Tesco focuses on rebuilding brand trust as it kickstarts turnaround

Tesco CEO Dave Lewis says the supermarket must focus on rebuilding trust and transparency in the Tesco brand as he looks to kickstart the supermarket’s turnaround by proving he is listening to customers with a round of price cuts but says unprofitable stores will shut and there will be job losses, possibly in marketing, despite an improvement in sales over Christmas.

Tesco price cut Kellogs

Sales at stores open for more than a year were down 2.9% in the 19 weeks to 3 January, an improvement on the 5.4% decline experienced in the previous quarter. Over Christmas sales were down 0.3% as Lewis said actions taken on price, service and availability led to an improved store experience, higher customer satisfaction and a better overall performance at the business.

In particular he highlighted fresh food, which saw volume growth for the first time in 5 years following initiatives such as the “festive five”, which offered five of customers’ favourite Christmas vegetables for 49p.

“We brought ‘Every little helps’ to life again in stores. At Christmas we showed that when we invest in the right things customers respond in a positive way.

“We will continue to listen to the customer. By doing that we deliver a better shopping experience for them,” said Lewis, speaking on a call following the announcement of its results this morning (8 January).

That starts today (8 January) with a new round of price cuts that sees the price of a range of branded products reduced by an average of 26%. That will be backed up by new in-store and online advertising as well as a wider marketing campaign, with Lewis saying he will continue to reinvest in the customer offering “as a priority”.

“The initiative today is quite simple and another example of us listening to customers. What they say is they want lower, most stable and consistent prices. Brands are the currency of competition and easy to compare and when we looked at them we were out of line on unit price,” he said.

Tesco fights back

Despite the improved sales performance Lewis admitted there is much work still to do to ensure Tesco remains competitive in the UK following a disastrous 2014 in which the supermarket issued four profit warnings, sacked its CEO and admitted to a £263m accounting mistake. Halfords boss Matt Davies, a man Lewis said has a proven track record in turning around businesses, is joining as the new UK CEO.

Former UK boss Chris Bush left the supermarket following the accounting scandal last year.

The changes will also impact head office, which is moving from Cheshunt to its site at Welwyn Garden City, with job cuts expected. The supermarket has not ruled out reducing headcount in the marketing department, which has already seen a number of reshuffles over the past few months.

Tesco will close 43 of its most unprofitable stores – mostly Express convenience stores – and pull out of 49 planned new stores – mostly Extra superstores. Store management will be structured with the loss of jobs, although Lewis said he will not sacrifice customer-facing roles.

The disposal of non-core assets has also started with TalkTalk buying Tesco’s broadband and Blinkbox movies businesses for a figure rumoured to be around £5m. Tesco has also appointed Goldman Sachs to look into the strategic options for Dunnhumby, which runs Tesco Clubcard, having had interest from “a lot of people”. Options under consideration include a sale or IPO.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. The decision to close 43 unprofitable stores is a clear reflection of reality in a tough grocery market. The short-to-medium-term market outlook is one of flat consumer demand, where online is growing and discounters are gaining share. It is surely necessary therefore that retailers like Tesco address the current surplus of space capacity in the market. It seems only sensible that all retailers should regularly review loss making stores to focus investment on improving shopper experience and maintaining a keen price position. It’s never ideal to close stores, but profit has to come before share.

  2. Shoppercentric 8 Jan 2015

    Whilst the better than expected Christmas sales will be a relief, it is clear from the plans announced that Tesco realise there is still much work to be done to re-connect with shoppers.

    What is interesting is that the major changes detailed are focused on saving money and selling non-core assets. Dave Lewis talks about the value of listening to customers, and how improvements made on that basis have helped with the better than expected results, but whether enough has been done in this area to resolve basic shop-keeping issues remains to be seen. Certainly our experience with Tesco shoppers suggests relevant ranging, shelf replenishment, queue management, better service and store environments that are easy to shop continue to be areas in which they feel Tesco needs to improve.

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