Tesco was once the powerhouse of the supermarket sector, with its top spot in the UK chart generally undisputed. However, as rivals Sainsbury’s and Asda have become more popular, and budget chains such as Aldi and Lidl have won consumers who like to keep a tight rein on their spending, Tesco’s market share has declined rapidly and led to concerns over the future of the business.
In a bid to win back disillusioned customers, chief executive Philip Clarke has announced a new plan which will see the supermarket giant slash spending on store expansion and instead refocus the budget to lower prices for consumers. Speaking at a recent investor conference, Mr Clarke pledged to spend no more than £2.5 billion per annum over the next three years on property expansion – the lowest level of spending in a decade.
At its peak in 2008/2009, Tesco spent a staggering £6.6 billion on property expansion as it attempted to further its “Tesco Towns” goal and operate at least one store in each major UK location. However, as consumer preferences have switched to convenience stores, Tesco’s large supermarkets have started to appear less attractive in comparison.
Mr Clarke admitted that Tesco’s performance has failed to meet expectations in recent years and promised to make lowering prices the chain’s first priority.
He said; “Prices in the UK have been too volatile for too long.
“I am committing to lower, more stable prices on the products that matter most to customers.
“Promotions have been too complicated and it is an industry-wide problem that we intend to solve – we are putting more money into more stable pricing.”
Tesco’s announcement comes only days after key rival Asda revealed plans to channel £1 billion of investment into price cuts. Unfortunately, this may once again seem like the chain is attempting to play catch up to consumers, with Tesco’s track record of “jumping on the bandwagon” often criticised by consumer groups.
Under Mr Clarke’s turnaround plans, Tesco will halt the opening of larger stores and instead focus on its convenience network which is rapidly becoming a key presence in Britain’s town centres. This should go a long way in meeting new store space targets, which have been slashed from 1.4 million square feet per annum to only 700,000 square feet in the 2014/2015 financial year.
Furthermore, Tesco’s drive to improve online services should be aided by further investment into click and collect hubs, which are generally found in the car parks of the chain’s larger stores. Another interesting development, if everything goes to plan, will be the introduction of one hour delivery slots – effectively placing Tesco ahead of its rivals when it comes to last-minute online shopping.
With Tesco facing difficulties, one can only hope that Mr Clarke’s turnaround plan yields results in the coming months. If not, Britain may see a revolution in the supermarket sector whereby discount brands become the top dogs.
Do you think the turnaround plan caters adequately to the needs of customers?
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