The forgotten man reappears with £500m promise

As a fellow blogger puts it, Richard Brasher is indeed a bit of a forgotten man at Tesco. Recently speaking to Mary Portas about the high street, he’s not seemed to do a great deal else with the UK stores as the sales growth slows and standards in store gradually get worse.

But, the cheque book is out and there comes a time with investment where you have to say enough is enough and spend some money, stories of holding back on any store revamps or maintenance for 18 months certainly seemed true at the potholed car park of the superstore I visited complete with peeling paint exterior. If you didn’t know supermarkets, you’d assume Tesco were in a financial struggle as their store exteriors (and interiors) got worse.

I don’t think it’s got that much better, whilst the potholes have been filled and the exterior painted, the interior continues to look shabby, shelves are dirty and self scan checkouts frequently out of action indicating maintenance budgets are not what they once were.

Is product quality what it was once was? Their own label quality has been totally lost in a myriad of price wars, clubcard points, price promises, promotions, venture brands, discounter brands at Tesco and the Tesco price guarantee. What do Tesco stand for?

The other three it’s relatively clear, Sainsbury’s have their quality arena sewn up with TTD relaunched and ‘by Sainsbury’s’. Despite price wars and all kinds, Sainsbury’s have always resolutely stuck to their message under Justin.

Asda are perhaps a bit skewed too, despite a better quality offer, they continue to get involved in spats with Tesco, ‘we are the cheapest’ was the again the cry yesterday from the PR team. Reservations for me arise over APG and what’s excluded / included, after all we can be anything we want to be when we set the rules.

Morrisons may well be affected slightly as people go to Tesco to see what the fuss is, certainly everyone will feel it in the early days but Morrisons have a very different proposition these days with a real focus on fresh food, good value and a strong promotional package backed up by good store standards and availability.

Whilst we are on store standards and availability, Tesco have been struggling somewhat in recent times, against a backdrop of hours cuts in store and people leaving not to be replaced, the core shopper has found stores with lots of gaps and long queues at the checkout. Certainly my experience in store indicates that there are continual calls for relief checkouts operators from the shop floor, whilst the customers get through the checkout quicker, a lack of staff on the shop floor means availability diminishes and processes aren’t followed.

Tesco should look at reviewing market promises like ‘one in front’ checkout queue pledge, they can’t fulfil it anyway so why continue to promise things that are not deliverable? There’s been some interesting comments on the blog regarding IT and the problems with labels printing off, can the systems cope on Sunday night with all the label changes or is it being staggered?

With the manpower issue affecting day staff, it also rolls into the night shift with tales of night shifts failing to clear their delivery for the night, that then rolls over to the day shift, if they are covering checkouts…..it quickly adds up to problems for the store without store hours to recover and more deliveries arriving affecting availability and waste and warehouses full of stock that is needed on the shop floor.

The question has to be with the backdrop of these price cuts – £500m across 3000 branded goods and 1000 own label products, will anything be invested into the store network for them to cope with extra volumes ,the extra customers and subsequent queues? If not, then the investment will be in vain as customers won’t return to untidy poorly filled stores. It’s a big opportunity to get it right and investment has to come in store labour.

The wider PR war was interesting to see with Asda PR responding with ‘yawn’ which wasn’t perhaps the wisest comment to make, especially since they will doubtless respond themselves. Sainsbury’s perhaps summed up the feeling with their ‘smoke and mirrors’ comment which was particularly clever, especially since the loss of double clubcard points which saves them £350m = £150m worth of price cuts then?

Another interesting tactic was the return of 4x clubcard exchange vouchers which of course were reverted to 3x exchange value when double points came in. Bit like the increase the bottle of wine by £3 before putting it on half price a week later? You can see why customers really don’t know what’s going on anymore.

Bear in mind that losing double up points makes more sense for Tesco anyway, customers using the vouchers in store on their shopping (which is no doubt happening more due to the economic issues) doesn’t equate to as much profit for Tesco, especially with the weaker margin on food.

Hence why 4x up on external gift vouchers makes far more sense as they try to steer customers to using the vouchers away from store or on better margin non food, redeeming them on the grocery shop isn’t favourable. Collecting is tougher too with the lack of double up meaning you have to spend more and presumably, as Tesco talk of simplifying promotions will we see a shift to ‘save’ promotions rather than any ‘extra clubcard points’?

Simplifying offers is a good move, especially on fresh foods where a price cut is better than a x for y, in fact x for y’s are becoming a bit stupid, Asda have been guilty of letting the ‘expensive’ x for y offers creep back into the package. Robinsons squash on 4 for £4 is a prime example of this, which cash strapped family has £4 to spend on Squash? They’d surely prefer a rollback to 80p for example?

Another moot point of course is the smoke and mirrors comment, how many of these 3000 branded lines and 1000 own label lines will stay at the prices they commit to on Monday? If one goes back up, will it to be a price before the cut or will it increase beyond that? Would the line that rises be replaced by another from the same category?

Eyes are on the competitors now for any signs of a price war, Sainsbury’s do look vulnerable with a poor margin and lines like bananas which they retail as 100% fairtrade thus attracting a poorer margin, they can ill afford a price war on items like this. Sainsbury’s have continued with their affordable quality message and will perform well but perhaps this it Tesco firing a shot across the bows ahead of JS launching their brand price match which is currently in trial in Ireland.

Big losers were Ocado who have hardly had an easy start to life as a listed company with analysts continually asking questions regarding profitability and their latest focus appears to be capacity issues with investment needed for more machines. They have lost a lot of value in their share price as their commitment to price match Tesco will hurt their margins even more, especially without the buying power to support.

Will Morrisons get involved? Probably not, they’re the only retailer (I think) not to make a comment regarding the news and they do remain on competitive on items like Danone Actimel for example, they won’t make a big push to do anything, choosing to focus on their promotional strategy and increasingly different offer based around affordable fresh food.

One thing is for sure, low prices alone mean nothing – just ask Asda.

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Grocery Insight provide market insight on the UK sector with a focus on individual retailers such as Tesco. This insight is useful to various stakeholders and due to my store based focus. Insight can be delivered to suppliers to focus on growth opportunities, analysts and investors to assess the business performance and long term outlook and retailers themselves to assess best practice.