So has “Drastic Dave” Lewis cracked it at Tesco?
When he replaced Phil Clarke as CEO just over two years ago the once mighty supermarket chain was heading rapidly for the rocks, faced with sharply dropping sales at its larger stores and an expensive debacle in the US with Fresh and Easy.
Like all incoming CEOs in such circumstances he launched a kitchen sink exercise; closing some stores, reducing headcount and selling assets including the company jet, used by Tesco execs when they were trying to conquer the world.
Now sales are inching up – 1.1 per cent in the second quarter on a like-for-like basis – although profits fell, blamed on one-off costs. Tesco says operating profits (which don’t count such pesky nuisances) are set to reach £1.2bn. One-off costs though, as Britain’s banks have found, have a habit of not going away. Three former senior Tesco managers are currently in court accused of falsifying accounts. Tesco may be whacked with a huge charge. In the meantime its pension scheme deficit is ballooning, inevitable, perhaps, for a huge employer in an era of near-zero interest rates.
So not everything in the garden is lovely although, ultimately, recovery depends on sales and at least they’re rising. Lewis has also defended the store’s controversial ‘farm’ brands, which aren’t farms at all but an attempt to introduce branded products at value prices. He’s probably right in so far as consumers will buy them if the price is, indeed, right. Lewis is a former Unilever high flyer so he knows most of the tricks of the marketing trade.
Everyone expects a full-on price war to be launched before Christmas. Morrisons, too, is on the turn under former Tesco management and the Co-op’s food retail efforts are improving under the ultimate influence of chairman Alan Leighton, who made his reputation with Archie Norman running Asda. Asda and Sainsbury’s are currently in the doghouse with Asda required to send big dividend payments back to owner Walmart and Sainsbury’s, arguably, distracted by its long (ultimately successful) courtship of Argos. John Lewis-owned Waitrose, for years the darling of the sector, may find itself under pressure. It’s trying to price match in some sectors but may take a hit if it needs to extend this across the board.
Key to some of this will be the Christmas offers from the big supermarkets and their expensive ad campaigns. Tesco has largely ducked this recently, launching BBH’s dysfunctional (and quite cheap, presumably) family last Christmas. One imagines they’ll stick with this because that’s the Lewis way. Both client and agency have said it’s working.
Sainsbury’s has produced a number of extravaganzas in recent years through AMV BBDO. AMV has now been replaced by Wieden+Kennedy but AMV’s final campaign will run at Christmas. There’s a lot riding on this for client and agency. Some fireworks can be expected from Waitrose in the first Christmas campaign from agency adam&eveDDB, famous for its John Lewis Christmas epics. The others have to beware of being neither one thing or the other: producing an uninspiring but still expensive campaign (in terms of airtime anyway).
Ultimately such campaigns are as much about inspiring the troops as exciting consumers, who are probably unmoved by much of it. Although Sainsbury’s did sell a lot of Mog books last Christmas. Tesco, still referred to by some as the 800lb gorilla of the British supermarket trade, needs to continue its growth curve through Christmas and pray there’s an end to those nasty one-off costs.