A defining moment for Tesco
Starcom MediaVest Group’s Steve Smith on Tesco’s latest financial results…
There are two sides to Tesco’s financial results released today. On the one hand, overseas business and group sales increased by more than 7%, to reach £72 billion. On the other, profit from the group’s core business – the UK – has dropped by 1%, to £2.5 billion.
On top of this, profits are unlikely to increase this year due to investment of £600 million to revitalise its stores, and an increase in staff members.
But make no mistake. This investment is good news. It is putting right past neglect of investment in its UK stores whilst it concentrated on financed growth in Asia, Eastern Europe and the US.
Philip Clarke eloquently set out Tesco’s priorities this year in his interview on the Today Programme this morning. A shift from bigger to better, by improving customer service, taking on an extra 8,000 staff, making the in-store shopping experience more pleasurable, and customising products to suit what local people want.
The tailoring to local people is indicative of how Tesco may be starting to put right its underuse of its Clubcard data over the last few years. It’s also a recognition of how the supermarket needs to meet the needs of local communities more widely.
This investment will mean fewer new stores, with new floor space growth dropping 38% this year over 2011, to 1.5m square feet. On the other hand, the supermarket is investing £150 million in its online offering, and will expand its online lines to 80,000 by the end of the year. Non-food items have huge potential, Tesco has doubled the number of products on Tesco Direct to 75,000 items. This is not just a challenge to Sainsbury’s and Asda, but Amazon as well.
Announcing the plan, Tesco’s chief executive, Philip Clarke, struck back at recent media coverage of the supermarket. “You might have the impression that Tesco is struggling. Well, we are not.” He said the changes to Tesco in the UK would “put the heart and soul back into Tesco” in its home market.
This is a defining moment for Tesco. It’s a defining moment for customers as well…