Transforming Tesco’s image and improving shopper experience are at the heart of boss Philip Clarke’s plan to return it to form.

“Have you been talking to my wife?” quips Philip Clarke when asked about the demands on his time involved in running Tesco’s UK and overseas businesses.

There is little sign that the pressure will ease any time soon, and making the most of his time will be key to the implementation of his six-point turnaround strategy for the core domestic business, unveiled at last week’s results.

But if all goes well under the group chief executive’s £1bn plan, shopping at Tesco will be a wholly different experience in three years’ time. Clarke pledges: “We will deliver the kind of shopping trip our customers desire and that our customers expect and that our staff want to provide.”

To that end, he is dedicating 8,000 of 20,000 new jobs to be created over the next two years to key aisles such as meat, poultry and fish, bakery, beers, wines and spirits and fresh produce.

An increased focus on service and retail disciplines, it is hoped, will reduce problems such as lengthy queues, empty shelves and abandoned roll-cages that have typified the Tesco shop in recent years, and ensure there are sufficient staff to guide customers to product.

The early signs are encouraging. Tesco piloted the new store features in 200 stores starting last year, leading to a 1.1% like-for-like rise versus other stores. The shops feature improved sightlines, better merchandising, dedicated fresh produce teams in branded green fleeces and better availability.

Clarke believes investment in fresh food and service has helped “warm up” stores. He says: “The first thing is great availability every hour of every day, and high-quality products, but then you wrap it around new graphics and new lighting.”

The grocer will “refresh or refit” 430 stores, representing 25% of its estate, in 2012/13, improving the experience of the 40% of Clubcard users who live close to those shops.

Clarke explains: “We’ve been rolling out this new, warmer look and feel to the stores and it goes down very well with customers. It’s not everything, it’s an important foundation, because what really matters is that the products are on the shelf when customers want them, priced at the right price, and they’re the right quality.”

Is it enough?

However, some observers remain to be convinced. Espirito Santo analyst Richard Cathcart described the like-for-like performance in the trial stores as “underwhelming”.

And Bryan Roberts, retail insights director at Kantar Retail, questions whether the £200m to be spent on staffing will make a sufficient difference in key battlegrounds, such as counter service, to rival Morrisons and Sainsbury’s.

He says: “I have already detected a discernible uptick in service but sticking a white coat on staff does not convince me that Tesco has suddenly become Whole Foods.”

As well as improvements to service levels, there are other big changes to Tesco’s model. The balance of product in the retailer’s larger stores will shift as the migration of food sales online continues. Tesco will build fewer hypermarkets this year after cutting back its growth plans by 38% on last year.

Group finance director Laurie McIlwee argues that Tesco’s Extra hypermarkets remain an asset but agrees they cannot stand still. He says in the past Tesco was guilty of investing in property and hoping sales would justify the deals. Increasingly, however, the portfolio is being balanced with smaller stores and the product mix in the giant sheds is moving towards “probably more food, more clothing, probably less electrical and less entertainment but a massive focus on the internet”.

Planet Retail grocery analyst David Gray echoes McIlwee’s points about Tesco’s big-store property approach and contrasts it with Sainsbury’s. He maintains: “Tesco was less choosy in terms of locations than Sainsbury’s. It raced for locations without too much research and has a large proportion of space dedicated to large stores.

“It’s no surprise Sainsbury’s chief executive Justin King does not agree hypermarkets are dead, as it has relatively few and in good locations.”

Playing catch-up

The changes to Tesco’s general merchandise mix look sensible. Tesco reported that non-food had been a “drag” on performance during the recession and that remained the case. Last year, like-for-like sales of clothing, electricals and general merchandise fell 3.9%. The grocer will now move away from big-ticket electricals and entertainment and instead dedicate more space to clothing as its F&F Basics range is launched and Tesco plays catch-up with Asda’s George and Sainsbury’s Gok for Tu.

Danielle Pinnington, founder of shopper research group Shoppercentric, observes: “Tesco will be the grocer that makes the most of multichannel and its stores will be more grocery-focused.” But she cautions that Tesco must ensure that its smaller Express and Metro stores are not simply “a squished version of larger stores”.

She believes small-store ranges need to be more targeted. Tesco has said it will begin to tailor prices based on “ethnicity and affluence” across its stores. Such changes seem to be high on Clarke’s agenda. He says: “We will deliver a more personalised and more localised offer.”

Although Tesco is trailing the pack on in-store experience such as design and service, it is ahead on technology. The retailer’s 6,000 Hindustan service centre staff in Bangalore have been working hard on developing technology to benefit both the supply chain and customer-facing innovation.

Tesco tried out electronic shelf-edge pricing in Romford last year and is rolling it out in Hungary, where penalties resulting from mispricing are much higher, justifying the capital expenditure. A roll-out in the UK is understood to be likely but plans are not yet in place.

The grocer may also have heralded the end of the “staff announcement: John Smith to checkout four” PA mantra with the invention of electronic badges.

Developed with Motorola, the smart badges can alert employees if stock is needed, bring up information on products and call staff to checkouts without disturbing shoppers.

Tesco is also testing the ‘broccoli cam’. The camera, trained on the produce department, scans for gaps and alerts staff.

The retailer is also an innovator in its use of augmented reality software –  benefiting shoppers at home through F&F’s virtual fitting rooms, and in stores, where it will eventually allow customers to connect to its Real Food website, see cookery videos and list accompanying ingredients. Likewise, it will soon offer satellite navigation in stores on smartphones, allowing customers to locate products instantly and with the potential to offer coupons to customers on their phones while they shop.

Tesco is piloting ‘scan as you shop’ technology, a ‘broccoli cam’ that alerts staff to gaps in produce and electronic shelf-edge labels; while Clarke’s plans have galvanised staff

Tesco is piloting ‘scan as you shop’ technology, a ‘broccoli cam’ that alerts staff to gaps in produce and electronic shelf-edge labels; while Clarke’s plans have galvanised staff

Competition intense

But there is no getting away from the fact that the here and now remains challenging. “Tesco’s competitors have been galloping ahead. Morrisons is the leading light in store design and service while all three of Tesco’s competitors have revamped their private-label,” says Roberts.

Asda is on song at the moment, having invested in quality and price. Clarke admits Asda forced Tesco’s hand with its ‘£5 off a £40 shop’ deal – replicated by Tesco. This week, Tesco launched a ‘£10 off an £80 shop’ deal. While Clarke has backed the maligned Big Price Drop, he has been tight-lipped on the promotion’s future.

However, Clarke’s plan appears to have galvanised staff. Tesco store manager Ian Kelsall, for instance, tweeted on results day: “Tesco renewed UK focus and £1bn investment in UK operation got to have Asda et al worried. Biggest boy on the pitch just got new boots!” Meanwhile, in his last speech to suppliers at the Tesco Fresh Produce Awards on Thursday last week, the departing former UK boss Richard Brasher backed Clarke’s strategy, which is understood to have been well received by the retailer’s supplier base.

The effect of the strategy on the international business is unclear. Clarke has said there are no short-term plans to enter new markets but is positive about Tesco’s US operation Fresh & Easy, where losses have been cut although it is still in the red.

The speed of implementation of Tesco’s new strategy may prove to be the key factor as it tries to revamp stores and boost sales performance in a lacklustre economic environment. But Clarke is clear in his vision. He says: “We are successful and we are strong and my part in that is to set us on a course for sustained growth well into the future.”

How quickly customers feel the changes and spread the word is likely to prove key in warming up Tesco’s sometimes cold and hard-nosed image.

Hertford prototype store

Tesco’s trial store in Hertford, now the blueprint for the grocer’s store refurbishment programme, is the outcome of months of experimentation by the grocer across a broad range of formats.

Tesco design, formats and planning director Simon Threadkell says: “We did a number of tactical trials between August and November last year, culminating in Seaton in Devon.”

An integral component of what was done was that the design solution should be both flexible across different store sizes and that it should cost no more than a standard store to implement. The result is the Hertford superstore – a single-floor, medium-size, in-town branch that is intended to be “warmer” and “more human”, according to Threadkell.

In practice, this has meant extensive use of wood cladding around the perimeter and on the interior equipment, as well as fresh food tables instead of the rather more industrial-looking pieces of kit found in other stores. There is also a graphics package that seeks to provide shoppers with images of food as it might appear in customers’ kitchens.

This then is the template for the store refurbishment initiative outlined when Tesco provided its update last week. And it does look as if the UK’s biggest retailer is doing many things that will see it winning favour with its shoppers once again.

Many have commented since the announcement about how similar much of what is being undertaken is to interiors that can be seen in Waitrose, Morrisons and Sainsbury’s. While that may be the case, it will matter little to shoppers and the Hertford store is definitely warmer and does carry the sense of an environment where fresh is to the fore, by dint of its more natural palette of materials and colours.

If this really has been efficiently value-engineered, with associated cost savings, then it is safe to assume that the conversion of other stores into Hertford lookalikes will proceed at a pace over the next 12 months.

  • John Ryan, stores editor

Comparisons with Carrefour?

A question that hovers over Philip Clarke’s plan is what if it doesn’t work? French hypermarket giant Carrefour embarked on revamping its hypermarkets to the upmarket Planet format in 2010.

At the time it said the overhaul of 500 stores – designed to downsize premises and boost non-food sales – would result in an 18% sales uplift by 2015.

Planet Retail grocery analyst David Gray says: “It has spent even more than Tesco and still has declining like-for-likes.

“It has an even broader range of non-food, which is migrating online. Carrefour has thrown a lot of money across Europe remodelling hypermarkets and it has not worked.”

New Carrefour chief executive George Plassat immediately halted the revamp on his arrival.

Gray notes: “Tesco is throwing less money at it and the strategy is only in the UK so arguably there’s less risk.”