Tesco unveils £1bn fightback plan as UK profits slide for first time in 20 years

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Tesco has posted its first drop in UK profits for 20 years.

Although profits across the group were up 1.3% to £3.8bn for the past year, earnings from its domestic business slipped by 1% to £2.5bn – the first drop in two decades.

Fourth quarter sales in the UK were down 0.5% on a like-for-like basis and were flat across the year as a whole. Total sales across the group grew by 7.4% to £72bn.

As part of his widely trailed strategy revamp, chief executive Philip Clarke announced a £1bn package of measures designed to reenergise the domestic business.

Tesco is cutting the number of new store openings by more than a third compared to last year, to focus spending on giving existing stores what Tesco called a “warmer look and feel”.

Click & Collect will be extended, while Tesco vowed to improve the range and quality of its brands, continuing changes that recently saw its pioneering Value range rebranded as Everyday Value. Tesco also said it would “transform [its] online presence”, more effectively tailor its promotions to suit shoppers and improve its marketing.

As previously announced, thousands of extra staff will be added and more emphasis placed on Tesco’s fresh food aisles.

“The last few months have seen us drive a faster pace of change in Tesco, particularly in the UK, reflecting our determined focus on the immediate objectives for the group that were set out last April,” said Clarke.

“This pace of change will accelerate further over the next 12 months. We have already taken important steps to renew and strengthen management in the UK and across the group in key areas, to support this programme of change.”

Clarke said Tesco “fully recognises that we need to raise our game in the UK”.

“We are committing over £1bn to make the UK shopping trip better for customers: more staff giving improved service in-store; refreshed stores that are better and easier places to shop; lower prices and even more value from an improved product range. As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too.

“These are decisive steps and this cost investment – as we have already announced – will constrain our near-term profitability. We are also focusing our lower overall capital expenditure more into our existing stores and in building our online businesses.”

Readers' comments (8)

  • Interesting analysis.

    After visiting the Tesco “Test” store in Hertford yesterday, I can see much of the new plans are about clean stores, use of fresh food posters, warmer colours and some wood trim – however there’s still a huge emphasis on price – with half price and price drop signage everywhere. Tesco need to understand that it’s not all about the money, money, money for shoppers and it is worrying that they continue to see price as a key issue. They argue that in these tough times their shoppers want low price from them, yet in a market as competitive as the UK grocery sector, price is all too easy a card to play. Any retailer can cut prices, but it is the retailers who differentiate beyond price that really understand today’s savvy shoppers.

    Also we all know that Tesco stores need investment – staff, environment, stock levels – that’s the obvious shop-keeping, but they need do more than that – something radical. Our research suggests they don’t deliver the specifics of value to today’s savvy shoppers – value isn’t about lowest or even low price for the majority of shoppers, it is a price/quality balance. Tesco need to look at initiatives that help shoppers make the most of their spending – simply giving products away won’t drive loyalty – they need to review Clubcard and restore that to its former value. Loyalty schemes are an area of growth among shoppers and they need to get back on the front foot with that.

    Let’s be honest, Tesco have a great format portfolio, but they aren’t flexing it enough. Our research says around 60% of shoppers using small formats like Express / Metro don’t stock the products they want. Tesco need to tailor their ranges in these formats to suit the local area needs – not roll out standard templates from head office. It’s about understanding their shoppers – not just walking the store – really listening to what shoppers are saying: about them, but also about their changing needs.

    Tesco have done well for a long time, and they still make £2.5bn profit. So they aren’t a basket case, but they have serious issues, and serious competition. They need to do something seriously radical – not just clean up stores and stick a few posters up…

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  • In a nutshell, Tesco needs to bring Tim Mason home....

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  • Bing back double points on the club card, and reward the loyal customers

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  • Lets get real about this please! So many workers have had their wages frozen and we have to be concerned over a conglomerate making £2.5 billion, yes billion profit.

    I and many others have been made redundant twice in one year. Fuel has increased beyound the pale, companies going into administration and we are supposed to feel for Tesco.

    Sorry but life is tough , the media and Tesco need to get real.

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  • We've got some serious beef with Tesco's £1bn UK Recovery Plan, and we're telling everyone why! www.hisbe.co.uk/weve-got-beef/

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  • For years Tesco stocked a good range of regional products, last year a great number disappeared. When you asked staff instore they always blamed the supplier, when you contacted the supplier it was nearly always a different story. Tesco appeared to assume that because brands were regional and generally small they could use bully boy tactics on them. For me the straw that broke this camels back was to take out Yorkshires own Longley Farm dairy products and replace them with those of a Austrian owned company. So much for supporting UK suppliers and farmers.

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  • Tesco at one time had a good range of locally produced products. Invariably good value, and in many cases genuinely farm produced. Last year these seemed to get less, month by month. If you asked what had happened to them from store staff they invariably blamed the suppliers. After I contacted several suppliers for their version of events it appeared Tesco simply tried to use their wealth & power to squeeze these people. Being concerned both by food miles, UK farming and local economies the straw that broke this camels (Yorkshire) back was when they discontinued a range of Yorkshire dairy products, mainly cottage cheese and yoghurt, and replaced them with products from a Austrian owned company. So much for supporting UK suppliers and farmers.
    I went to Asda.

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  • As an ex tesco customer I feel I should write this,Tesco and many many other companies assume that everyone has a computer(In library now) I have not and I wrote to tesco to ask what they was doing about the sainsbury awesome offer,They give money off vouchers straight to you if the branded goods was more expensive than tesco or asda they give me a voucher straight off with my receipt.a great service in my opinion, Tesco say it proves that they are cheaper,but this is not the case on all products, Tesco say If I go on there website with my recepit and apply for a voucher if I find that others are cheaper they will give me a voucher???? Time to do this,need to pay for computer in library and wait for one, Sainsbury just gave me a voucher automaticaly as there up to date system does all this for me,Making me a happy shopper and also If I want to buy branded goods I use sainsburys a no brainer really,Wake up Tesco get with the times and follow sainsbury lead in this gesture to there new customers.

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