Retail Strategy – Rule One: Don’t forget the punter

The announcement of Philip Clarke’s pending departure from Tesco was melancholy  for all concerned and it must be hoped that his career is characterised by forty years of great achievement with the company rather than the challenges it faced in more recent times.

Mr Clarke’s departure brings new leadership and new territory for Tesco. The new man, Dave Lewis, a Unilever ‘lifer’, is not a scouser, a retailer nor a Tesco man. Accordingly, whilst the pedigree of Mr Lewis cannot be questioned, there will be understandable musings by investors as to whether he can effectively jump from supplier to retailer. We sense that this jump will test all of Mr. Lewis’ business ecumen. 

Mr Lewis starts his new job in Cheshunt in October albeit we expect him to be pretty familiar with much of the territory that he needs to manage. Quite how radical he needs to be remains to be seen. However, to our minds there is a stand out priority for him to address and it needs to be done so with pace; the core chain.

Tesco UK is the heartbeat and backbone of the group. If the core chain doesn’t work, and it hasn’t been for sometime, then the group doesn’t progress with nearly two thirds of profits produced in the UK. Despite recent initiatives, from Giraffe to Fuel Save, Price Promise to ‘Love Every Mouthful’, same-store sales have been falling at an alarming rate resulting in material loss of share.

Arresting this decline is essential for Tesco. The group’s scale, however, means that there remains still no quick fix and the strategy Mr. Lewis progresses will resonate around the whole industry. We feel that he needs to address the issues of low staff morale, a complex customer proposition, a bloated cost base and an inappropriate value perception immediately. 

Self-funded price cuts are expected by competitors, suppliers and investors. Additionally we anticipate a material cost-cutting drive for a bloated, bureaucratic and complex regime. ‎Trading margins, future investment plans, peripheral businesses and dividends maybe also under review too as the customer, rightly and belatedly comes to mind for management. We can also envisage material senior management adjustment in time. 

‎Losing sight of the punter is a costly and time consuming activity. If this failure is finally addressed then Tesco’s future may yet be brighter.