Like almost every grocer’s results at the moment, Tesco’s update was a mixed bag – but the big worry is the underperforming superstore estate.

Like almost every food retailer’s set of results at the moment, the Tesco first-half update was a mixed bag. A smorgasbord of the positive and negative touching virtually every aspect of the business, from UK trading, asset disposals, the balance sheet, profitability and international.

As a bubbly person with a naturally sunny disposition, let’s start with the negatives.

Lower margins

The data for UK profitability reflects the fact that lower margins have become the new normal. Sure, Tesco has had to jerk furiously at a number of levers to correct the course of the UK business (and a lot of this costs money), but the pace of earnings decline in the UK is noteworthy. 

A big worry is that the engine room of the business – the UK superstore estate – is underperforming everything else.

A superstore manager I was speaking to recently expressed concerns that, without something meaningful being done to prices in the near future, he would struggle to explain to a lapsed Tesco shopper why they should return to the store.

The last year has got them back to ‘good enough’, he added, but noted that ‘good enough’ was no longer, well, good enough. ‘Reasons to visit’ is something you hear from an increasing number of retailers these days – if Tesco employees can’t think of any, then there might be a little bit of work to do.  

Silver linings

On the positive side, there are quite a few silver linings to point towards. International is improving, overall UK like-for-likes are on a pleasing trajectory and performances in Extra and Express in particular are encouraging and impressive respectively.

Volumes and transaction numbers are heading the right way and one really must acknowledge the genuine improvements in availability, standards and service that have occurred across the UK business.

There is still the occasional outbreak of ‘1978 Moscow supermarket’ in produce and chilled, but I really buy into Dave Lewis’ assertion that the company is trying to do the right thing for the shopper. 

Streamlining    

The ongoing range review and category reset programme appears to be yielding benefits for Tesco and shoppers alike. A lot of unwieldy and bloated categories are now more manageable from a store operations perspective and more navigable from a shopper perspective.

I’m sure that there will be the usual oscillation that occurs as shoppers register outrage that their favourite item has gone missing, but one gets the sense that Tesco is doing pretty well in terms of balancing efficiency and choice.  

To paraphrase Donald Rumsfeld, a few known unknowns remain. What will the fourth quarter trigger-pulling on price look like? What role will Price Promise play in the overhauled value proposition? What will the focus of marketing and messaging be?

Cards are being held close to chests at the top in Tesco and it will be intriguing to see what plays out when Tesco transitions from mending mode to aggressive mode.   

  • Bryan Roberts is senior vice president and knowledge officer at Kantar Retail