Tesco plans revamp after profit shock

EMBATTLED Tesco boss Philip Clarke is to improve the supermarket’s fresh food offering and inadequate staffing levels, revamp its coupon offer and brighten up store layouts as part of his blueprint to revitalise the fortunes of the retail giant.

Clarke, who succeeded Sir Terry Leahy as chief executive last spring, has decided Tesco took its eye off the ball of its UK operations in favour of what he acknowledges was a highly successful foreign expansion, according to sources.

This culminated in the group’s profits warning last week, its first in a generation, after a 2.3 per cent slide in festive sales wiped nearly £5 billion off its market value.

Clarke told the City that Tesco had weapons to regain consumers’ favour, including extending its Big Price Drop campaign launched last autumn and building far fewer hypermarkets.

But it is understood he has accepted perceptions that there needs to be a step-change in other areas, including hiring extra UK staff, to make the customer experience better. It is expected several thousand new jobs will be created in 2012. One source said: “I would expect Clarke to have far more staff throughout the stores, whether that is on the tills or shelf-stacking. It has been a long-standing problem.

“Tesco went great guns in the 1990s, the growth of Tesco-poly, etc, and they had great success abroad. But it is accepted internally that they took too much cost out of the UK stores too soon. That will be rectified.”

As well as physically improving layouts in many stores, it is also thought the Tesco chief believes that the group has to play catch-up with the likes of Morrisons and Sainsbury’s on their fresh food offerings.

One Tesco fund manager commented: “There is very likely to be a change, there certainly needs to be one, in the management’s mindset to get the main UK food offering right again, particularly in fresh. That, rather than trying to flog someone a flat screen telly as they do the weekly or monthly food shop, should be the priority.”

Health and beauty has also been identified by the board as a segment that could be improved by Britain’s biggest supermarket group, sources say. Clarke is also said to believe it was a major mistake in the run-up to Christmas to have no Tesco Clubcard mailout of coupons to customers in return for their patronage.

Sainsbury’s, in particular, was widely seen as having benefited hugely from its Nectar coupons handed out at the tills for helping boost its sales in the third quarter by 1.2 per cent, excluding fuel and VAT.

“The lack of coupons was an own goal. It looks with the benefit of hindsight to have been a tactical error in not posting out Clubcard coupons this time round, which was probably done to offset the cost of the Big Price Drop campaign. Philip and his team is almost certain to reverse the move,” one source said.

Clarke told the City last week that Tesco would put the future opening of UK hypermarkets very much on the backburner as the purchase of big-ticket, non-food items had increasingly moved online.

Tesco, which accounts for £1 in every £7 spent at UK retailers, revealed total internet sales in the six weeks to 7 January jumped 14 per cent.

Tesco’s profits warning sparked a flurry of City downgrades of earnings forecasts. Clive Black, an analyst with Shore Capital, cut his pre-tax profits forecast for 2012-13 by 13 per cent to £3.5bn.