Tesco chief executive Dave Lewis can’t put a timeframe on the turnaround of the grocer. And it’s probably just as well.
Tesco boss Dave Lewis can’t put a timeframe on the turnaround of the grocer. Well, not one he is willing to state publicly anyway.
And it’s probably just as well – it’s looking like a long, hard mountain to climb.
The shock profit warning this week marks an end to a catastrophic year for Tesco.
Plummeting sales, the ousting of the previous boss, an accounting scandal, the suspension of senior executives, and now, the fourth profit warning this year all make for grim reading.
Shares have slumped since the news this morning that full-year profits will be no more than £1.4bn, far below estimates of £2bn.
According to Cantor Fitzgerald, the figures suggest Tesco would make “very little, if any” profit in the UK during the second half, which crucially includes Christmas.
Investment in change
Lewis indicated that “a little north of £500m” of the profits warning was due to investment he has made to improve the business for the long term.
Such improvements are necessary, despite the hit Tesco has taken today.
Two of the improvements – namely, resetting the terms and conditions of its relationship with suppliers, and to stop artificially boosting figures at the end of the financial year – point to a massive shake-up at Tesco.
This clean-up is a huge cultural change for any business and a fresh start that may be difficult for some staff to get to grips with.
“If the basics are right then Lewis can start work on rebuilding the brand”
It’s the right call for the long-term future of Tesco but will no doubt lead to further casualties.
The other three improvements – price, service and availability – are retailing basics but ones that Tesco has been lagging in over the past couple of years.
While Lewis is confident the changes made have resulted in early encouraging signs, this is just the first step towards changing customer perceptions.
If the basics are right – and that will take some time to filter through across the business – then Lewis can start work on rebuilding the brand.
And let’s not forget he is trying to do all these things in the toughest grocery sector in recent memory.
It’s hard to know if it will get tougher for Tesco before there are signs of improvement, and Lewis said himself he doesn’t have a crystal ball to know when customers will respond.
He will hope investors take his long-term view too.