Nursery Today magazine

Tesco given advice on future profits

Stronger brand, not slashed prices, key to saving Tesco, says leading retail expert

With Tesco’s post-Christmas trading statement, released this morning, containing more bad news for the troubled supermarket, a leading retail expert is warning that the company is taking the wrong approach in its efforts to turn its fortunes around.

Dr Heiner Evanschitzky, Professor and Chairman of Marketing at Aston Business School, says that mimicking this approach of discount supermarkets and slashing prices will not improve Tesco’s fortunes, instead leading only to a further squeeze on profit margins and falling value of shares.

Dr Evanschitzky commented:
“Tesco are taking the wrong approach. They need to be focusing on maintaining their brand reputation. The way we shop is changing and the days of the weekly shop are gone. We get what’s convenient, when we need it, and often online. For the basics, price is the defining factor, and here the discount retailers like Aldi and Lidl have the market cornered. The stigma around discounters has gone, and this has opened the door to a much larger customer base for them. The big supermarket chains have been too slow to adapt to this and need to turn things around urgently.

“Where the more traditional retailers can compete is on quality and value. Waitrose have been leading the way in this, steadily increasing their market share as a result – inching up to just under 5 per cent in December. They have succeeded in targeted those shoppers willing to pay more for a few, specific, high quality or luxury items in addition to their cheaper essentials bought at a discount retailer.

“Tesco must take the budget earmarked for price cuts and put it into establishing a clear value proposition, with consistent branding. Their ‘Tesco finest’ brand is strong - why not aim to be a ‘finest store’ with high quality, good value products? Tesco can no longer be everything to everyone and needs to reposition. If it doesn’t, price cuts will result in further falls to margins, further falls to profits and further falls in share value.”

Tesco announced today that like to like sales fell 2.9% over the three months to January. Tesco also announced the closing of more than 40 stores, the decision not to pay a final dividend for 2014/15, and a £1bn reduction in capital expenditure. The results came as Tesco joined Sainsbury’s and Asda in announcing plans to invest hundreds of millions of pounds into reducing prices on thousands of products in their stores, in an effort to compete with discount retailers Aldi and Lidl.

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