Tesco's Philip Clarke cannot get by on blind optimism alone

Shares in Tesco are actually up by just under 3.7%, after it reported sales had dropped by 6%. But it still hasn't worked out a strategy to compete with discounters.

by Emma Haslett
Last Updated: 06 May 2014

Strange goings-on on the Today programme this morning, when Tesco chief executive Philip Clarke invited John Humphrys to ‘come to one of our stores and see our parma ham from Italy’. The conversation had been about how the supermarket positions itself. ‘Fill in this blank,’ said Humphrys. ‘I go to Waitrose for quality, I go to Aldi for value. I go to Tesco for... ?’. At which point parma ham came up.

Shareholders had been bracing themselves for disastrous annual results this morning: as it turned out, they were as bad as expected. But while group trading annual profit fell 6% to £3.3bn and like-for-like sales fell 10% to £3.3bn, Tesco’s share price actually rose by just under 3.7%. Sounds counterintuitive, but a) shareholders are still attracted by its nice, juicy dividend, and b) it suggests shareholders had been bracing themselves for something far worse (and to be fair, share price is still almost 25% lower than it was a year ago).

Nevertheless, the figures make for grim reading: the value of its European business fell by £734m as group trading profit dropped 28% to £238m, mainly because of a drop in sales in the Czech Republic, Hungary, Poland, Slovakia, Turkey and Ireland. Group trading in Asia fell 5.6% to £692m. Market share in the UK fell to its lowest in nearly 10 years. It may have banked £3bn, but this is a business in trouble.

It’s unlikely Clarke’s performance this morning filled anyone with confidence: when quizzed about his strategy to compete with the likes of Aldi and Lidl, his response sounded a bit like he has spent the last six months with his hands over his ears, shouting ‘la la la la la’ every time someone asks him about it.

‘Discounters will never allow you to be cheaper than them, but you can get so much closer to them if you put your mind to it,’ he said. ‘This year, already, in the last eight weeks, prices are down on the things people buy every day.’

In short: ‘we can’t compete with the discounters, but we’re going to try anyway’. Which isn’t so much a strategy as blind optimism.

To make things worse, Clarke's team is  dropping like flies. After the departure of finance director Laurie McIlwee, the company is running out of people to blame its problems on.

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