Tesco's Clarke to ditch 'baggage' - and profit target

Beleaguered Tesco boss Phil Clarke has admitted the brand has 'baggage' compared to Aldi and Lidl. Is a price war about to start?

by Andrew Saunders
Last Updated: 25 Feb 2014

- Read MT's interview with Philip Clarke

Clarke has conceded that, despite its near 30% market share, the blue and white titan is not the power that it once was, and is due to unveil a new strategy to tackle dismal sales and the rise of discounters. He told the Telegraph this morning that he knows the Tesco brand has ‘baggage’ and that he ‘can’t ignore’ the likes of Aldi and Lidl.
 
The new strategy is expected to be much the same as the old one only more so, upping the pace of store refreshes – only 100 of Tesco’s 900 largest stores have had a makeover and they are looking tired. Although that is something of a sticking plaster, since the real issue with the giant sheds is that people no longer want to go there. The chain saw a 2.4% drop in like for like sales in the crucial run up to Christmas.
 
But the $64m question for Clarke, his customers and the City alike is, will he finally concede that the store’s industry-leading 5.2% profit margin has to go? It’s been a badge of pride for years that Tesco is both larger and more profitable than its rivals, but things may be about to change. ‘In the time of plenty when there was no boom and bust and things were only going one way, biggest was always best’ said Clarke. ‘I really think that [now] biggest isn’t always best. Better is better.’
 
Despite the slightly Donald Rumsfeld-esque phrasing, that’s quite an admission from Clarke. It has also sparked rumours that a price war could be in the offing – if Tesco sacrifices margin to increase revenues, someone is going to get caught in the fallout.
 
But if that does happen, it may not be the discounters who suffer. They have a more limited range but much lower prices, and so are differentiated already. Nor is it likely to be those at the upper end – Waitrose’s punters show no signs of wanting to swap their air dried Jamon Iberico for Tesco ham slices.
 
From where MT is standing (we’d like to think the fresh fruit section but it’s probably more likely to be the cake aisle) the real victims of a Tesco price crunch would be Sainsbury’s and perhaps Morrisons. These two are both similar to Tesco in range and quality, and close enough on price to feel the pinch.
 
So like Tesco’s Sir Terry Leahy before him, Sainsbury’s Justin King, as we have reflected here previously, knows how to get out when the going is good. His successor Mike Coupe could do worse than examine the fate of Clarke – still struggling to shake off the Leahy legacy two years in – for lessons in how not to take over from a big-name boss.
 
MT would give all its Nectar points to know what Coupe is thinking right now.

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