What would Einstein do if he were running Tesco? Presumably he wouldn’t “accelerate the plan” to invest in hypermarkets – a strategy for which his definition of madness (“doing the same thing and hoping for a different result”) – might have been invented.
“It’s not rocket science, or even nuclear physics, but even Einstein would agree, were he running Tesco, the answer isn’t easy”
Adam Leyland
To be fair, we’ve heard favourable reports about recent refurbs such as Watford and Purley, but even if Tesco has, at last, found a silver bullet – one evidently involving Harris + Hoole given its giddy expansion plans – that presumably means previously updated stores need more changes. And refurbs not only add cost, they upset the typical 25-year store payback model – at a time when it’s reporting that like-for likes for its big sheds fell 3%.
There’s a distinct danger that Tesco is not only rearranging the deckchairs here. It’s installing new ones.
Still, even Einstein would admit Tesco is in a tricky situation. If it is to avoid owning a large herd of white elephants, it needs to act. And it’s better than Tesco investing in yet more: its update advised of a further slowdown in new builds, while analysis for The Grocer shows the average size of planned stores is now significantly lower than for the discounters.
Also, Tesco looks set to at last invest in base price cuts. That £200m underwhelmed the City. And like 2011’s Big Price Drop, any price cuts will depress like-for-like sales further, which will freak nervous investors out. But at least the investment will ask a few questions of other retailers such as Waitrose, Ocado and Budgens, all of which have pledged to match Tesco – but only on base price.
And it must tackle the at times embarrassing price gap with not only the discounters, but Asda, which is working frantically on a solution and making better progress.
This week, Sainsbury’s CEO Justin King reportedly attributed discounter success to “more stores in more accessible locations”. However, both Aldi and Lidl have opened relatively few stores in recent years – though that is changing. It is basket sizes and shopper frequency, linked to improved quality and increased range, that have been most critical to their success.
Philip Clarke was more generous in his praise for the discounters this week, while arguing that judicious execution can offset the smaller pot he’s allocated. But he surely now knows Tesco’s Price Promise – like Clubcard – is not as reassuring as a straightforward value message.
It’s all relative, as Einstein would say, but how many consumers have time for theory and maths?
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