Tuesday 27 September 2016

The journey to redemption for Tesco is only just beginning in the supermarket war

Published 25/04/2015 | 02:30

Tesco Express, Dublin Road, Enfield, Co. Meath. Picture: Caroline Quinn
Tesco Express, Dublin Road, Enfield, Co. Meath. Picture: Caroline Quinn

next Wednesday morning, Agriculture Minister Simon Coveney will be the guest of honour at an event in Dublin where Tesco and Bord Bia will showcase Irish food and drink suppliers they're helping to grow.

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But like that episode of 'Fawlty Towers' - the one where Basil dances on eggshells trying not to mention the war to a pair of German visitors, but fails miserably - a mention of Tesco's faded stardom could ruin the mood.

As a group, Tesco is enduring the most tumultuous period in its near 100-year history, with Aldi and Lidl playing a major part in disrupting its once pre-eminent empire.

This week, Tesco reported a huge £6.4bn (€8.9bn) loss for its last financial year, most of it because of a decision to cut the value of its vast property portfolio. But its trading profit from selling groceries, clothing and homeware also tumbled over 58pc to €1.9bn.

Its Irish operation - once one of the brightest stars in the Tesco nebula - is now a drag on the group, hampering profit recovery at its overall European division.

Last year, Tesco's sales in Ireland fell 6.3pc to €2.55bn and to top that new figures show that it has been overtaken by SuperValu as the biggest grocery retailer in the country.

Keith Harford, a retail and business adviser, said that Tesco's Irish division has lost its way with consumers and that's where the battle to regain its poise will have to start. "Tesco has lost touch with customers and it's 10 times harder to win a new customer than to retain an existing one," he says. He also believes that with their vast buying power they could compete with the discounters, if they wanted to go down that route.

Clive Black, a leading retail equity analyst with UK firm Shore Capital, thinks that Tesco will try to rejuvenate its Irish arm in a similar way to what it's doing in the UK. That will include better laid-out stores, better availability, improved service and clearer pricing, he said. It has 24.7pc of the Irish market,149 stores and employs 15,000 people.

"Farmers and processors alike will be praying for an upturn in fortunes across both markets," he added.

Tesco came and left Ireland before returning with a bang in 1997 when it bought Quinnsworth and Crazy Prices from Primark owner Associated British Foods (ABF) for €800m, which was run by IRA kidnap victim Don Tidey.

Tesco was able to ride an economic wave in Ireland that meant flush consumers flocked to its stores. They were also willing to pay above the odds, and Tesco's Irish arm quickly became the most lucrative in the group. The real rise of Aldi and Lidl did not happen until the rug was pulled from under the house-of-cards boom. As hard-pressed consumers struggled to make their money go further, the German chains were a natural magnet.

The mainstream retailers - Tesco, Dunnes Stores and SuperValu in particular - were slower to make sense of and adapt to the changed environment. Today, the German chains have a combined 18.4pc share of Ireland's grocery market and that's certain to increase. Both chains are opening significantly more new outlets than their rivals.

There's been price deflation in the grocery trade for some time now - a move that an industry source says is solely a result of the pricing pressure piled on by Aldi and Lidl on rivals. That means that Tesco, Dunnes and SuperValu have to reinvent themselves to counter the threat.

"Tesco needs to re-engage with customers," according to Mr Harford.

"When you lose business, it's very difficult to win it back."

There are tentative signs for Tesco that things may be getting a little better, both in Ireland and the UK.

Andrew Yaxley, a Tesco executive who's recently been brought in to run the Irish business, said there are already indications that customer loyalty is improving.

But for Tesco, the journey to redemption is only just beginning.

Irish Independent

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