Tesco boss says brand can be ‘great’ again despite 92% profit slump
Tesco has highlighted rebuilding trust and transparency in the brand as one of its key priorities after profits fell 92 per cent following its admission that its accounting black hole was larger than expected.
By Sarah Vizard
The UK’s biggest supermarket chain said it had overstated profits by £263m, larger than the £250m it previously stated, and that the accounting issues that led to this had been going on for a number of quarters.
Pre-tax profits came in at £112m. These were also hit by a 4.6 per cent drop in like-for-like sales, worse than the 1.3 per cent fall it saw in the previous period.
Speaking to Marketing Week on a press call following the results announcement, chief executive Dave Lewis said he has spent some of the time since he joined Tesco looking at Tesco’s brand archaeology and what made the brand great in the past. He said this boiled down to “championing the customer”, citing examples such as founder Jack Cohen’s focus on pricing and Sir Terry Leahy’s introduction of the Clubcard.
He said Tesco has not spoken to customers with a consistent message and that changes in the market meant customer perceptions of the brand have changed. However, he believes Tesco has a chance to be a “modern and great brand” again if it can get back to what made it successful in the past.
“Brands start to weaken and lose trust when two things happen. One is when they are inconsistent and the second is when the competition repositions. Tesco has suffered from both but this is a good thing because if we can go back to what made us great and walk the talk customers will remember why they love Tesco,” he added.
“Brands start to weaken and lose trust when two things happen. One is when they are inconsistent and the second is when the competition repositions. Tesco has suffered from both”- Tesco CEO Dave Lewis
Lewis said Tesco is operating in “challenging times”, citing strong competition, headwinds from price cuts and fewer untargeted promotions for the drop in like-for-like sales. Lewis said he is conducting a full business review that will “consider the options” for its assets and what its offering should look like both at its big stores and smaller convenience stores.
Sales at convenience stores were up 0.8 per cent while online sales increased 11 per cent.
Lewis added: “Whilst my review of the whole business continues, three immediate priorities are clear: to recover our competitiveness in the UK, to protect and strengthen our balance sheet and to begin the long journey back to building trust and transparency into our business and brand.”
Tesco chairman Sir Richard Broadbent said he would stand down to “draw a line” under the past, with the retailer on the hunt for a successor. The FCA is conducting an investigation into the accounting error now that Deloitte has finished its work on the extent of the problem.
Tesco admitted to the accounting error last month, blaming it on billing commercial income in the wrong time period. Eight execs, including UK boss Chris Bush, remain suspended in a bid to make the process “transparent” but Lewis said there is no evidence of fraud.
“Deloitte has established the what. Now the FCA will establish the why and the how,” said Lewis.
Tesco’s internal investigation is complete, and that is at least some good news since it makes clearer the extent of the situation for colleagues, investors and, to a lesser extent, shoppers.
But the massive challenge faced by Dave Lewis and the team has only just started. Tesco is a super-tanker of a retailer, where managing change in the good times is tough enough. Managing change at a time of operational crisis and strategic uncertainty is not an enviable task for any CEO.
While the big strategic questions need to be answered, the immediate concern has to be ensuring that Tesco is in a fit state to fight Christmas – a major challenge given the massive disruption caused by the upheaval of recent weeks and its ongoing fallout. As well as the direct impact of a forensic investigation at headquarters and the suspension of numerous senior executives, it would be a fair to assume that staff morale across the business is far from the place you’d wish it to be at any time, never mind as we enter the busiest time of the retail calendar.
For all of the big four, this is set to be a tough Christmas. For Tesco though, this could well be its toughest yet.
Looking beyond Christmas, we do need to be hopeful of a recovery at Tesco. It is not just a huge part of UK plc, most of us have pensions invested in Tesco, it is a huge employer and it is a source of business for many other companies in the UK. We are all in some way weaker if Tesco is.