Comment: Lewis on the right track to restore Tesco

IT MAY be baby steps, but Tesco under Dave Lewis seems to be heading in the right direction. Lewis, who took over from the hapless Phil Clarke last summer, signed in with a barrage of initiatives to do with head office, the pension fund, store closures and a reining in of plans for new stores.

Martin Flanagan

But he is not taking his eye off the ball in the supermarket aisles as he concentrates on the big picture. Tesco said yesterday that same-floorspace sales in the first quarter of its financial year fell 1.3 per cent.

While no sales fall should be hailed as a success, it is an improvement on the 1.7 per cent like-for-like sales decline at the group in the previous three months, and much better than the 4 per cent fall in the same period of last year when the wheels were coming off Clarke’s Tesco truck.The latest sales number was also better than recent trading figures from rivals Asda, Sainsbury’s and Morrisons.

That trick of sorting out the strategic big canvas and back-office systems, while not losing sight of the importance of the front-of-house grocery offering, were at the heart of Justin King’s sustained turnaround of rival Sainsbury’s.

Lewis seems to be mastering it as well. Separate figures from retail researchers Kantar Worldpanel say that 180,000 more customers shopped at Tesco in the 12 weeks to 24 May.

Partly this is to do with price promotions, not any complex reinvention of the supermarket wheel. But, as all the grocery majors are cutting prices to stave off the discounters, all of Tesco’s improvement cannot be put down to it.

Some is likely to be attributable to more staff in store, better service and better product availability. It does not mean Tesco is out of the woods.

The threat of the discounters is a systemic one, not cyclical, while commodity deflation is set to remain a headwind for all the main food retailers for some time yet.

And it remains to be seen if Lewis calls time on some of Tesco’s other international operations, which have lost some of their lustre since Sir Terry Leahy’s ill-starred move into America with Fresh & Easy. Word is that the Korean operation, Tesco’s biggest overseas business, is up for sale.

There is plenty still to do strategically, and the accounting scandal Lewis inherited from previous management rumbles on, as does yesterday’s shareholder unhappiness at the AGM at big boardroom payoffs for former executives, including Clarke.

But you begin work from the ground up as a recovering retailer. And the first thing to do is stop the defection of customers. Lewis looks to have understood this.

Sales are not everything

GREENE King, owner of the Belhaven Brewery in Dunbar, is expected to see annual profits dip when it reports next week, largely due to weaker trading and margin pressure in its managed pubs.

But the company is in the happy position of its trading being seen as less important by the City than the step–change in the bigger picture, with its £774 million merger with rival Spirit having been agreed with regulators.

That deal creates the largest managed pub group in the UK, and the revenue and costsaving synergies to accrue should help sustain earnings growth for two or three years at least.

As such, Greene King can afford any slight trading disappointment in the short term. Particularly as it has a strong record in making acquisitions work.