Tesco's a lumbering beast, but it's moving in the right direction

Today's results show some progress.

Tesco results were out today. It's group sales increased by 2.6 per cent in the 26 weeks to 24 August 2013, it's UK sales were up by 1.1 per cent and its UK LFLs were down by 0.5 per cent.

Tesco is a huge retailer, which means that the pace of change will always be slow. Today's results suggest it is moving, albeit slowly, in the right direction though.

Neil Saunders says:

"The most encouraging sign of progress within the UK comes from the fact that within the period, the second quarter numbers showed an uptick in trading performance comparative to the first quarter: LFLs in Q1 were down 0.9 per cent whereas LFLs in Q2 were flat. Admittedly, this represents a stabilisation rather than a turnaround, but it is progress of a sort and does reflect the various initiatives that have gone into redeveloping the customer proposition."

The most critical initiatives, he says, have been the improvement of the store environment and "experience", lots of changing around in the food range, and some forrays into non-food, namely clothing.

"The international picture", he says, "looks increasingly worrying. European results were weak, with LFLs down by 5.0 per cent. Some of this continues to be driven by negative economic headwinds affecting Central and Eastern Europe, but part of it is also linked to a structural shift as consumers in some markets switch away from larger store formats leaving Tesco, and other players, exposed. The picture in Asia is little better with trading in Korea impacted by regulatory restrictions and the Thai economy dipping into recession."

Little surprise then that Tesco has moved away from expansion and into stabilisation - it knows where the issues are and is addressing them.

"It will have to work increasingly hard to get the whole group back firing on all cylinders but the management capability, resources and focus are all in place to meet that challenge", says Neil Saunders.

Tesco. Photograph: Getty Images
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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.