Friday, 9 January 2015

Tesco looks ahead to a war with the discounters - how did it come tothis?

An article in the BBC website caught my eye, looking in some detail at the trading figures and future plans of Tesco-

The main focus of the statement that Tesco released with their trading figures was cost-cutting. They are closing non-profitable stores, they have shelved plans to open more stores and will be selling off peripheral parts of the business such as Blinkbox.

I've stated in a previous blog that I think Tesco's problems are wider than simply looking at price competition, but lowering their cost base and moving out peripheral areas of the business makes sense as far as the stock market is concerned.

Going to war with Aldi and Lidl is a short-term view of the problem and sees Tesco going into an area that they don't have immediate experience of and that the discounters have been perfecting for years. Sourcing low-cost good-quality food without putting a squeeze on producers is a trick that Tesco have failed to pull off before. Their track record and publicity in their relationship with farmers is really poor, and it will be interesting to see how they manage to lower prices without further alienation of those that care about the producers.

In my view, Tesco have failed in trying to be all things to all men. They have their fingers in many, many pies but do none of them particularly well. Moving on Blinkbox will get rid of a part of the business that can't compete with Netflix or Lovefilm.

Trying to be everything whilst they have rivals that do all those things better isn't a business strategy. It's a hiding to nothing.

They need to put in place a plan that improves their service levels. Having proactive team members available in the shop floor to assist customers will improve sentiment and sales overnight. After cutting costs and appeasing the stock market, the next step us to look after their customers.

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