Tesco boss pledges to be ‘customers’ champion’
New ceo Dave Lewis wrote to the troubled retail giant’s 500,000 employees this week, stating: “In our DNA we have always been the customers’ champion, and we will be again.” Shore Capital analysts Clive Black and Darren Shirley said the pledged created a pressure for change. “It also reminds us that in more recent times, Tesco has not had the customer at the forefront of its mind.”
Shore Capital also highlighted Lewis’s comments to employees about the scale of the challenge facing Britain’s top retailer. Lewis warned employees: “The retail market in all the countries where we operate has become extremely tough, and is changing faster than ever. We are losing market share in our largest market and we need to address this with urgency.”
‘We are losing market share’
But Black and Shirley expressed surprise that the new boss implied gaining market share was possibly a key measure of progress. While the retailer accounts for about 28% of the UK grocery market, it has put a brake on space growth in a bid to ‘end of the space race’.
Only last week Tesco cut capital expenditure on store refurbishments, which the analysts referred to as “demonstrably ineffective”.
But to regain market share will require Tesco UK to grow like-for-like sales without the benefit of new space and at a time when its potential was depressed by under-performance, greater competition, less food waste in the home, lower average calorific intake and the growing popularity of eating out.
“Tesco UK will need to build like-for-like sales if it is to stabilise, never mind grow, market share in an industry where limited assortment discounters, high street value retailers and premium players – such as Marks & Spencer and Waitrose – continue to add footage apace,” Black and Shirley.
Three other key messages
Meanwhile the analysts highlighted three other key messages within Lewis’s letter to employees. Those were:
• “We need to keep it simple and customer focused”. The retailer had seriously complicated its UK customer proposition and needed to simplify: pricing, promotions and initiatives such as Clubcard, Fuel Save and Price Promise.
• “… be absolutely focused on delivering the best possible experience for our customers”.
• “I’ll be looking at all parts of the business”. In addition to the core UK business, Lewis pledged to review strategic direction of the whole group, including its Asia operatings, banking, Blinkbox, Dunn Humby, Dobbies, its European business and other businesses.
Black and Shirley concluded that urgent remedial action was needed to “stop the rot” in the UK, which probably needed immediate gross margin investment in price of about £1-1.5bn. Shore Capital retained its ‘hold’ advice on Tesco stock.
