Things were just starting to get rocky when Tesco veteran Philip Clarke received his hospital pass from former CEO Terry Leahy in March 2011, and sales have fallen steadily ever since. Three years ago, Tesco’s shares were trading at 400p, but are now worth 291p - equating to a shareholder loss of £8.8bn. Where did it all go wrong?
1) Tesco doesn’t know which shoppers to target
Tesco's major strategic problem is that it is currently unclear about who it should target – the supermarket is caught somewhere between the more upmarket offer of Sainsbury's and Waitrose and the discounters Aldi and Lidl. These discount rivals have put intense pressure on the UK’s major supermarkets in the last few years, and critics say Clarke failed to cut prices early enough to compete with the German discount brands.
Dave Lewis has been at Unilever since 1987 and is the first outsider to take charge of Tesco
2) It’s lost its overseas advantage
Tesco's prior advantage in the form of a major overseas presence is not what it once was. Back in 2011, Clarke said he was committed to Tesco’s business in the US. But as the Fresh & Easy operation continued to haemorrhage money, it was left to Clarke to shut it down 18 months later and write-off £1bn. He also wrote off £800m from the value of Tesco’s land bank.
3) The UK retail market is sluggish
Conditions across the UK retail grocery market have been tough. Consumers have yet to feel the benefits of the country's economic recovery, and in May retail sales fell for the first time since January. Tesco’s sales have been falling for months, and in June the supermarket suffered its worst trading in history, reporting a 3.7% drop in UK like-for-like sales over the previous three months.
Philip Clarke told MT last year that despite Tesco's recent problems, he felt 'bloody great.'
4) Clarity and consistency is lacking
In recent years, Tesco has been confused about its brand management and identity. Bryan Roberts, retail insights director at Kantar Retail, said earlier this year that Tesco’s proposition, particularly in pricing, is muddled and confused. ‘Tesco doesn’t necessarily need to have the lowest prices to recover – instead its pricing needs more clarity, predictability and transparency.’
He added: ‘In-store standards and execution are incredibly haphazard. Some Tesco stores, in and around London especially, are in the finest shape we’ve seen, while others around the UK are mediocre at best.’
5) Tesco isn't well loved
Tesco has long been known for its hardnosed approach to business. The supermarket has concentrated on high growth, fast expansion and cheap bargains rather than 'softer' notions of customer care or having good relationships with its suppliers. Compare this approach to rival Sainsbury's, which has added 10 million new customers and £10bn extra sales in the last decade under the leadership of Justin King, after putting the values of the brand at the centre of his strategy. Tesco, for example, was caught out by the horse meat scandal - Sainsbury's wasn't.
6) It lacks a clear management strategy
Tesco has been beset with a string of management changes, including the departure of veteran finance director Laurie McIlwee, who had been at the company for 15 years. Even before his departure, shareholders had described McIlwee’s manner as ‘aggressive and abrupt’ and were asking questions about management’s control of the business. Tesco recently poached M&S's finance director, Alan Stewart, to get things back on track.