There was a remarkable honesty about Tesco’s full-year results announcement and presentation today
I’m not sure I’ve ever seen a chief executive unveil a 12% increase in profits and then turn around and say the performance of the core business wasn’t good enough. But that was just one of many remarkable things about the first set of Tesco results under Phil Clarke.
I’ve been down at the press conference today and there were many interesting comments. The key message was that while Asia and Europe have done well, the performance in the UK in the second half wasn’t good enough and served to compound the difficult market conditions. You can read a blow by blow account on my twitter feed
I’ve been saying for a while that Tesco, great business that it is, has lost its way a little bit when it comes to the core UK business. It has become so price focussed, so functional, that there’s a lack of excitement about the offer. In food, it has the benefit of Clubcard locking in shoppers who, after all, need to eat, but there’s not much else that’s unique about the offer. In non-food, the product has become a bit bland, and it’s been all about price - dangerous in discretionary markets like fashion and electricals where the consumer needs to be persuaded to buy.
Clarke is planning to address the problems with more product innovation, a greater focus on trends in fashion and better communication with customers. There will be a big push on non-food online to take the total assortment to 100,000 SKUs, not great news for general retail rivals.
Terry Leahy was a marketer. Clarke is a shopkeeper. After the presentation, he explained how when his dad was a store manager for Tesco in the 1960s, they’d go into the store together on a Sunday and whitewash the prices on the shop window. I’m not sure he’d want his managers doing that, but as well as the refresh of the product offer he talked about, I expect that dedication to the store and improving standards will be a hallmark of his reign.
What really came through about Clarke in the press conference was his energy. Compared to the laid back style of Terry Leahy, he was racing out of the blocks. In the old days, chairman David Reid would lead the presentation, but his role today was simply choosing whose turn it was to ask a question.Today was Clarke’s day and he was witty, a bit spiky at points, but above all disarmingly honest. He said as much - that he’ll be as open about the bad news as well as the good.
That honesty extended to the international operations, where he said there would be no more investment in Japan unless it became clear it could make money there, and refused to rule out pulling out of the US if Tesco doesn’t achieve its goal of Fresh & Easy becoming profitable by 2013. He also admitted China’s growth had received a setback in the second half.
But the main focus was on the UK, and it’s tough out there - FD Laurie McIlwee said consumers were £18-20 a week worse off due to rises in the cost of living, especially fuel prices, which he said equated to 7% on income tax. Clarke’s main point was Tesco UK hasn’t helped itself, and expect that to change.
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