Tesco knows what its problems are: it just can't fix them

Today's results were not great.

Despite the profit squeeze suffered in 2012/13, there was a sense that Tesco was on the road to recovery. The end of the financial year had signalled an improving trend, with the implication that the strategy put in place by Chief Executive Phil Clarke was starting to bear fruit. However, these results demonstrate that the view Tesco had put the worst of its troubles behind it was somewhat premature.

The horse meat furore has undoubtedly played a significant role in derailing the improving trend, just as the business was starting to once more gather momentum. Despite only having a small number of affected products, the retailer was very much at the centre of the negative fallout from the scandal. Whereas Sainsbury’s and Morrisons were able to spin the episode into a positive, highlighting their product quality and supply chain transparency, for Tesco it merely raised some awkward questions and damaged shopper perceptions of the Tesco brand.

Indeed, this is reflected in the performance of Tesco’s food categories, where a positive and improving LFL trend was achieved in all food categories bar frozen and chilled convenience foods – in other words, those most associated with the horsemeat contamination. Although the retailer has now taken significant steps to address this, consumer trust is of course much harder to re-build than it is to lose.

With food having hit a hurdle, the ongoing decline of general merchandise becomes more pressing once again. Although clothing remains strong, the exposure of the business to the turbulent consumer electronics sector in particular is a major drag on performance. Tesco’s goal is to shift business from low-margin, low-growth categories to higher-margin, higher-growth categories; an admirable aim but not easy to implement.

In fact, this is the crux of Tesco’s problem; its challenges are much easier to identify than they are to fix. In non-food, for example it will re-launch its range and re-configure space in larger stores, but this will take time to produce significant results. Similarly, attempting to overhaul the consumer experience, whether through more appealing branding or introducing new features, such as restaurants and bakeries, to stores, is the kind of step that takes years, rather than months, to properly execute. Therefore, there could well be a few more bumps in the road to recovery.

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 Managing Director of Conlumino

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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