Stephen Jardine: Every little bit hurts for Tesco

Tesco has been trying to attract more upmarket customers to its stores, but all the indications are it continues to be squeezed by top-end retailers like Marks & Spencer and bargain discounters like Aldi and Lidl.

With first quarter sales this year down 1 per cent, few expect the interim results due next week to be much to celebrate.

But the problem isn’t just tight price margins shifting market share. It could be that something much more fundamental is happening. Is Britain falling out of love with its biggest supermarket?

For years, it seemed Tesco could do no wrong. The expansion and diversification were breathtaking, and the company strategy seemed to be one step ahead of everyone else.

Then came the disastrous excursion into the American market, which looked like a bad idea at the very start and turned out to be worse than that. The saga ended up costing the company more than £1bn.

Tesco says management and strategy have changed and the problems are in the past. Yet, despite having a Clubcard programme which is supposed to offer incredible insight into how customers behave and what they want, Tesco is still making mistakes.

When Tesco frozen burgers were found to contain 29 per cent horsemeat, Tesco’s response was to take out adverts claiming it was an industry-wide problem. That was wrong, and cost it a rebuke from the Advertising Standards Authority.

And just this week came another example of how the company has lost touch with consumers, ironically in the place known as “Tesco Town”.

Inverness is home to four Tesco stores. In exchange for planning consent for one of them, the supermarket agreed to pay £340,000 towards the cost of a £34 million city bypass. However, Tesco is now refusing to pay up, saying a ten-year deadline on its commitment has expired.

The decision has left the local authority furious. “We can’t allow Tesco, which makes millions out of Inverness every day, to get away with not paying towards the bypass”, said Inverness councillor Jim Crawford.

“They are not here for the good of the city if they relent from a previous agreement.”

Councillor Crawford wants Inverness shoppers to boycott Tesco stores if the company refuses to pay.

The bypass situation could cost Tesco much more than £340,000. The company can choose to be part of the community or it can take customers for granted. Follow that direction and a small dip in sales will be the least it has to worry about.