Tesco joins price war as supermarket plots recovery course
Tesco to close 43 stores despite better Christmas sales
(about 9 hours later)
Tesco has joined the supermarket price war on the day that new boss Dave Lewis is due to set out options for reviving the troubled company.
The beleaguered supermarket Tesco has said it will close 43 unprofitable stores across the UK - a "significant proportion" of which will be local convenience shops.
Following cuts by Asda and Sainsbury's, Tesco said it would reduce the price of some big-brand products, including Hovis, Coca-Cola, Marmite and Tetley.
The firm is also shelving plans to open a further 49 new "very large" stores.
Later on Thursday, Mr Lewis is expected to outline further measures to revive Tesco's fortunes.
Additionally, Tesco is closing its staff pension scheme, will make cuts of £250m, and reduce overheads by 30%.
Price cuts, job losses and asset sales are thought to be on the agenda.
It comes after two years of troubles at Tesco, which has suffered falling sales and profit warnings.
Tesco will want "to rebuild trust with customers, suppliers and the investment community," said Sanford C Bernstein retail analyst Bruno Monteyne.
Last year, the company was embroiled in an accounting scandal, and saw the departure of some senior executives.
It comes after two years of troubles at Tesco, which has suffered falling sales, profit warnings, an accounting scandal and the departure of some senior executives.
However the retail giant, which has more than 3,300 stores in the UK, had a better Christmas than expected.
On Tuesday, Asda cut the prices of 2,500 "essentials" such as fruit and vegetables, cereal, nappies, toilet rolls, milk, meat, eggs and fish. Rival Sainsbury's also announced further reductions as part of a £150m price-cutting strategy announced last year.
Sales over the holiday period were down just 0.3% on the year before, and up 0.1% if fuel sales are included.
Tesco's chief customer officer Jill Easterbrook said the supermarket's cuts formed part of a strategy to improve the company's focus on service and availability.
Overall, comparable sales for the three months to the beginning of January were down by 2.9%.
"We know that customers want to see changes in the way we serve them. One of the biggest things they've been saying is that they want prices which are simple, consistent and low.
In the previous three months, sales had dropped by 5.4%.
"The changes we're making today are a first step in that direction - and we've focused on many of the favourite brands customers choose every day."
Tesco's chief executive, Dave Lewis, said the firm was "facing the reality of the situation," and was "seeing the benefits of listening to our customers".
Mr Lewis is expected later to set out further ways to improve Tesco's fortunes.
Tesco also confirmed that two of its businesses - Tesco Broadband and online entertainment service Blinkbox, will be sold to TalkTalk.
Disposals
It also announced that Matt Davies, the boss of Halfords Group, will take charge of Tesco's operations in the UK and Republic of Ireland from June.
According to reports, he indicated to investors last month that he does not want to use Thursday's trading update on sales over Christmas to set out a major long-term strategic blueprint.
Sales at the retail giant improved in the six week Christmas period, with grocery shopping up almost 13% on last year, and online clothing sales growing by more than 50%.
Nevertheless, analysts expect news on plans to cut the headcount at Tesco's head office and on how it will tackle the threat from discounters such as Aldi and Lidl, which are eroding sales at all the big supermarket groups.
Shares in Tesco rose by more than 5% in early trading on Thursday.
There is also growing speculation that Tesco may announce asset sales in the UK and Asia to shore up its balance sheet.
Mobile phone firm TalkTalk is reportedly negotiating to buy Tesco's video streaming service Blinkbox. But a far bigger sale could be the disposal of data analytics business Dunnhumby, worth perhaps £2-3bn, say analysts.
There has also been speculation that Tesco could put its business in Thailand up for sale.
Cantor Fitzgerald analyst Mike Dennis speculated that Tesco could be preparing £4bn of asset sales, as well as £250m in savings from head-office cuts.
Mr Lewis was brought in last September from Unilever to restore Tesco's fortunes after investors lost patience with the supermarket's performance.
As well as a collapse in the share price and four profit warnings - the most recent in December - Tesco's problems were compounded by revelations over the way it booked payments from suppliers, leading to a £263m overstatement in profits.
Profits
Mr Lewis may use Thursday's update to announce a new and simplified way to deal with suppliers.
On Tesco's trading over Christmas, analysts expect a worse performance than last year. But analysts are divided about the extent of the decline.
HSBC analyst David McCarthy forecasts forecasts like-for-like sales down 2.5% over the six-week Christmas trading period. Deutsche Bank forecasts a 4.3% fall.
In its December profit warning, Tesco said that full-year profits would not exceed £1.4bn, down from £3.3bn a year before.
The company's share price ended the year 43% down.
