Tesco: from winner to loser?
Nevertheless, the supermarket might still fall victim to the ongoing price war, which is ironic, since it was Tesco who initiated a price war against Sainsbury's back in 1977. That initiative, followed by another one in 1982, essentially made the company into the retail giant it is today. As recently as 2007, Tesco ventured onto the US market, reaching a UK market share of 31.2 percent. Now, however, it seems the tables might be turned.
Record profit and failed attack
Following a change at management level in 2011, Tesco reports a record profit of 3.8 billion pounds. That same year Tesco announces The Big Price Drop, attempting yet another hostile move to tackle upcoming competition. This time, however, the ploy backfires. The consumer, already weary of a market crowded with discount ventures, is unimpressed and fails to respond to Tesco’s price slashing. Looking back, 2011 seems to be the tipping point. In 2012, a billion pounds is invested in the stores and the website. The US adventure fails, going down in history as the greatest misfire of a British retailer in the US.
First profit drop in 20 years
These and other mishaps lead, in 2013, to the first announcement of a profit drop in twenty years. The profit amounts to 3.5 billion pounds. Planned hypermarkets are scrapped. Tesco enters 2014 with a profit warning after disappointing Christmas sales. Meanwhile, the retailer is under fire from Aldi, Lidl and Morrisons, which introduce price reductions. In July, a second profit warning causes the CEO to step down. In late August comes a third profit warning. Dividend is reduced by 75 percent and the new CEO, Dave Lewis, is rushed into the captain’s seat.
250 million-pound gap
As it turned out, Tesco had another skeleton in the cupboard. In September, its stocks drop sharply after it becomes known that an extra 250 million pounds was boosted onto Tesco’s profits. The accountancy scandal leads to the suspension of four executives. That same week, American financial services company Standard & Poor's announces it will re-evaluate the supermarket chain’s creditworthiness. Warren Buffet, a well-known investor, openly refers to his investment in Tesco as a "big mistake”, offloading a portion of his shares. In October, three more board members must give way in the wake of the scandal.
That same month, Tesco publishes the postponed half-year figures. It shows that the gap left by the scandal is greater than expected, namely 263 million pounds. Accountancy errors go back at least two years. Gross profit decreases by a staggering 92 percent to 112 million pounds.
Opportunities in 2015
In December, however, Tesco seems to have recovered somewhat, causing expectations for 2015 to be relatively high. A sales drop of 2.7 percent, an improvement over the 3.7 percent contraction a month earlier, warded off the dreaded title of ‘worst performing supermarket in the United Kingdom’. That dubious honour was transferred to Morrisons, where sales fell by 3.2 percent.
For this year, analysts see potential for Tesco. The growth of the discounters will level off as anticipated, though expectation is that prices will drop further. Tesco already implemented large discounts leading up to Christmas. In addition, Tesco might see some improvement by limiting its range of brands: a strategy that also applies to other major UK retailers. CEO Dave Lewis has so far refrained from making any more big announcements concerning the strategy. The changes, he states. will become visible in the stores.
According to an analysis by the 'Kantar Worldpanel' the sales figures of the British retailer Tesco have increased slightly in the last twelve weeks leading up to the 1st of February compared to the same period last year, at 0.3%. Despite this, the company lost 0.2% market shares, which means the market share is now at 29%.