The fruits of Dave Lewis’ labours are starting to show, but challenges will continue to come thick and fast for the supermarket

While Cheshunt will not be engulfed by party poppers and champagne this morning, there will no doubt be a sense of quiet satisfaction among the Tesco leadership as the early fruits of their labours begin to show.

Performance across most of Tesco’s major markets can hardly de described as ‘good’, but things are definitely becoming ‘less bad’ in most geographies.

Justifiably, most attention is on the UK and there were some positive signs here. Like-for-like growth has become something of a quaint reminiscence among the big four in the UK grocery sector, so all eyes are now on volumes.

Action on staffing, pricing and ranging is clearly having the desired effect in the core UK market, with volumes, transaction numbers and shopper numbers all responding favourably.

There is a palpable return to the focus on the shopper rather than the shareholder and our instore observations over the last few months reflect improvements in service, availability and standards.

There are still clangers being dropped, however, and our sense would be that greater managerial vigilance is required to make sure execution is at its best.

Long-term benefits

The ongoing range rationalisation programme is yielding benefits. 15 categories have been completed, with a fair few to follow, and our observation would be that the stores are becoming easier, simpler places to shop.

“Variety and choice is being maintained, while complexity and pointless duplication is largely being eliminated”

Bryan Roberts, Kantar Retail

Variety and choice is being maintained, while complexity and pointless duplication is largely being eliminated. On the face of it, this might well be bad news for some suppliers, but longer-term there are likely to be real benefits in terms of clarity and predictability.

There is a real sense that Tesco is aiming to get back to being a good old-fashioned retailer – ie making money when it is selling rather than when it is buying.

It’s aiming to re-establish the virtuous circle of buying better, selling for less and selling more. Promotions and instore activities will obviously still have to be paid for, but a renewed focus on front margin should yield better behaviours and create a more shopper-focused environment.

A simplification of key performance indicators – both in store and in commercial teams – will also be beneficial and suppliers that we’ve spoken to have noted that, despite ongoing turbulence in personnel, doing business with Tesco has already become simpler.   

Future challenges

So, thumbs up in general. Challenges will continue to come thick and fast though. The over-documented threat from Aldi and Lidl is not going to go away, while the under-documented threat from Poundland, B&M, Home Bargains et al is intensifying at a gallop.

The not-at-all documented challenge from self-cannibalisation is intriguing too. Tesco is still eating a lot of its own big-store lunch through online, Tesco Express and One Stop, adding to the pressure on the still elusive reinvention of the Tesco Extra concept. 

There are still lots of unknowns within the business. The future of Dunnhumby and South Korea hang in the balance and we’re still really no nearer learning what the Dave Lewis long-term vision for the business is.

In the short term, we’ve been given some encouraging signs. Judging from the share price this morning, that appears to be good enough for the moment.    

  • Bryan Roberts, senior vice-president and knowledge officer EMEA, Kantar Retail