Tesco needs to force an all out war on quality, not price

Tesco comes in for a lot of stick. As the UK’s biggest supermarket chain it has become the whipping dog, blamed for the demise of the high street, criticised when small bakers and butchers go out of business and faced with protests every time it tries to open a new store in villages from Hadleigh to Westward Ho!.

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It also hasn’t helped itself, caught up in the horsemeat scandal and fined over the price of its strawberries.

Its sales are down, with like-for-likes falling 1.5 per cent in the third quarter. That is putting pressure on Philip Clarke and his £1bn turnaround plan.

Tesco does remain the number one supermarket by quite some margin. Its market share sits at 29.8 per cent, well ahead of second-placed Asda on 17.2 per cent, according to Kantar Worldpanel.

However, signs are that Tesco is losing its way. By trying to be all things to all people it has confused consumers and that is hitting its sales.

Think of its rivals and their propositions are clear. Asda is focused on pricing, investing £1bn over the next five years to keep its prices low. Sainsbury’s is pushing its Value of Values message, highlighting the provenance of its food.

At the low end of the market, the discounters such as Aldi and Lidl are pushing their price and value. They may be small players in the UK, but the size of their international business means they can buy in cheaper products and sell them for less.

Morrisons is differentiating through its fresh food and “Market Street” propositions, while at the high end Waitrose and Marks & Spencer are cleaning up with their focus on the best quality products.

Within that it is hard to see where Tesco fits. It has a price-matching scheme, but so do the other supermarkets. It wants to prove its quality, but so far its value range can’t match up to Lidl and Aldi and its Finest is failing to compete with Waitrose and M&S.

As Tesco points out, these are difficult times for retailers as consumer spending still isn’t recovering. As the supermarket with the biggest audience from the widest range of the population, it has the most to lose when economic conditions don’t go in retailers favour. Yet it is also doing itself no favours.

Shoppers moan of poor in-store experiences, one even setting up a Tumblr blog to highlight the poor standards at its Haggerston branch. On one of our articles following HSBC’s advice that it start a price war, Tesco workers commented on the cost cutting in store and the drop in staff morale.

Tesco appears to have lost sight of its core proposition. Clarke might claim that its “Price Promise” scheme and “Love every mouthful” positioning are resonating with customers but figures from YouGov suggest the opposite.

Since 1 July, its Value score has fallen from 17.8 to 10.6, while Quality dropped to 4.2.

An all-out focus on pricing makes little sense when so many of its rivals are already positioned there. Instead, Tesco must push its quality message, both in terms of products and its branches.

Store refreshes are happening at a pace of one a week, but that needs ramping up to ensure it is providing the best possible in-store. It needs to hire more staff and train them in customer service to ensure shopping at Tesco is more appealing.

Plus it needs to use marketing to push its message, whether that be TV campaigns, direct marketing or in store. Most importantly, it needs to be happy to take the hit. Focusing on quality over price may lose it some customers and market share but it will help protect its prized profit margin while ending the cost cutting.

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