As the City became its boss, Tesco became a machine

Tesco chief executive Dave Lewis
Tesco chief executive Dave Lewis

Retail expert Kate Jones, director at Mash Strategy Studio, explains why things are likely to get worse still for Tesco, but new boss Dave Lewis has a clean slate with blame lying with his predecessors.

Could it get any worse for Tesco chief executive Dave Lewis? A question on the lips of many as today’s headlines make for terrible reading.

Chairman Sir Richard Broadbent announces he is stepping down in the light of the recent accounting chaos, culminating in a £263m profit overstatement. First-half profits are down a whopping 92% and trading figures are miserable, too, with like-for-like sales falling by 4.6%.

In the past 12 months alone share price has plummeted by 50%.

So, just where did it all go wrong?

For starters, shopping habits have changed. Gone are the days of out of town bulk buying (we can do that online), back in is top-up shopping and smaller, local store formats.

In the days of Terry Leahy, the consumer was the boss and Tesco a champion of the people - this changed with record profits and it was the city who became the boss as Tesco became a machine

This is bad news indeed if, like Tesco, the majority of your real estate and profit is from large out of town stores. Pain point number one – a structural change (and this will take time).

Secondly, price and value. Tesco has long stood for delivering value through low price. Back in the day the business would never have been more than 1% adrift from Asda, yet today across the board that gap is up to 6%, not in Tesco’s favour.

The point is there will always be someone who can do it for less than you can – you only have to look at what Aldi and Lidl doing to see this in action.

This brings us on to promotions. Today consumers want simplicity and transparency – the dizzying array of offers at Tesco smacks of desperation and confusion, while Lidl and Aldi compliment customers on their savviness through clear price differentials on like-for-like products. The difference is nuance, but an important one.

Finally, we have to talk about the human factor. The British public have just fallen out of love with Tesco. In the days of Terry Leahy, the consumer was the boss and Tesco a champion of the people. This changed with record profits and overseas expansion and it was the city who became the boss as Tesco became a machine.

It will get worse

Dave Lewis has two masters: the city must be sated but this must come hand in hand with consumer delight, bringing back the love that the British public has lost

Inevitably things are going to get worse before they get better, the question is how long will Dave Lewis be given to put his turnaround machine in to full throttle?

Looking on the bright side, he will no doubt now have carte blanche to implement his strategy and vision. Less than a few months in to the business he is unencumbered by the firm’s previous mind-set and has a clean slate to work from with the blame for the current troubles firmly directed at his predecessors.

There isn’t just one fix, however. Mr Lewis has two masters to serve and that is never an easy position to be in. On one hand, the city must be sated. Costs slashed or new overseas expansion into growth markets such as India delivered to get the profits back up.

But all this must come hand in hand with consumer delight – bringing back the love that the British public has lost. Make Tesco a peoples’ champion once more.

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