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Tesco chief unveils dramatic shakeup at troubled supermarket Tesco chief unveils dramatic shakeup at troubled supermarket
(about 3 hours later)
The new chief executive of Tesco has made a decisive break with the troubled grocer’s past, axing the retailer’s emblematic Cheshunt head office and raising the spectre of thousands of job cuts as part of a radical shake-up that will also see the closure or abandonment of nearly 100 stores. The new chief executive of Tesco has made a decisive break with the troubled supermarket’s past, axing the retailer’s emblematic Cheshunt head office in Hertfordshire and raising the spectre of thousands of job cuts as part of a shakeup that will also see the closure or abandonment of nearly 100 stores.
As the architect of the major restructuring Dave Lewis lived up to his nickname “drastic Dave” which was earned on the back of a brutal shake-up he led at former employer Unilever. As the architect of the major restructuring, Dave Lewis lived up to his nickname “Drastic Dave”, which was earned on the back of a brutal drive he led at former employer Unilever.
Lewis declined to put a figure on potential job losses but admitted: “This is a significant restructuring of a significant-sized business.” Lewis declined to put a figure on potential job losses but admitted: “This is a significant restructuring of a significant-sized business.” With 314,000 UK staff Tesco is the country’s biggest private sector employer, and with a goal to reduce head office costs by 30% – part of a plan to shave £250m from the group’s annual running costs – the number of job losses is expected to be substantial.
With 314,000 UK staff Tesco is the country’s biggest private sector employer and with a goal to reduce head office costs by 30% - part of a plan to shave £250m from the group’s annual running costs - the number of job losses is expected to be substantial. After the markets had closed on Thursday, credit rating agency Moodys slashed Tesco’s investment rating to junk, saying discounters such as Aldi and Lidl posed a continuing problem, Lewis’s turnaround plan was not guaranteed to work and would take time to take effect.
Some 3000 people are employed in Cheshunt, Hertfordshire which will close next year while a significant number of store staff will be affected by the unprecedented shutdown of 43 loss-making stores and a plan to strip out layers of store managers. Some 3,000 people are employed in Cheshunt, which will close next year, while a significant number of store staff will be affected by the unprecedented shutdown of 43 loss-making stores and a plan to strip out layers of store managers.
Lewis has also hired a new boss for the key UK stores, Matt Davies, who has been poached from rival retailer Halfords. Lewis has hired a new boss for the key UK stores, Matt Davies, who has been poached from Halfords.
“We are restructuring the group in way that does not sacrifice any customer-facing roles,” said Lewis. “These stores [the 43 closing] are a drain on the finances of the business and a loss we can no longer bear.” He refused to identify the locations of the stores to be closed. “We are restructuring the group in a way that does not sacrifice any customer-facing roles,” said Lewis. “These stores [the 43 closing] are a drain on the finances of the business and a loss we can no longer bear.” He refused to identify the locations of the stores to be closed.
The shares jumped nearly 15% on the back of the Lewis’s plan, which includes the closure of the company’s defined-benefit pension scheme - which has a £3.4bn deficit - and the sale of Tesco Broadband and movie streaming service Blinkbox to TalkTalk for an undisclosed sum. The shares jumped nearly 15% on the back of Lewis’s plan, which includes the closure of the company’s defined-benefit pension scheme – which has a £3.4bn deficit – and the sale of the Tesco Broadband and movie streaming service Blinkbox to TalkTalk for an undisclosed sum.
Despite the strong rally Lewis confessed to “mixed emotions” given the backdrop. “Today hasn’t been a day for thinking about the share price but the impact on colleagues of the changes we have to make,” he said. The shares closed up 27.25p at 209.25p. Despite the strong rally Lewis confessed to mixed emotions given the backdrop. “Today hasn’t been a day for thinking about the share price but the impact on colleagues of the changes we have to make,” he said. The shares closed up 27.25p at 209.25p.
With the company’s balance sheet under pressure Tesco also said it had hired Goldman Sachs to weigh up whether to sell its Dunnhumby data-mining business which is the brains behind its Clubcard loyalty scheme. With the company’s balance sheet under pressure Tesco also said it had hired Goldman Sachs to weigh up whether to sell its Dunnhumby data-mining business, which is the brains behind its Clubcard loyalty scheme.
Tesco currently operates one of only a few remaining defined benefit pension schemes - which promise pensions linked to salary - in the private sector. It has 350,000 members, of which 203,000 are current employees, and is one of the largest schemes in the country. Tesco’s is among only a few remaining defined-benefit pension schemes - which promise pensions linked to salary -in the private sector. One of the largest in the country, it has 350,000 members, of which 203,000 are current employees.
Independent pension consultant John Ralfe said: “Closing the defined benefit pension scheme to all members is an easy way for the new Tesco management to save around £250m a year, boosting operating profit by 10%. This saving, is of course, a reduction in the overall pay and perks of its 300,000 employees.” Independent pension consultant John Ralfe said: “Closing the defined benefit pension scheme to all members is an easy way for the new Tesco management to save around £250m a year, boosting operating profit by 10%. This saving, is of course, a reduction in the overall pay and perks of its 300,000 employees.” The retailer also axed its final dividend, which combined with the cut to the interim payout has saved the cash-strapped company about £800m this year. Tesco was among the top 20 biggest dividend payers in the UK, and a key investment for individuals and funds seeking income.
The retailer also axed its final dividend, which combined with the cut to the interim payout has saved the cash-strapped company around £800m this year. Tesco was among the top 20 biggest dividend payers in the UK, and a key investment for individual and funds seeking income. New Tesco House – the squat 1970s tower block on a grim industrial estate that the supermarket has called home for more than 40 years – used to be held up by former boss Sir Terry Leahy as a symbol of the “no frills” corporate culture that was good for customers.
New Tesco House - the squat 1970s tower block on a grim industrial estate Tesco has called home for more than 40 years - used to be held up by former boss Sir Terry Leahy as a symbol of the “no frills” corporate culture that was good for customers. It was also the setting of some tough negotiations. In 2008, at the height of the downturn, Tesco renamed one of its satellite buildings Discounter House to provide an intimidating setting for negotiations with suppliers during a shortlived bid to become “Britain’s biggest discounter”. It was also the setting of some tough negotiations. In 2008, at the height of the downturn, Tesco renamed one of its satellite buildings Discounter House to provide an intimidating setting for negotiations with suppliers during a shortlived bid to become “Britain’s biggest discounter”.
“There was some soul-searching but this is a new chapter for Tesco,” Lewis said. “My job is to think about the future.” From next year the company’s head office will be at an existing campus in Welwyn Garden City. A swish office in Mayfair used by chairman Sir Richard Broadbent is also being offloaded. Broadbent is in the process of being replaced. “There was some soul-searching but this is a new chapter for Tesco,” Lewis said. “My job is to think about the future.”
From next year its head office will be at an existing campus in Welwyn Garden City, Hertfordshire. A swish office in Mayfair used by chairman Sir Richard Broadbent is also being offloaded. Broadbent is in the process of being replaced.
Even Lord MacLaurin, the former Tesco boss who turned the company into Britain’s biggest retailer, did not mourn the end of the Cheshunt era. MacLaurin said he had purchased the land as a “field with horses on it”, but added: “There can’t be any sacred cows in business. You have got to do what you have got to do.”Even Lord MacLaurin, the former Tesco boss who turned the company into Britain’s biggest retailer, did not mourn the end of the Cheshunt era. MacLaurin said he had purchased the land as a “field with horses on it”, but added: “There can’t be any sacred cows in business. You have got to do what you have got to do.”
The company said that all types of stores were affected by the closures, but more than half were Express convenience stores, its smallest type. An Express store typically employs up to 25 people while a vast out-of-town Tesco Extra can employ 1000. Tesco said all types of stores were affected by the closures, but more than half were Express convenience outlets, its smallest type. An Express store employs up to 25 people while an out-of-town Tesco Extra can have 1,000 staff.
Lewis has also abandoned the construction of 49 new large supermarkets which he said the retailer “quite simply could not afford”. Tesco is still reeling from the autumn accounting scandal which revealed a £263m hole in expected profits. Last year it issued five profit warnings. The cull means the equivalent of 2m sq ft of new Tesco supermarket space will not be built. Lewis has also abandoned the construction of 49 large supermarkets which he said the retailer “quite simply could not afford”.
Tesco is still reeling from the autumn accounting scandal which revealed a £263m hole in expected profits. Last year it issued five profit warnings. The cull means the equivalent of 2m sq ft of new Tesco supermarket space will not be built.
With campaigners trying to block Tesco store openings usually making the headlines tThe decision to pull the plug on big projects around the country was met with anger in some communities, where plans have taken many years to come to fruition, often scarring the local environment in the interim.With campaigners trying to block Tesco store openings usually making the headlines tThe decision to pull the plug on big projects around the country was met with anger in some communities, where plans have taken many years to come to fruition, often scarring the local environment in the interim.
The list of casualties includes Dartford, where Tesco fought for 11 years to win planning permission for a development that included 100 homes, and a £60m development in Wolverhampton. Pat McFadden, MP for Wolverhampton South East, said Tesco had “broken its word”. He added: “Tesco has owned this site for 14 years. During that time it has remained undeveloped and a blight on the city.“ The list of casualties includes Dartford, where Tesco fought for 11 years to win planning permission for a development that included 100 homes, and a £60m development in Wolverhampton.
As Lewis set out his shakeup, he reported slightly improving trading with like-for-like sales down 2.9% over the past 19 weeks. Within that, like-for-like sales (which strip out new space) were down only 0.3% for the key six-week Christmas trading period. The retailer said its UK stores had recorded their first volume growth in fresh food in five years over Christmas - a time when he slashed the price of Christmas vegetables to 49p a bag. Pat McFadden, MP for Wolverhampton South East, said Tesco had “broken its word”. He added: “Tesco has owned this site for 14 years. During that time it has remained undeveloped and a blight on the city.”
“We delivered a marked improvement in our performance across the period,” said Lewis, who said the extra 6,000 staff drafted on to shopfloor roles were making a difference in customer service. “Over Christmas it felt like we brought “every little helps” to life in store.” As Lewis set out his plans, he reported slightly improving trading with like-for-like sales down 2.9% over the past 19 weeks. Within that, like-for-like sales (which strip out new space) were down only 0.3% for the key six-week Christmas trading period. The retailer said its UK stores had recorded their first volume growth in fresh food in five years over Christmas - a time when he slashed the price of Christmas vegetables to 49p a bag.
In a bid to compete even harder, the retailer launched a wave of price cuts on Thursday involving 380 branded grocery lines, including Hovis bread, Coca-Cola and Tetley teabags, reduced by an average of 26%. Lewis said Tesco’s prices had been “significantly out of line” with rivals. He is also cutting the number of products on the shelves by 20,000 to 70,000. “We delivered a marked improvement in our performance across the period.” Lewis said the extra 6,000 staff drafted into shopfloor roles were making a difference in customer service. “Over Christmas it felt like we brought “every little helps” to life in store.”
Lewis alsorefused to rule out selling the grocers’ successful Asian hypermarket operations: “We are committed to keeping all our operations overseas until we make a decision otherwise.” In an attempt to compete even harder, the retailer launched a wave of price cuts on Thursday involving 380 branded grocery lines, including Hovis bread, Coca-Cola and Tetley teabags, reduced by an average of 26%. Lewis said Tesco’s prices had been “significantly out of line” with rivals. He is also cutting the number of products on the shelves by 20,000 to 70,000.
Shore Capital analyst Clive Black said Lewis had put together “as credible a strategy as they can” but added: “There is no quick fix to this and they are not totally in charge of their own destiny due to the challenging and volatile markets Tesco is operating in. They can cut prices, increase staff and improve customer service but they also need to make a profit for shareholders - and devise a business model that is able to do that.” Lewis refused to rule out selling the company’s successful Asian hypermarket operations: “We are committed to keeping all our operations overseas until we make a decision otherwise.”
Shore Capital analyst Clive Black said Lewis had put together “as credible a strategy as they can”, but added: “There is no quick fix to this and they are not totally in charge of their own destiny due to the challenging and volatile markets Tesco is operating in. They can cut prices, increase staff and improve customer service but they also need to make a profit for shareholders – and devise a business model that is able to do that.”
Its departure from Cheshunt sounded a melancholy note, he added. “It’s a symbol of the plight of the company which is having to cut thousands of head office jobs.Its departure from Cheshunt sounded a melancholy note, he added. “It’s a symbol of the plight of the company which is having to cut thousands of head office jobs.