Opinion: Tesco has calmer seas ahead, but still faces headwinds

Such change in the corporate climate has a lot to do with the strength, sense of calm and insight of its chief executive Dave Lewis.

So, while still a business that remains in a period of corporate re-adjustment, there is a welcome lack of mass impairment of the group’s property asset values, material restructuring plans, structural disposals and talk of the need for a rights issue to bolster the depleted balance sheet. Much action of that ilk, of course, took place over the past year.

Rather, Tesco is in a much sounder place. A lot of the central re-organisation has been completed with the senior team now in place and focused on the day job.

While fine-tuning of the organisation continues, we note the recent Retail Week story about possibly disposing of further rather peripheral business.

Top management is now much more firmly focused upon the prime task at hand – serving customers.

Hard work

Indeed, we believe that Tesco’s management has worked hard over the last year, much of it under the radar, to deliver better structures, processes and practices for all of its stakeholders.

“Tesco’s management has worked hard over the last year, much of it under the radar, to deliver better structures, processes and practices”

Clive Black, Shore Capital

Such work is, to our minds, better thinking that forms the pre-conditions for customers to gain an improved shopping experience – the grocer’s core raisin d’etre.

That shopping experience across the group – in southeast Asia and central Europe, as well as the UK and Ireland – has only modestly changed in some respects year on year.

There are much better basic store standards, but it is also undergoing quite fundamental adjustment that perhaps lays the grounds for demonstrable improvement in forthcoming weeks, months and years.

Farms brands

Perhaps the first signs of this more customer-facing activity came with the new Farms lines that have encouraged banter among the chattering classes, notably the Guardian readers of Notting Hill.

Lewis characterises this as the UK business’ most significant move yet in front-facing innovation, one that he fairly and robustly defended in front of analysts.

“Perhaps the first signs of this more customer-facing activity came with the new Farms lines that have encouraged banter among the chattering classes”

Clive Black, Shore Capital

The fundamental economics of Farms is profound, cutting SKUs, rationalising a supply base, improving value in quality and price and so dealing with a real challenge for Tesco in a core category.

Farms, in terms of price investment, along with the national living wage and the potential changes in business rates, present a challenge for Tesco’s UK profitability in the short term.

While so, we firmly believe that quite considerable progress has been made by Lewis in terms of rebuilding the relevance of the UK business, Tesco’s trustworthiness and solvency.

That said, it is clear that there remains so much more to do for this company.

To our minds, the future is brighter for Tesco with shoppers rightly set to see benefits before shareholders.

• Clive Black is head of research at Shore Capital