Tesco: just what went so wrong?

Fresh and not so easy.

The big number in today’s results is profit, which is down by a whopping 51.5 per cent on last year. In large part this is down to a series of one-off items, including a write down of the value of the UK property portfolio amounting to some £804m. This in itself is notable as it arises from a decision not to build new stores on more than 100 sites that the company owns and once intended to develop. In essence, this signals the beginning of the end of the grocery space race. Tesco recognises that the opportunity to profitably open new stores is more limited due to both saturation and the continued growth of online. Indeed, its own online sales now stand at over £3bn, up 13 per cent on last year; a clear indication that this, and not new space, is one of the prime drivers of growth going forward.

Profit has also been impacted, albeit to a lesser extent, by a reduction in trading profit. Overall this was down by 13 per cent on last year. This reflects both the refresh activity in new UK stores and also the sharpening of prices. Arguably, both are necessary moves to restore growth to the UK business. Indeed, it can be argued that deterioration in profit to improve stores should rightly be seen as a critical investment that will, over the longer term, pay dividends.

Improvements on the home front

On the home front, while Tesco’s results remain muted there is a sense that the business is now heading in the right direction as the “Build a Better Tesco” strategic plan starts to deliver. While for the full year, LFL sales remain in negative territory there is a clear momentum over the reporting period with a particularly strong performance in quarter 4 (LFLs up 0.5 per cent), which encompasses the all-important festive trading period. Given the scale and maturity of Tesco’s business and the highly competitive state of the market this is a solid underlying performance that indicates that some of the initiatives are now having an impact on consumer behaviour.

Over the next few years, the clear priority in the UK is investment in the customer experience across all channels, but especially in-store. This is something Tesco has been guilty of neglecting in the past and it has damaged customer loyalty, retention and, ultimately, sales. Going forward, given that Tesco’s growth will be much less reliant on opening new space, getting more out of existing stores becomes doubly important. The refreshes, which now number 300 stores and around a quarter of Tesco’s UK selling space, are not necessarily ground-breaking in their thinking but they are a significant step up and provide a more pleasant and engaging shopping experience for the consumer.

The various acquisitions and partnerships Tesco has put in place, including Giraffe, Harris + Hoole and Euphorium bakery, provide a clear indication that it intends to significantly enhance the future in-store experience by introducing strongly branded added-value propositions. Directionally, this thinking is correct and it demonstrates that Tesco clearly understands the importance of providing differentiation over and above competitors, giving its stores more of a destination status, and the increasing importance of leisure within traditional retail.

The incorporation of new initiatives in-store may also help Tesco utilise space more effectively within its larger formats. The latest results clearly indicate the underperformance of non-food, which declined slightly overall and was down by 5% on a LFL basis. Given that clothing has performed strongly, there will be some non-food categories where Tesco has seen a significant deterioration in sales. The market outlook for non-food looks fairly anaemic for the next couple of years, meaning that Tesco would do well to look to reduce the footprint given to some of these categories.

Looking ahead, with the store refresh programme continuing and the re-launch of the flagship Finest brand firmly on the agenda, continued progress from Tesco over the short and medium term should be expected.

The American misadventure

The decision to abandon the Fresh & Easy venture cannot have been an easy one. That it has been made is a credit to CEO Phil Clarke and his team as it underlines their willingness push through the tough measures needed to put the group back on track. While over the longer term Fresh & Easy could have become a profitable venture, it is clear that there were no shortcuts to success and creating a sustainable business was would have required a great deal of time and capital. Arguably, at this point both of these resources are better directed at Tesco’s core business where returns are much more certain and can be delivered over a shorter period of time.

Retail history will likely record Tesco’s American foray as something of an unfortunate misadventure. On paper the Fresh & Easy concept sounded reasonable enough. There was, and to some extent still is, a gap in the local neighbourhood grocery market in the US. However, despite its extensive pre-research, from the get-go Tesco’s execution was off pitch: self service tills did not go down well with a consumer used to high service levels; a lack of vouchering and couponing alienated many price sensitive shoppers; and, an unfamiliarity with ready, convenience meals meant some part of the range were unsuited to local tastes. Soluble as these issues were, they were compounded by a downturn in the market which saw many American consumers turn to tried and trusted grocers, including hypermarkets like Walmart, where they knew they could save money on low price food. These same players also looked to exploit the neighbourhood market with a range of smaller, local formats; exerting pressure on Tesco and undermining its long term vision.

The bottom line is that Tesco probably bit off more than it could chew in the US. As in most mature western economies, to be successful mainstream grocery needs scale and volume. To attain scale and volume requires extensive investment. Given that the Fresh & Easy proposition was suboptimal, Tesco could not be certain that such investment would pay dividends. As such, the inevitably painful decision to cut and run was correct.

Photograph: Getty Images

 Managing Director of Conlumino

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In defence of orientalism, the case against Twenty20, and why Ken should watch Son of Saul

My week, from Age Concern to anti-semitism.

Returning late from a party I never much wanted to go to, I leap up and down in the middle of the Harrow Road in the hope of flagging down a taxi, but the drivers don’t notice me. Either they’re haring down the fast lane or they’re too preoccupied cursing Uber to one another on their mobile phones. My father drove a black cab, so I have a deep loyalty to them. But there’s nothing like being left stranded in NW10 in the dead of night to make one reconsider one’s options. I just wish Uber wasn’t called Uber.

Just not cricket

Tired and irritable, I spend the next day watching sport on television – snooker, darts, cricket, anything I can find. But I won’t be following the Indian Premier League’s Twenty20 cricket again. It’s greedy, cynical, over-sponsored and naff. Whenever somebody hits a boundary, cheerleaders in cast-off gym kit previously worn by fourth-form Roedean girls wave tinsel mops.

Matches go to the final over where they’re decided in a thrashathon of sixes hit by mercenaries wielding bats as wide as shovels. Why, in that case, don’t both teams just play a final over each and dispense with the previous 19? I can’t wait for the elegant ennui of a five-day Test match.

Stop! Culture police!

I go to the Delacroix exhibition at the National Gallery to shake off the sensation of all-consuming kitsch. Immediately I realise I have always confused Delacroix with someone else but I can’t decide who. Maybe Jacques-Louis David. The show convincingly argues that Delacroix influenced every artist who came after him except Jeff Koons, who in that case must have been influenced by David. It’s turbulent, moody work, some of the best of it, again to my surprise, being religious painting with the religion taken out. Christ’s followers lamenting his death don’t appear to be expecting miracles. This is a man they loved, cruelly executed. The colours are the colours of insupportable grief.

I love the show but wish the curators hadn’t felt they must apologise for Delacroix finding the North Africans he painted “exotic”. Cultural studies jargon screams from the wall. You can hear the lecturer inveighing against the “appropriating colonial gaze” – John Berger and Edward Said taking all the fun out of marvelling at what’s foreign and desirable. I find myself wondering where they’d stand on the Roedean cheer-leaders of Mumbai.

Taking leave of the senses

My wife drags me to a play at Age Concern’s headquarters in Bloomsbury. When I see where she’s taking me I wonder if she plans to leave me there. The play is called Don’t Leave Me Now and is written by Brian Daniels. It is, to keep it simple, about the effects of dementia on the families and lovers of sufferers. I am not, in all honesty, expecting a good time. It is a reading only, the actors sitting in a long line like a board of examiners, and the audience hunched forward in the attitude of the professionally caring.  My wife is a therapist so this is her world.

Here, unlike in my study, an educated empathy prevails and no one is furious. I fear that art is going to get lost in good intention. But the play turns out to be subtly powerful, sympathetic and sharp, sad and funny; and hearing it read engages me as seeing it performed might not have done. Spared the spectacle of actors throwing their bodies around and singing about their dreams against a backdrop painted by a lesser, Les Mis version of Delacroix, you can concentrate on the words. And where dementia is the villain, words are priceless.

Mixing with the proles

In Bloomsbury again the next day for a bank holiday design and craft fair at Mary Ward House. I have a soft spot for craft fairs, having helped run a craft shop once, and I feel a kinship with the designers sitting bored behind their stalls, answering inane questions about kilns and receiving empty compliments. But it’s the venue that steals the show, a lovely Arts and Crafts house, founded in the 1890s by the novelist Mary Ward with the intention of enabling the wealthy and educated to live among the poor and introduce them to the consolations of beauty and knowledge. We’d call that patronising. We’re wrong. It’s a high ideal, to ease the burden of poverty and ignorance and, in Ward’s words, save us from “the darker, coarser temptations of our human road”.

An Oscar-winning argument for Zionism

Speaking of which, I am unable to empty my mind of Ken Livingstone and his apologists as I sit in the cinema and watch the just-released Academy Award-winning Son of Saul, a devastating film about one prisoner’s attempt to hold on to a vestige of humanity in a Nazi death camp. If you think you know of hell from Dante or Michelangelo, think again. The inferno bodied forth in Son of Saul is no theological apportioning of justice or deserts. It is the evisceration of meaning, the negation of every grand illusion about itself mankind has ever harboured. There has been a fashion, lately, to invoke Gaza as proof that the Holocaust is a lesson that Jews failed to learn – as though one cruelty drives out another, as though suffering is forfeit, and as though we, the observers, must choose between horrors.

I defy even Livingstone to watch this film, in which the Jews, once gassed, become “pieces” – Stücke – and not grasp the overwhelming case for a Jewish place of refuge. Zionism pre-dated the camps, and its fulfilment, if we can call it that, came too late for those millions reduced to the grey powder mountains the Sonderkommandos were tasked with sweeping away. It diminishes one’s sympathy for the Palestinian cause not a jot to recognise the arguments, in a world of dehumanising hate, for Zionism. Indeed, not to recognise those arguments is to embrace the moral insentience whose murderous consequence Son of Saul confronts with numbed horror. 

This article first appeared in the 06 April 2016 issue of the New Statesman, The longest hatred