Prices, premises, people ... Tesco's to-do list is long: New boss Dave Lewis is being rushed into the job as the retailer's crisis grows. Sarah Butler asks leading experts to help him prioritise
(Observer (UK) Via Acquire Media NewsEdge) Tomorrow morning Dave Lewis will start his new job as chief executive of Tesco. His task: to lead the mother of all turnarounds despite never having run a retailer before - let alone Britain's biggest. The business is in a mess, sales are falling, staff morale is low and shoppers have fallen out of love with the brand, increasingly tempted by the charms of the German discounters Aldi and Lidl.
The urgency is evident: Lewis was parachuted in just 48 hours after leaving Unilever. As he'll have had little time to review his plans, we asked a group of retail experts to give him some help.
It's all about the UK. If Tesco doesn't get it right here, it will never be successful again. Price has to be right at the top of the agenda. I don't think it needs shock and awe, but some prices on the basics - like bread and milk, fresh foods - have to match Aldi and Lidl. Some it doesn't matter. Dave Lewis needs to cut prices in an intelligent and sane way.
He has to simplify the customer proposition - make promotions less complicated, edit the range and reassess the value of Clubcard and Price Promise. Once he's got a more simple price proposition he can go on the front foot and highlight things the competition doesn't have: like online, proprietary brands and non-food. While price remains an issue, none of that is going to work.
It's also fundamental to upgrade store standards. The shops have to be clean, bright and have strong availability. Staff have to be motivated. He has got to put customers before anybody else.
There is also a fundamental need to reappraise the cost base, particularly at head office: jobs need to go. Those cost savings need to be ploughed back into the customer proposition.
Dave Lewis needs to start with the stores. Tesco has become obsessed with saving money and that's OK, but you can't cost-save your way to prosperity. It has been cutting overtime and staffing hours, and stores don't have enough people around. That's upsetting customers, even loyal ones, and while competition is so fierce, with rival stores everywhere, you don't need to give people a reason to go anywhere else. Not enough staff means poor store standards. Availability is an ongoing issue. Cleanliness has gone out of the window in some stores and fruit and veg quality is not as sharp as it should be - and that's down to people not checking it regularly.
Phil Clarke went down the route of tarting up the big Extra stores with no discernible effect on sales. They don't want to go down that route. It's possible Dave Lewis could sell off Giraffe and Harris + Hoole, the restaurant and coffee shop chains Clarke invested in.
Tesco's prices need to come down on more than just 60 or 70 lines. Pricing is particularly high in the Express stores, where it tends to start towards the top of the range. There is an acceptance among shoppers that there will be a price premium in return for the convenience but Sainsbury's manages to make it less obvious.
Branding is a big issue. People just don't like the company. They didn't particularly like it in the days of Sir Terry Leahy but at least it was cheap. Now it is viewed as a bully in local areas, where it is pushing for convenience stores, and the brand is known for everything else but food.
Dave Lewis's first priority should be Christmas, the most important part of the year. He needs to find a good way of getting across that Tesco is worth shopping at because of its wide range, value and services like online and delivery.
He needs to ensure not only that Tesco is offering value to customers across the board, but that the value message is conveyed clearly, with a distinct price positioning across all its products, not just promotions or limited ranges.
He also needs to rationalise the store numbers and ranges. There is just too much space. Tesco doesn't need so many big out-of-town stores, so Lewis needs to think what he is going to do with them. He also needs to rationalise the ranges. There seem to be hundreds of different types of olive oil, for example. They are never going to sell any of them in great depth. Being the market leader, Tesco should be able to offer value through scale but it is losing that advantage with such a width of range.
Tesco's former chairman
Dave Lewis is a very capable man and, coming from the manufacturing side, he is going to have a really good look at all sides of the business. The retail trade is highly competitive and he has to look in great detail at what he wants to do. He needs to find the finest marketing man he could possibly get, with a good background in strategy and knowledge of the business.
Tesco's biggest problem is that it is trying to do everything with one kind of store. That was fine 10 years ago but today most people have more choice. If people want to save money they say 'why should I got to Tesco, because I can go to Aldi and Lidl?'. If they want quality and service they can go to Waitrose. The value players can only offer cheap food because they have low costs. Cheap prices don't go together with the Clubcard, promotions like Fuel Save and the widest range in the sector.
The major risk of tit-for-tat price cuts is that each price cut is followed by a cut in costs. If Tesco follows three years of price and cost cuts it will look like a bad copy of Aldi. All the affluent shoppers will leave.
Tesco needs to create the right environment to cut prices. It could create different retail experiences, like different brands: one group of stores for value and one for affluent areas.
Tesco has 300 stores in deprived areas. It could rip out 25% of the range, take out Clubcard and cut prices by 10% and really take on Aldi and Lidl there. It could do the opposite in central London and places like Cambridge or Edinburgh. There it could go for a quality environment and charge more.
A SOURCE CLOSE TO TESCO
One of Dave Lewis's top priorities should be getting talent back into the business. Phil Clarke lost maybe two or three generations of top talent below board level. A lot of people with a point of view and the ability to get on with things have left. Tesco's biggest challenge was not the cash to do things but how to have enough talent to run all the businesses, from the chain in Hungary to online. The dearth of talent is now a huge challenge.
The culture has also been badly affected. What was a team effort became all about Clarke. I think Lewis is equipped for that, as he seems a thoughtful and caring person. I think we'll see the return of some humility to Tesco, which it could certainly use.
Lewis's great advantage is that he is going to be looking at everything fresh. He needs to take a close look at the business in Europe and some of the sideshows - like Blinkbox, which is losing millions of pounds a year. The company is spending far too much on digital projects. There needs to be a bonfire of the vanity projects. Clarke has also created a behemoth of a head office and staff numbers need to be tackled, while more investment needs to go into stores.
Some of Tesco's huge Extra stores have been revamped, but analysts are unimpressed with the results. Rex
(c) 2014 Guardian Newspapers Limited.
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