Tesco's strategy of focusing on the customer experience pays dividends
Tesco has hailed “significant progress” after reporting a return to profit and its first quarterly sales growth for three years. The supermarket giant reported a £162m statutory pre-tax profit for the year to 27 February with UK like-for-like sales up 0.9% in the fourth quarter.
The results follow last year’s £6.3bn loss, the worst results in its history. Tesco chief executive Dave Lewis said the group had “regained competitiveness in the UK”.
“Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case,” he added. Despite the progress, Mr Lewis warned the market remained “challenging and uncertain” and said its continued investment in prices to remain competitive would slow its profit improvement “particularly in the first half”.
Since taking over as Tesco chief in September 2014, Mr Lewis has put Tesco’s focus on price cuts and putting more staff in stores and improve the customer experience in an attempt to revive the company’s fortunes.
He took the helm after an accounting scandal in 2014 revealed the group had overstated its profits by some £263m.
Mr Lewis said he was “increasingly confident” the actions the group was taking would result in a continued improvement in profitability. “More customers are buying more things more often at Tesco,” he said.
John Ibbotson, director of retail consultancy Retail Vision, said Mr Lewis had “stopped the rot and the decline in Tesco’s market share”.
“Its rate of growth is still paltry compared to that of Sainsbury’s and the discounters, and the future promises low profits and slow sales growth. But given the huge challenges Tesco faces, this performance looks little short of visionary,” he added.
But Bernstein analyst Bruno Monteyne said the supermarket’s forward guidance was disappointing. “Tesco is not really guiding for profit improvements but for profit stagnation,” he said.
Alongside its “big four” peers – Asda, Sainsbury’s and Morrisons – Tesco has been hit by competition from discount rivals Lidl and Aldi.
The UK has also seen a broad change in shopping habits, with many customers now preferring to shop little and often at small convenience stores, instead of doing a once-a-week “big shop”.
Last year’s £6.3bn loss, which was largely due to a massive writedown on the value of its UK stores, reflected the shift. Since taking the helm Mr Lewis has shut 60 unprofitable stores and shelved plans to open a further 49 supermarkets.
Mr Lewis has also been selling off assets which are not key to Tesco’s main supermarket business. Last September, Tesco sold its South Korean business, Homeplus, for £4.2bn to help shore up its balance sheet and revitalise its UK business.
Reports have suggested that the supermarket group is now planning to sell off some of its other side businesses, including the Dobbies Garden Centres chain, coffee shop chain Harris & Hoole and restaurant chain Giraffe, so that it can focus on the main supermarket business.