Belfast Telegraph

Friday 26 December 2014

Store wars: Slump in Tesco profits likely to fire starter gun on new discount battle

Discerning shoppers are increasingly hunting down the most competitive supermarket prices – spelling woe for Tesco
Discerning shoppers are increasingly hunting down the most competitive supermarket prices – spelling woe for Tesco

Northern Ireland's largest Tesco stores are to undergo a facelift in the next three years in a bid to claw back declining sales figures billed as the supermarket giant's worst in 40 years.

Tesco's former pre-eminence in the grocery market took another blow yesterday when its first quarter interim management statement for 2014/15 revealed like-for-like sales plummeted by 3.7% – far worse than the 2.9% drop recorded in the previous three months.

There are no regional figures available to shed light on its performance in Northern Ireland, where it has 55 stores in total, including eight large-format Extra stores and 16 convenience-format Express stores.

But here, as with the UK as a whole, discerning shoppers go to lengths to hunt down the most competitive supermarket prices, with the result that discount-based retailers like Lidl, which opened here 15 years ago, are gaining ground. The figures prompted Tesco chief Philip Clarke to concede its worst performance in four decades amid fears the grocery behemoth may be losing up to one million customers a week as the fight among cheaper rivals intensifies.

Across the UK, Tesco remains the biggest supermarket of the Big Four which includes its nearest rival Asda, followed by Sainsbury's and finally Morrisons, which existed in Northern Ireland very briefly around 10 years ago.

UK-wide, Asda has been described as the biggest winner among the mighty quartet, as the only large chain to increase the size of its market share over the past 12 weeks.

Morrisons' share fell to 10.9% from 11.6% while Sainsbury's also slipped to 16.5% from 16.7%.

Market researchers Kantar Worldpanel revealed that despite the wider market slowing to 1.7%, Lidl, which has 36 stores in Northern Ireland, had achieved a record share of 3.6% this period, accelerating with its highest ever year-on-year growth of 22.7%.

Glyn Roberts, chief executive of the Northern Ireland Independent Retail Trade Association, said he believed discounted stores provided a challenge not only to the large multiples but also to independent retailers amid "a rapidly changing retail environment".

Referring to competition driven price-slashing, he said: "A race to the bottom is not always a good thing but we have to realise that type of retail is very popular.

The UK grocery market has slowed down by 1.7%
The UK grocery market has slowed down by 1.7%

"The big multiples are facing a significant challenge in the face of budget shoppers who are doing two or three shops at a time and not doing the big weekly or fortnightly shop and that's probably why Tesco are building more smaller format stores and not the big-box type."

Despite Tesco's travails, Mr Clarke remained resolute, stating the firm would continue with plans to "make a real difference for customers" including price cuts, better rewards for fuel buyers, cheaper online grocery services and a revamp for over 200 large stores.

A spokesman for Tesco yesterday told the Belfast Telegraph: "In terms of results, we don't split out sales region by region." But he pointed to Mr Clarke's assurance of accelerating its plans to "make a real difference for customers".

"As for large stores, we have given the commitment to refresh all large stores (over 200) in the next three years, including Northern Ireland."

He added that he expected "trading conditions to remain challenging for the UK grocery market as a whole".

Mr Clarke pledged that its price-cutting strategy would be better than its "big price drop" in 2011, admitting of that campaign, "we didn't execute it very well", and adding this time "prices are down and they are staying down".

Analysis: Grocery giant has identity crisis, it can't be all things to all men

BY DONALD MCFETRIDGE

The latest quarterly results released by Tesco should hardly come as any surprise as figures from Kantar Worldpanel this week revealed that the UK grocery market has slowed down by 1.7%.

However, they have come as something of a disappointment to the directors of Tesco – the largest of the 'big four' supermarket groups.

While some critics have been quick to challenge the leadership and direction of CEO Philip Clarke, I believe that it is important to point out (in his defence) that he has lowered the net debt of the company and the balance sheet and final accounts of Tesco are in a much healthier position than they were 12 months ago.

The problem for Tesco is juggling financial constraints against the changing needs and demands of 21st century supermarket shoppers in a constantly changing marketplace. Tesco is trying to be "all things to all people" and it's simply not working. Waitrose and Marks & Spencer opted for quality while discounters like Aldi, Lidl and Netto chose value as their route to market.

Tesco has fallen between stools and has failed to take heed of the fact that competition in the food supermarket retail sector these days is not so much about the space race but more about distinct offer competition. The era of the large-format Tesco Extra store openings has ended, and ended very abruptly. It is imperative that Tesco accepts this as a fact and takes it on board in their efforts to regain lost market share and customers while still working hard at turning around their somewhat jaded and dated retail estate.

Consumers in Northern Ireland have adapted to changing market and economic conditions. Where before, customers shopped almost exclusively at the larger out-of-town superstores, they are now combining this with more convenience-type shopping – and not just for "topping up".

The days of the supermarket behemoths are coming to an end.

Donald McFetridge is a retail expert at the University of Ulster

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