Tesco said that group sales including petrol were “flat” at constant exchange
rates in the past three months. In the modern history of Tesco, that is
unprecedented. Even when like-for-like sales in UK stores started falling a couple of years
ago, group sales rose thanks to Tesco opening new supermarkets in the UK, and
its overseas business performing well.
However, this week’s trading update suggests that Tesco and its chief
executive, Philip Clarke, can no longer rely on either of those things. Nine of Tesco’s 11 businesses around the world suffered a decline in
like-for-likes sales, including supposed jewels in the crown such as South Korea
and Thailand. A 12th business, Fresh & Easy in the US, is being sold because
it has failed to make a profit.
Back in the UK, Tesco is opening fewer supermarkets after Clarke called an
end to the space race into every UK postcode. This resulted in a writedown of
more than £800m on the value of land Tesco holds in the UK, because there will
no longer be a supermarket built on it.
After two decades of relentless growth for Tesco, which has established it as the biggest retailer in the UK and one of the biggest in the world, the company's crown appears to be slipping. Retail dynasties in the UK have come to an end before. Indeed, the problems
facing Tesco today could prove to be a repeat of the decline of J Sainsbury in
the early 1990s, when it lost its position as the market leader and king of food
retailing to Tesco.
In 1996, Sainsbury’s reported its first fall in profits for 22 years, just as
Tesco reported its first fall in two decades earlier this year. The annual report from Sainsbury’s for that year shows striking similarities
to the Tesco of 2013. It describes how the company is trying to modernise and
improve customer service through its “Customer First” plan. Sainsbury’s said it
was investing in refurbishing 97 stores, introducing new own-brand ranges in
chilled and frozen food, and hiring 5,000 extra staff at a cost of £30m.
The retailer also said it was introducing new services at its stores to
attract customers, such as pharmacies and petrol stations. By this time, Sainsbury’s had already warned that its margins had fallen and
announced a slowdown in store openings, which led to a writedown in the value of
its land.
David Sainsbury, the chairman and chief executive of Sainsbury’s, said in the
annual report: “This is not a satisfactory financial performance, but we have
taken decisive action to enhance our competitive position in the future.”
Tesco, through its “Building a Better Tesco” plan, is now also investing in
modernising its stores, hiring extra staff and revamping its own-brand ranges.
It has also seen its margins fall from more than 6pc to 5.2pc. Sainsbury’s
response in the 1990s failed. It continued to lose market share for years after
slipping behind Tesco, eventually falling to third in the UK behind Asda in
2003. It was not until Justin King arrived as chief executive in 2004 – when
Sainsbury’s reported its first loss in 135 years – that sales began to recover.
The woes of Sainsbury’s are a warning about how difficult it can be to shift
momentum in the retail industry.
Tesco has more than 3,000 hypermarkets, supermarkets and convenience stores
in the UK, so it could take years for Clarke to change Tesco stores and shed the
perception of some customers that it is a heartless growth machine.
The supermarket battle of the 1990s also suggests that retrenchment is not
necessarily the best policy.
King has said that Sainsbury’s problems were compounded by holding back on
expansion in the 1990s, when Tesco was aggressively buying out-of-town land
across the country, giving it a foothold in local areas that it has never
relinquished.
A slowing down of Tesco’s store development programme is arguably even more
profound, because a key reason for its success under Sir Terry Leahy was the
ability of his property team to snap up key sites, develop them successfully
into supermarkets, and then raise new funds for expansion through
sale-and-lease-back deals.
Tesco arguably has no choice but to slow down, because it has reached every
corner of the UK and the economy is flatlining. However, other retailers are
still expanding. Sainsbury’s says that 22pc of the UK population still does not
live within 15 minutes of one of its stores, while Tesco now also faces fierce
competition from Waitrose, Aldi and Lidl.
Could Tesco’s dominance of the UK market, in which its share is almost double
the 16.8pc of Sainsbury’s, just prove to be an anomaly that disappears as rivals
catch up with its geographical expansion? After all, are Tesco stores really
twice as good as Sainsbury’s?
Sainsbury’s is certainly outperforming Tesco at the moment, and has done
since the onset of recession in the UK. Next week, the City expects the retailer
to report like-for-like growth in the UK of as much as 3.5pc in the past three
months, compared with a 1pc drop for Tesco.
However, while there may be similarities to Sainsbury’s in the 1990s, Tesco
is well placed to retain its retail crown. Firstly, it is much more dominant
today than Sainsbury’s was in the 1990s.
According to Kantar, Tesco’s market share is 30.2pc, while Sainsbury’s is
16.8pc. Tesco’s UK sales were £43bn last year – a different league to
Sainsbury’s £25.6bn. At the peak of its powers in 1992, Sainsbury’s had a market
share of just 20.5pc, and Tesco was not far behind at 17.4pc.
Sainsbury’s is not eating into Tesco’s lead at any great pace. Over the past
year, Sainsbury’s market share, despite its impressive performance, rose just
0.3 percentage points from 16.5pc. Upmarket supermarket Waitrose and discounters
Aldi and Lidl are growing market share at a faster pace.
Secondly, Tesco looks well placed in the fastest-growing segments of the UK
grocery market – convenience stores and the internet. There are already more
than 1,930 Tesco convenience stores in the UK, while Tesco’s online sales rose
13pc to more than £3bn last year.
It is bigger than its rivals in both these markets, and investing more.
Clarke has said the retailer is to spend $750m (£485m) on technology this year,
three times more than in 2010. Tesco even has an app development centre in
London’s version of Silicon Valley, Shoreditch.
In terms of revamping Tesco stores, Clarke has recognised that the retailer
lost touch with its customers and has bitten the bullet. Rather than fiddle
around the edges as Sainsbury’s did in the 1990s, Clarke has pumped £1bn into
improving the UK business and overseen a kitchen-sink job in Tesco’s most recent
annual results that saw worldwide post-tax profits fall from £2.8bn to £120m.
Some City analysts believe Clarke needs to go even further to halt Tesco’s
decline, however, as Philip Dorgan at Panmure Gordon, said: “Remember that the
darkest hour is just before dawn.”
For those who doubt whether Tesco can retain its position in the UK and
abroad, there is one final point. Its largest shareholder is Warren Buffett’s
Berkshire Hathaway. The Sage of Omaha does not get much wrong.
Novelis launches world's first recycled content certification programNovelis announced the commercial availability of the industry's first independently certified, high-recycled content aluminium, designed specifically for the beverage can market. With a minimum of 90 percent recycled aluminium, the Novelis evercan aluminium beverage can body sheet will allow beverage companies to deliver soft drinks, beer and other popular beverages in a low-carbon footprint consumer package. 
Musco Family Olive Co., the leading branded retail supplier of table olives in America, has introduced a new snacking product in the olive category. Pearls Olives to Go! are no-mess, easy-to-open, single-serving cups filled with California-grown, large pitted black ripe olives. This consumer-friendly, breakthrough packaging aims to transform shopper attitudes toward olives, turning them from an occasional condiment into a lunchbox and snacking essential. Each package of PearlsOlives to Go! contains four 1.2 ounce cups (similar to fruit snack cups but without the liquid mess). An individual olive cup holds ten large olives –one for each finger. Containing just 40 calories, the cups are ideally portion-controlled for kids and adults and are always fresh, delicious and snack-ready. 
Casserole pack makes a traditional impression RPC Barrier Containers has developed a long shelf life ambient packaging solution for a range of ready meals produced by French foodservice specialist Soulié Restauration. The 600ml oval tubs are thermoformed in multilayer polypropylene with matching lids. The barrier pack provides a shelf life of up to 18 months for the ready-to-heat typical French recipes. The custom-designed tub and lid have been created to resemble a traditional casserole pot and are coloured red or yellow depending on the product. 
