitive, but all grocery retailers have yet to find a way to make good money from online shoppers. | But what can he do to help Tesco turn the tide in a retail landscape that has changed considerably since the chain's heyday? Not only is the market more fragmented and more competitive, but all grocery retailers have yet to find a way to make good money from online shoppers. |
| Mr Clarke launched a £1bn turnaround plan that did little to convince investors. His successor will need to do more than throw money at the problem. | Mr Clarke launched a £1bn turnaround plan that did little to convince investors. His successor will need to do more than throw money at the problem. |
| "Radical solutions are needed," says Rahul Sharma, retail analyst at Neev Capital. | "Radical solutions are needed," says Rahul Sharma, retail analyst at Neev Capital. |
| "Tesco's predicament is similar to other major global retailers such as Walmart and Carrefour - it is wedded to its big stores. There are no easy answers." | "Tesco's predicament is similar to other major global retailers such as Walmart and Carrefour - it is wedded to its big stores. There are no easy answers." |
| These stores are not just a major source of profits, he argues, but they are integral to the distribution of home-delivered goods. | These stores are not just a major source of profits, he argues, but they are integral to the distribution of home-delivered goods. |
| Simply selling off big stores is not, therefore, an easy solution. | Simply selling off big stores is not, therefore, an easy solution. |
| But whatever direction Tesco chooses to go, whether it be reinvigorating both the brand and its big stores, or becoming a more streamlined business focusing on smaller outlets, one thing is certain - it is unlikely to return to its former glory. | But whatever direction Tesco chooses to go, whether it be reinvigorating both the brand and its big stores, or becoming a more streamlined business focusing on smaller outlets, one thing is certain - it is unlikely to return to its former glory. |
| "Tesco can be turned around, but it will take a few years," says Mr Saunders. | "Tesco can be turned around, but it will take a few years," says Mr Saunders. |
| "However it will never get back to where it was." | "However it will never get back to where it was." |
| For those critics of Tesco, who bemoan its role in ousting local retailers and paying farmers unsustainably low prices for their produce, this is perhaps no bad thing. | For those critics of Tesco, who bemoan its role in ousting local retailers and paying farmers unsustainably low prices for their produce, this is perhaps no bad thing. |