Comment: Tesco trials | Starbucks

Martin Flanagan
Martin Flanagan
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EMBATTLED Philip Clarke at the Tesco helm will hope market perceptions are that he came out fighting yesterday, despite annual trading profits down 6 per cent, with enough to say on incremental progress in his £1 billion turnaround programme to keep the bears at bay. But it is a close call.

Clarke laid out evidence that the company’s move further into online and convenience stores, as well as the sprucing up of its bigger stores, is progressing. And Tesco’s shares nudged higher, suggesting at least that the market saw no further unexpected shocks from Britain’s biggest grocer.

However, pessimists will say the Tesco superliner is rearranging the deckchairs as it has hit the iceberg of rising competition from Aldi and Lidl at the discount end of the grocery market and Waitrose and Marks & Spencer at the pebbledash Acacia Avenue end.

And even with the bounce in the share price, the stock is still off 26 per cent in the past year compared to a 
4 per cent rise in the wider FTSE 100.

Tesco’s current troubles are two-fold. The discounters are a game-changer in relation to what is realistically possible for the group in future in terms of UK profitability and market share. The supermarket template has changed and being bigger than the rest is not a particular advantage.

And the group’s overseas operations in the likes of Europe and Asia, which used to be a useful offset against periodic price wars in the UK, are no longer performing that function. Those foreign markets have their own competitive pressures.

With rare candour among the big four in the supermarket sector, the Tesco boss ruefully admitted yesterday that it was impossible to undercut Aldi and Lidl on price – because they will not let you. That is even with the £200 million of price cuts he has announced at Tesco.

Clarke said the best strategy for the likes of Tesco was to get as close as possible to the discounters on price, and then differentiate the Tesco offer, citing as an example fuel discounts via the supermarket’s Clubcard.

It is a pragmatic rather than inspiring clarion call. I would expect the company to regain some of its lost ground through streamlining, its pricing muscle and a better shopping environment.

But it is about managing change in the industry, not regaining Tesco’s once unassailable position as top dog.

Starbucks better latte than never on tax

Starbucks has woken up and smelt the coffee in the re-domiciling of its HQ to the UK. Amazing what a furore on corporate tax can do.

It means the end of the company’s sweetheart tax deal with the Dutch authorities, where Starbucks currently has its HQ, but it is a caffeine rush for Britain.