Philip Clarke admitted to The Grocer only last week that a price war with the discounters was one Tesco could never win. Yet this week, as the retailer revealed a depressing if not unexpected slump in group profits and UK like-for-like sales, he proclaimed that the £200m it was investing in “sharpening prices” was the beginning of a major campaign on price, begging the question: why has he allowed himself to be drawn into a battle he knows he is likely to lose?
There will be some who argue he had no choice, with Lidl and Aldi seemingly unstoppable and Morrisons upping the ante with its promise to spend £1bn over the next three years on price cuts. Just giving the impression of competing on price could make all the difference now the price-driven discounters have demonstrated they can also do quality, and the quality retailers – notably Waitrose – are putting on a good show of offering value for money (if not quite low prices).
But surely a big push on price will only distract Tesco from the real task at hand – devising a genuinely transformational turnaround strategy that builds on its good work improving customer service and repurposing its stores, particularly the hypermarkets. The reality is that for all the talk of its store refresh programme, there is an alarming discrepancy between the likes of Watford Extra and its flagship London stores on the one hand and the rather neglected stores in the provinces on the other. Tesco says it will accelerate its revamp programme, but there seems to be a somewhat scattergun approach to the new elements it’s trialling – and their rollout.
It needs to reinvent itself, but is it in danger of being pulled in too many directions? Plus, concepts like its new food-to-go trial are all well and good, but what about its core grocery offer and its once pioneering own-label ranges? It’s no coincidence that, as we report, the three best-performing retailers (Also, Lidl and Watrose) have increased their share of own-label sales in the past year.
Tesco can’t afford to neglect the basics. Or allow itself to be blown off course by an obsession with the discounters.