Like-for-like sales at the UK’s largest supermarket chain fell 1.5 per cent in the company’s third quarter, with Clarke blaming slowing growth across the grocery market for the decline. Speaking on a call with analysts, he said that unlike competitors, Tesco is not focused on opening new stores to boost market share, instead continuing to invest in multichannel and revamping its stores to improve the customer experience.
“There is no short-term relief in this market without opening new stores and we won’t trade long-term health for short-term help. We have opened far less new stores than our rivals, including the discounters,” he added.
Tesco focused its marketing efforts this quarter on its “Price Promise” scheme and “Love every mouthful” positioning. Clarke said both campaigns are “very significant” in how Tesco is perceived by shoppers, offering reassurance to customers on both price and quality.
“There has been a great reaction to Price Promise. We are focused on doing the right things for the customer and making more of our price, quality, range and service to differentiate,” he said.
Phil Dorrell, director of retail consultants at Retail Remedy, believes that the supermarket’s marketing is improving, while investment in its online grocery service and click and collect prove a focus on the customer experience.
“Online and click and collect are performing a lot better now. You start to build a picture of a Tesco that is changing and making very customer-friendly decisions, all of which will bring benefits.
“Even Tesco’s staid media campaigns have been revitalised and now have some personality,” he said.
Part of Tesco’s turnaround is focused on refreshing its stores. So far it has revamped 108 of its larger stores and is refreshing at a rate of one a week, although Clarke feels this “needs to go faster” if the supermarket is to keep up with changes in how people shop.
“People now are shopping more locally and buying for now, not stocking up. We have to improve the store experience and set it up for multichannel. The mass market must reinvent itself,” he said.
For Tesco, that includes attempts to turn its stores into family shopping and leisure centres with the introduction of restaurants and coffee shops. Plus the launch of its Hudl tablet and Blinkbox range of digital content, which already offers movies and music and in March will expand to include books.
Clarke labels the Hudl a “damn good product that customers love” and admits the firm is struggling to keep up with demand. He also confirmed that the Hudl 2, which will include enhancements to the existing device, will launch next year.
Despite Clarke’s strong defence, concerns about Tesco’s growth remain. HSBC recently advised clients to cut the proportion of Tesco shares in their portfolio over worries that it is focused on maintaining its prized 5.2 profit margin by keeping operational costs low.
It advises Tesco to lower that profit margin, stoking worries over a price war. Rival Asda is already planning to invest £1bn in keeping its prices low over the next five years and a move by Tesco could suck Morrisons and Sainsbury’s into the battle.
However, Matt Piner, research director at Conlumino, believes Tesco should be focused on creating a clear identity for its food proposition and making it easier for customers to shop.
He said: “As a broad church with the biggest, widest cross section of customers, Tesco has been more exposed than most to the slowdown. In this environment it is harder to drive volume growth. However, others have coped with this better than Tesco. Unless it can build a clearer identity for its core food proposition it will continue to feel the squeeze.”