TESCO directors pleaded with shareholders yesterday to give the struggling supermarket giant time for its £1 billion transformation programme to kick in amid cut-throat competition from discounters.
Sir Richard Broadbent, Tesco’s chairman, told the annual meeting – where concerns were expressed from the floor – that the board was also unhappy at the current performance of lacklustre sales and falling profits.
But he warned change could not be achieved overnight and any temptation for the business to “hunker down” with a strategy based purely on cutting prices and costs should be resisted.
“This would be a business strategy of decline,” Broadbent said. Instead, he and group chief executive Phil Clarke told shareholders that the best strategy was to continue the company’s successful drive into online and convenience stores, while “refreshing” Tesco’s bigger one-stop shop outlets. There also remained growth opportunities overseas, from Asia to central and eastern Europe.
“The company’s share price performance has been poor over the last 12 months. But it’s important we do not flinch in the face of the competitive changes needed,” the chairman said. Tesco’s shares are currently around six-year lows, closing yesterday down 1p at 283p.
To run the business “defensively, for short-term gain, would be wrong,” Broadbent added. Earlier this month, former Tesco boss Sir Terry Leahy said publicly that he was “very disappointed” in the company’s progress, after its worst quarterly results in 40 years.
Broadbent told investors Tesco could use its size, expertise and successful legacy from previous generations of management to become one of the select band of multi channel retailers “when the dust has settled” on radical change in the high street.
Clarke, who has faced some City pressure two years into his turnaround programme with no improvement in sales, said the food retailing climate could not return to before the 2008 recession when “people really did believe boom had replaced bust”.
He admitted the “undeniable development” of discounters, typified by Lidl and Aldi, had combined with the chronic downturn and online retailing to change the whole trading environment for Britain’s major supermarket groups.
Clarke, a 40-year staffer with Tesco, admitted the group needed to “up our game”, but said there had already been notable service and product improvements over the past two years. Sales in refurbished stores were up 3 to 5 per cent.
Management said at the meeting that Tesco needed to become a “loved brand” again in an environment where Broadbent said customer loyalty was harder to get and retain.
However, some shareholders complained about issues such as poor local store management and empty shelves. One private shareholder, Anthony Lee, drew applause when he said: “You are not Madonna, or a church, you are a general store. It’s not your job to get yourself loved.”
Lee said Tesco should instead be focusing on having product customers wanted to buy in a nice environment. Another said the company was perhaps paying now for an “arrogance in Tesco when the going was good”.