Martin Flanagan: Clarke fronts–up over Tesco’s response to woe

TESCO boss Phil Clarke’s £1 billion plan to restore the food retailing giant’s fortunes in its core UK market is not rocket science, but, then again, neither is running a supermarket group.

It tends to be a case of getting the basics right so that customers develop the habit of keeping on coming in the door for the staples of their lives.

Clarke’s blueprint for recovery addresses this head-on: 8,000 more staff in the stores and half a million pounds spent on brightening up each of 400 Tesco outlets to make the shopping experience more pleasant.

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“More staff on the shopfloor. It’s the quickest, simplest way to turn around the performance of a store,” Tesco’s chief executive said yesterday. It is difficult to disagree.

The attempt at smartening up the store environments also looks the right move as the group’s bigger stores, in particular, have been criticised as “clinical” or “industrial”, with some justification.

On top of that, Clarke revealed that the company would spend hundreds of millions of pounds on a revamped cut-price offer for customers after the failure of the Big Price Drop campaign last year, and £200 million on a step change in the food retailer’s online operation.

It is to substantially rein in its store opening programme, which will fall nearly 40 per cent this year, in order to focus on doing a better job in the UK on what it already has.

Arguably, Tesco has got into the unfortunate straits it has by imperceptibly over time taking its UK market-leading position for granted.

The UK outlets were the cash cow that threw off money to bankroll the group’s foreign expansion from central and eastern Europe to Asia and America.

Yesterday’s recovery plan is clearly meant to make the British arm – which accounts for 70 per cent of group profits – feel loved again.

Unlike some major retail turnarounds, which focus on the comparatively hidden areas of back office systems, management of suppliers and protection of profit margins, Tesco’s plan is very much front of house.

As such, customers should see and feel the changes in terms of staff counts and warmer formats relatively quickly.

Although Clarke would not be pinned down on a timeframe for a sales recovery after the poor performance in recent months that led to the company’s bombshell profit warning in January, one could realistically expect to see the fruits of the revamp over the next year to 18 months.

End of QE as doves and hawks fly together?

Yesterday’s minutes of the April meeting of the Bank of England’s monetary policy committee (MPC) meeting suggest further quantitative easing (QE) may well be put on hold for the foreseeable future.

Last month’s spike up in inflation has clearly worried both doves and hawks on the MPC. It is significant, for instance, that the minutes show arch-dove committee member Adam Posen, a long-term advocate of more stimulus for the economy, dropped his call for more QE.

Only one of the nine MPC members, David Miles, continues to support additional QE. The Bank now says that current inflation of 3.5 per cent is likely to come down more slowly than it had forecast as recently as February. The high oil price is not helping. The Bank now admits that above-target inflation is more likely than thought before to persist into the medium term.

It is impossible to ascertain how bad the economy would be without the QE programme. But it is beginning to look pretty clear that there will be no more stimulus from that quarter for some time.

Carney would offer an untainted succession

IT ALMOST seems a pity that the governor of the Bank of Canada, Mark Carney, may not have been “tapped up” by the Bank of England as a potential replacement for BoE governor Sir Mervyn King when he steps down.

It would have brought a certain raciness to the dryness of succession planning at the UK central bank. In addition, Canada is generally thought to have had a good war as regards the financial sector implosion of 2007-8, largely avoiding most of the pitfalls of subprime.

Carney would not be tainted by any association with past regulatory mistakes.