What’s £3bn between retailers?

I make no apologies for returning to two businesses I have discussed before on this blog – namely Tesco and the Co-operative Group/Movement – after all, they were the leading retail stories in the days before Easter, and both look like they could run and run. Whether they are moving towards resolution, and what that means, is much less clear than the professional and public interest they engender.

In Tesco’s case, I have commented on the trials they are enduring as they attempt to stem their decline in the UK. This time last year I wrote:

“Building a better UK Tesco has involved a range of initiatives (e.g. refurbishment, new products, extra staffing) and has been rolled out through the year – the process is not finished yet. The figures reveal however that this has come at the loss of quite a lot of margin – some 0.6%, and it may be that more might have to be invested further, as the process has not yet stabilised the market share.

These are interesting times for Tesco and we have to remember that they still have huge market share and sector leadership in the UK and remain a much admired retailer by many consumers. But the figures last week give a sense of clearing the decks and redirecting the business; only time will tell the extent to which this will work. And it is on the success of these initiatives and their impact on the business that the leadership team will be assessed over the next 12 months. It is always thus for retail leaders, but rather more pointed in this case and at this time.”

The process continues, and is clearly a work in progress. But, and this is where I feel the coverage can sometimes run away with itself, despite another “meh” year we still need to put Tesco’s “decline” in perspective.

Yes, their market share has been declining slowly for the last eight years or so; so their lead over their nearest rivals is now down from 15% to 12% and their market share of 28% remains a pipe dream for all their competitors.

Yes, they had to post a slowdown in sales and a reduction in profit. But profit remained above the £3bn mark.

These are both figures that others really covet, so perhaps the problems are overdone? After all, the Co-op just lost a little shy of £3bn last year, so there’s quite a way to go still.

But, there remains something of a sense of missed direction in Tesco. The ill-fated US adventure, the change in strategy in China, the search for what to fill all the hypermarket spaces with (and some of the car parking spaces), plus the loss of their finance director,  are all counters to the success of online, the (to many rather surprising but) good Hudl and their leadership on other operations.

Their reported priorities are to continue to invest in the UK business turnaround, establish multi-channel leadership and pursue ‘disciplined international growth’. On the final element I did like the use of the word ‘disciplined’; rather a sideswipe for those involved in internationalising in the last few years? My question for the UK however is whether enough is being done fast enough to make consumers feel there has been change? In the intervening year since my words above, has enough progress been made? And does the coming year look that much better?

Time will obviously tell on this, and one gets the sense of a ramping up of actions – price cuts this week, fuel save rolled out, store revamps, but are all these engaging enough customers enough?

On the Co-op, I headed my commentary last October ‘Civil Wars’ and the only news since then has been bad news. Chief Executive of the Group, gone; Co-op Bank Chairman charged with drugs offences; Review chair quits the Board; leakings and briefings left, right and centre and a battle for the soul (and probably the future) of the Co-op underway. And then an announcement of losses of £2.5bn. Where does it all end?

No doubt there is much more to come out and to be learned, and we as yet are nowhere near the end. But it was shocking to see the statement about 600 or so empty Somerfield properties (the Co-op getting the concept of “dark stores” slightly wrong perhaps) still on the books. And the ways the takeovers unravelled is really quite remarkable.

When, some 20 years ago I wrote my critical friend review for the 150th anniversary, one of the comments I received went along the lines of ‘if there were awards for navel-gazing and analysis then the Co-op would win them all; actually doing things properly as a consequence is a totally different matter’. Well, yes, in spades. And we will have to see in the next few weeks if that lesson has been learned

So Tesco and the Co-op, both in trouble, but in very different shades of trouble and with different situations ahead. Tesco at least are on a solid(ish) base and know what they are trying to do. The Co-op has neither a particularly sound base, nor a way forward at this point. I know which position I’d rather be in. But whether that will lead to further success, only time will tell.

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Internationalisation and Graduate Studies.
This entry was posted in Cooperative Group, Cooperatives, Dark Stores, Food Retailing, Retailers, Tesco and tagged , , , , , . Bookmark the permalink.

2 Responses to What’s £3bn between retailers?

  1. Steve Wood says:

    Tesco should probably have invested in price bravely and publicly 18 months ago. Their margin has been high for a long time and while an investment in price would have hurt, it would have hurt Sainsbury’s and Morrisons an awful lot more.

    Over the Easter holiday my family were “treated” to a visit to the Watford Extra refit (finally..). It seemed nice, though perhaps not “the answer” for the hypermarket problem that it is hoped to be.

    The shift in international strategy seems to be sensible – some of the plans for China seemed great from a decade long timeline but were expensive and all too much “jam tomorrow”.

    • Leigh Sparks says:

      Steve

      Thanks for the comments. The price question is interesting. Does Tesco have that much more margin to give than others? Deeper pockets perhaps but more “slack”, I am not sure.

      I am also interested in what “investing in price” means these days.There are lots of price cuts around but how clear and consistent is the message on price overall – and is that a game you can win against the discounters?

      Pu those two together and do you get a situation where you reduce prices and no-one notices?

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