Tesco shoppers lose faith due to profit black hole scandal

More than 60% of shoppers have lost trust in Tesco as a direct result of the scandal over the £263m black hole in its finances, according to an exclusive Harris poll for The Grocer.

And in a further blow to the retailer, the survey, which grilled 1,000 shoppers on how trust in the retailer had been affected, found Tesco shoppers have been turning to rivals since the news broke.

Of the more than 300 respondents who said they did the majority of their shopping at Tesco over the past year, 13% said they had been taking some of their business elsewhere. However less than 1% claimed to have stopped shopping at Tesco altogether.

The scandal has also sparked suspicion over Tesco’s pricing strategy, with a further 13% of Tesco shoppers claiming they had been scrutinising prices at the retailer and comparing them against rivals more than before in order not to get “ripped off”.

Among all shoppers, the survey found more than 60% claimed they had less trust in Tesco and what it stood for. Nearly 13% said they were “much less likely” to shop at Tesco as a result of the scandal.

However, many blamed management for the crisis and said they still had faith in staff on the front line. Asked what best described their opinion of the accounting issues, most (42%) said poor leadership.

The survey also found more than 70% were aware of Tesco’s profit overstatement and 54% were aware of the financial issues.

“This survey demonstrates the huge awareness of the accounting issue and it’s something Tesco needs like a hole in the head,” said Clive Black, analyst at Shore Capital. “Regaining trust is vital but it’s interesting that it appears the public realises this is an issue caused by the previous management rather than the staff stacking shelves or on the checkout.”

Lucia Juliano, head of consumer and retail research at Harris Interactive UK, said: “With half of consumers admitting their opinion of Tesco is now worse than previously, Tesco has a huge challenge on its hands to address this and start to win back the emotional trust and confidence of its shoppers. This will not be easy to achieve during a period when every player in the grocery retail market is upping its game and stealing share.”

Kantar Retail analyst Bryan Roberts said the fresh blow to trust in Tesco’s brand had come at the worst possible time. “There had already been something of a toxic aura after Horsegate and some customer experiences in store, and they can’t afford any ­customers to do their ­voting with their feet.”

However, Roberts added that the accounting scandal was not the real issue that needed to be cleaned up. “Ultimately it will be other things that make the difference for Tesco. If they get the store offer and their pricing strategy right, I can’t see a housewife from Rotherham taking her shopping bags elsewhere because of an accounting issue,” Roberts said.

And Dave McCarthy, an analyst at HSBC, said Tesco would actually be “relieved” by the survey. “It tells us that the accounting issues have not caused a further deterioration in trading. Most customers are aware of the problems but it has not led to any increase in customers switching to other stores,” he said.

“Tesco was losing market share anyway and there has been no acceleration in that loss since the scandal came to light. Customers are aware of ‘bad (previous) management’ but still trust the staff in-store.

“But it is a reflection of how the big four have let the consumer down in that over a quarter of the population think the large supermarkets are as bad as each other,” McCarthy added.

Bruno Monteyne, analyst at Bernstein Research, added that Tesco was still fixable: “The previous management team hadn’t been there long enough to do permanent damage to the Tesco DNA. Consumers still know what Tesco once used to stand for. In my opinion, it is easier to go back to your brand roots than it is to re-invent yourself. If Tesco does the right things (cost cutting to fund big price cuts), people will quickly recognise the formidable retailer it once was and give it full credit for that,” he said.

Juliano added: “Tesco should take solace in the fact that shoppers still have trust in their store staff and see the financial problems as being driven ‘by the top’. This means that local and store lead initiatives should still have strong cut-through with shoppers - it could be something that Tesco want to dial up in the coming months to build back customer loyalty.”

Last week, Tesco announced it was to provide new training for all its staff on responsible trading in the wake of the scandal. The supermarket giant published plans for a revamped Code of Business Conduct, which it said would “sit at the heart of the business.”