As Tesco’s share price drops to an 18-year low, it’s clear the rollercoaster ride will continue for some time yet
Tesco has turned back time this week, with its share price dropping to an 18-year low. The less said about what was going on in 1997 the better – instead, we turn our focus to the rollercoaster ride that is the UK's largest retailer.
Dave Lewis has certainly ushered in some change, but given where Tesco's share price is right now, you'd be forgiven for thinking it's not been enough. So what has Lewis and his top team got to get right if they want the up-and-down ride to stop?
The UK is very much following Germany’s lead in terms of grocery retailing, with German consumers having always held high expectations in terms of value for money when buying their grocery shopping. Where Aldi and Lidl have led; Netto, Penny Market and Norma have followed.
Euromonitor International estimates that in Germany, discounters’ total value sales are currently 20 per cent higher than supermarkets’ total value sales. The UK’s current situation is very different: supermarket value sales are worth over 300 per cent more than their discounting counterparts in 2014.
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However, the grocery retailing landscape is changing and by 2019 discounters’ total value sales in the UK will have grown at a compound annual growth rate of 11 per cent in constant value terms, with supermarket value sales remaining flat during this period. Aldi and Lidl are projected to not only join the big four supermarkets but compete alongside them as the German discounters continually eat into Tesco’s and its rival supermarkets’ market share.
This is a very real challenge, and one which Lewis and his team must tackle if the firm its position.
Tesco is expected to scrap the ‘Prime Promise’ scheme, following the same decision taken for Tesco Ireland and in-line with the trend of UK supermarkets simplifying pricing strategies (Morrisons ended its price-matching scheme earlier this autumn).
In Ireland, ‘Price Promise’ has been replaced by a new slogan, ‘Staying Down Prices’, and speculation is mounting as to whether the UK will follow suit.
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Lewis has been ruthless in his promise to simplify Tesco’s product offerings following their announcement this week that they have delisted a raft of Carlsberg products and now only stock four-packs of the lager. Further high-profile casualties are expected, but the retailer must tread very carefully in order to ensure it does not alienate its loyal customers further.
If Tesco thought the pressure heaped on it might soon relent, it would be wrong. Although the in-store supermarket price war is showing signs of stabilising, the online battle for grocery shopping is only just about to commence.
Amazon Fresh has started its first tentative steps in the UK. Aldi is also set to start selling online, and Lidl is following suit, adding increasing competition to a market which is currently limited to the big four supermarkets plus pure online player Ocado.
The rollercoaster may have slowed for Lewis, but the possibility of getting off does not look forthcoming.