Stephen Jardine: Problems in bulk for supermarkets

ONCE upon a time, Tesco looked set to take over the world. As the supermarket giant expanded its range to sell everything from electrical goods to contact lenses, the company’s growth seemed unstoppable.

Stephen Jardine. Picture: Jon Savage

When it jumped into the lucrative American market and became the world’s third biggest retailer, global domination seemed to be only a matter of time.

What a difference a recession makes. This week, Tesco announced a 6 per cent drop in profits – the second year the numbers have been down.

So how has it come to this? Two key factors are responsible. The rise of the discounters has played a crucial role. Ironically for a company that pioneered shopping loyalty cards, Tesco customers had no hesitation in flocking to Lidl and Aldi in search of a bargain.

Tesco tried to counter this by offering its own value range, with trade magazine the Grocer reporting the supermarket planned to become “Britain’s biggest discounter”.

The fundamental mistake was believing a value range makes you a discounter. The reason shoppers like the cheap end of the market is that everything in the store is priced rock bottom. In contrast, Tesco’s pricing policy was labyrinthine, with single items cheaper than multi-packs on some items and not on others.

The second factor in Tesco’s decline is what made the brand famous in the first place. The giant edge-of-town superstores that swept small businesses aside and dominated communities are now dragging Tesco down.

The company is desperately trying to change the shopper experience by refreshing more than 600 of its stores. However, the fundamental problem remains. Tesco has too much space in the wrong places. Offering neither value nor quality, it is everywhere but nowhere.

With no credible strategy to tackle these problems, Tesco’s decline looks set to continue. Its problems are not, however, unique. If anything, the crisis facing Morrisons is even worse, with investors warned profits will be half what they were last year.

According to credit agency Moody’s, over the past four years Tesco, Asda, Sainsbury’s and Morrisons have on average lost 3.7 per cent of market share.

The low-price discounters and high-end supermarket Waitrose are benefiting, but there is another factor at play. For the first time in a decade, butchers, delis and bakers are reporting sales growth as well. The horsemeat crisis shook public confidence in giant retailers in a fundamental way that continues to have an impact.

The future of supermarket shopping is not in doubt. This kind of retailing suits busy lives in the modern world. But the days of supermarkets dictating how we shop are well and truly over.

As for Tesco, world domination is now a distant memory from the past, not a realistic prospect for the future.