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Tesco Q2 sales show retailer out of intensive care

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Tesco looks like it is ready to move from intensive care into the recovery ward, Let’s be clear, Tesco isn’t cured but it is definitely over the worst, the clearest indicator of this is that the Tesco Q2 sales line only showing a small decline compared to the dismal 4.6% negative of the same quarter last year.

The Big Four grocers are evidently being split in two – Morrisons and Asda sliding down a slippery slope and Tesco and Sainsburys getting a toe-hold. It seems extraordinary that only 12 months after a major accounting scandal Tesco is in the stronger of the two camps and testimony to Dave Lewis’ leadership. With better volumes and more transactions he is in a much stronger position to tackle the problem areas of cost and margin in order to maintain bottom line profit.

There is more to do in the areas of categories, prices and merchandising but the range rationalisation that axed some tertiary brands like Carlsberg, Kingsmill and Ribena can result in clearer merchandising and improved negotiation stances, ultimately building sales and margin.

A clever move for Tesco is unifying the brand more closely across the many facets of its operation, building trust as well as being cost efficient. We will have to wait to see how this translates across all businesses and channels but hopefully not for too long. Marketing is one of Lewis’s fortes and we would like to see evidence of this in a fresh new Christmas marketing campaign.

The store experience is better than it was, cleaner prices and less confusing promotional elements, improved service which we have witnessed and welcomed, and range rationalisation being delivered without undue distraction. This is the Tesco we believe the customer wants and with a little more time will be delivered.

The Dunnhumby sale is now off the table but the sale of the performing South Korea business, although a tough one to make, has given Tesco some time in resolving debt issues and keeping the share price stable. In the long term Tesco will need a rights issue to raise further share value, but it is a confident move and reflects the dynamism that Dave Lewis has in approaching the challenge. We should expect more bold decisions in Tesco’s short-term future but ones that are all bolstering Tesco’s recovery in a disrupted market.


 

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