You have to feel for Tesco CEO Phil Clarke (pictured), no sooner had he taken over from long-serving and highly successful predecessor Sir Terry Leahy, than UK retail sales fell off a cliff, hitting supermarket food sales too for the first time in decades.
Tesco’s like-for-like food sales fell 0.9 per cent in the second quarter of 2011 while one its rivals, Sainsbury’s, posted a 1.9 per cent increase. Cunningly, Sainsbury’s doesn’t exclude the VAT increase to 20 per cent from its figures.
Tesco’s non-food sales were down 4.8 per cent in the period and it took a £57m write-off in its nascent bank business against payment protection mis-selling. To cap it all, its Fresh & Easy food business on the US West Coast seems no nearer to turning a profit.
Most of Tesco’s overseas businesses are going like a train and it still enjoys 30 per cent or thereabouts of the UK supermaket sector. But competition is increasing with Morrisons, under newish boss Dalton Phillips, adding a bit of class to its low-priced offer and Waitrose, which isn’t encumbered by shareholders in the City, spending like mad to win share in a recession (for such it is in the UK, for consumers anyway).
And the Tesco Bank business has still to offer current accounts and mortgages, over a year after it bought out former partner Royal Bank of Scotland (which now looks a bit previous). And, and…
In truth succeeding Leahy, who made his name at Tesco as a highly accomplished marketing director, working closely with Lowe Howard-Spink’s Sir Frank Lowe, was always going to be like succeeding (eventually) Sir Alex Ferguson at Manchester United. There’s a lot more downside than upside, in the UK at least.
So what’s Clarke’s strategy for getting Tesco back on track? So far he’s committed £500m to cutting prices although competitors say these aren’t the claimed permanent cuts but a gigantic promotion. Some of this has been paid for by scrapping the double points Clubcard promotion.
Beyond that it isn’t really clear that there is one, apart from doing more of the same a bit better.
And just maybe the days of Tesco’s dominant market share in the UK are coming to a close. Shoppers are now willing and able to shop around in a number of supermarkets, chasing promotions and new fresh food offers, rather than loyally trooping to the same store every week. With Waitrose expanding so fast out of its southern heartland it’s increasingly possible to buy your basics in Tesco or Morrisons and something posh for supper from Waitrose or Marks & Spencer, all on the same site.
People were quite surprised when Sir Terry stepped down in March at 55, long before retirement age. It looks like perfect timing now.