Tesco leaves Japan after fairly disappointing results

Tesco, the world's third largest distributor, published very mixed semi-annual results yesterday. The British chain managed to grow during the last six months, but feels the constraints of the economic crisis – especially in its home market Britain.

Double figure sales rise in Europe and Asia

Tesco's total turnover increased by 8.8% to 35.5 billion pounds (45 billion euro), especially especially because of excellent results in Europe (excluding the UK: +12.4%) and Asia (+11.7%). The British stores saw turnover rise by only 0.5%, but the total British turnover rose +7.1% if new stores are also included.

The chain's profit rose nicely to 1.9 billion pounds (2.4 billion euro, +12.1%), causing CEO Philip Clarke to be “pleased that excellent growth in Europe and Asia, as well as an encouraging performance in the US, has supported further progress in the first half, despite the challenges of subdued demand in the UK, particularly in non-food categories”. Two thirds of the group's profits still come from the UK, although the other markets grow considerably faster in terms of profit (UK: +4.5%, Europe +11.8%, Asia +18.7%, US +23.2%).

Leaving Japan, expanding online

Still, not everyone at Tesco is completely happy with the results and the company promised to “invest in price and promotions, ranging, service and store environment” and bring “substantial changes to our core UK business to sharpen competitiveness”. One of those investments (although not in the UK) was announced yesterday: the expansion of a webshop for Tesco's clothing brand F&F to 21 European countries.

Still, the most important news was that Tesco would be exiting the Japanese market, after “having decided we cannot build a sufficiently scalable business there”. The group now has 5630 stores left, half of which (2865) are in the UK and 21% (1172) are in the rest of Europe: the Czech Republic (215), Hungary (209), Poland (383), Slovakia (103), Turkey (131) and Ireland (131).

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Sainsbury's eager to improve price image

It is clear that its price image can make or break a retailer. Britain's third largest retailer Sainsbury's has experienced that problem first hand – and therefore now launches a new slogan: “Live well for less”.  

A subtle approach to appeal to consumers

Sainsbury's, well aware of their relatively unfavourable price image, specifies what it means in the first ads bearing the new slogan: “Helping you live well for less isn’t about saying that our food will always be cheaper than other supermarkets (we’ll never compromise on quality and are committed to bringing you products sourced responsibly), but it will cost less that you thought at Sainsbury’s. Sainsbury’s will never scream its value message in the way Asda and Tesco do, instead taking the more subtle approach to appeal to shoppers emotions.”

With this explanation – recognising that Sainsbury's does not have the best of price images – the retail chain hopes to make sure that the subtle message reaches the customers – and hopes that those customers will understand it. Using its new slogan, Sainsbury’s wants to improve its price image without compensating in the quality department. “Live Well for Less aims to deliver products that meet customers' needs for both quality and price, all for less than customers think”, as the retailer states in a
press release.

Similar to Tesco and Asda?

Sainsbury's “Live well for less” campaign is directly aimed to confront Tesco and Asda, but the question remains whether “Live well for less” is so different from the slogans used by those two. Tesco's “Every little helps”, widely recognised as one of the best slogans in the world, is directly linked to the huge growth Tesco has experienced since the slogan was first used in the 1990s – an eternity compared to the six years an average Sainsbury's slogan lasts.

Walmart's Asda is more straightforward: “Saving your money every day” is the slogan they have been using since 2009. The same year the chain used “Good food costs less at Asda” for a temporary promotion – a direct copy of one of Sainsbury's previous slogans and creating a minor controversy.

... or rather similar to Aldi?

“Live well for less” seems to be mostly like Aldi UK's slogan, but exactly the opposite: cast into Aldi's “Spend a little, live a lot” format, the Sainsbury's slogan sounds like “Live a lot, spend a little”. It is exactly Aldi's (and Lidl's) success in the UK that led Sainsbury's to revamp - together with (or fuelled by) the difficult economic climate in Britain. While the rebranding is specifically aimed at Tesco and Asda, the group knows for sure it will not harm to use the British discounters' tricks as well.

Brand Match and own brand to help new slogan

To reinforce its message, Sainsbury's also uses “Brand Match”: a programme now tested in Northern Ireland, that continuously compares prices at Sainsbury’s with those at Tesco and Asda. If Sainsbury’s is more expensive, customers receive the difference... in coupons they can spend at Sainsbury’s only, of course.

Along with the new slogan, the revamp of Sainsbury's own brand “By Sainsbury's” is instrumental in the retailer's new direction. This initiative started at the end of last year and was officially announced this May. By improving the quality of its own brand, which serves as a less expensive alternative for A-brands, Sainsbury's wants to improve its average price-quality ratio. The chain aims to have 6,500 products in its new label by 2013.

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Aldi Nord finally embraces modernisation

Aldi Nord, the more conservative of two separate Aldi companies, is secretly testing a new generation of stores, very aptly named Aldi New Generation. RetailDetail already reported about the secret pilot store in Mariakerke (Ghent), but with the discovery of a second 'New' store in Putte (Mechelen) the existence of a New Generation is no longer in doubt.

New folder strategy leads to new store design

Make no mistake: Aldi's assortment and pricing will remain the same – only the perception changes. Still, these changes will be quite significant: a different logo, more daylight in the store, product displays with a picture and a more surveyable design should make sure customers have a more agreeable shopping experience.


The first signs of change were already visible in January, when Aldi left its eternal leaflet strategy to push temporary promotions on the first three pages. The chain also started experiments with special weeks with focus on Spanish, Italian or Asian products: the first step towards highlighting quality as well – not just its image as hard discounter. 


“A sensible choice, as Aldi's market share has been under a huge pressure from Colruyt and Delhaize's private label strategies”, as retail expert Jorg Snoeck explains. Indeed, Aldi Belgium's turnover went down for the first time last year– even if only by 0.5%. Not only the big two's private label strategy, but also the sharp promotions on A-brands proved to be a big threat for the German hard discounter.

More light, more colours, more comfort

The new store design is the next step for Aldi's modernisation, and one can say that its new leaflet style has been used to upgrade the stores as well. Apart from the larger windows and the new displays (grey instead of orange), the new stores will have wider aisles, modern materials, shades of blue instead of the omnipresent brown and lower shelves. The “look and feel” also benefited greatly from Aldi's decision to place huge pictures next to certain types of products – think of a delicious picture of ice cream in the freezer section... 


Another delightful novelty is the baking machine, which bakes smaller bread rolls on the spot. Aldi Süd introduced this machine months ago, now the more traditional Aldi Nord also features it in the Mariakerke pilot store – despite bakers' protests who claim this “baking machine” is merely heating up the bread rolls while the actual production is done by baking companies in other places. This German trial is still pending – but clearly Aldi Nord did not wait for the results.

Excellent results... but what in the long run?

The 'New Generation' stores in Mariakerke, Putte and German Koblenz are rumoured to achieve excellent results, as they combine the best of both worlds: Aldi's classical no-nonsense approach and a nicer shopping experience in the stores. Though customers react very pleased to this restyling, this might be a dangerous move for Aldi Nord. Choosing for quality over price can endanger the whole discount strategy, even if the first steps are rather small. “You can not be a bit pregnant”, as discount godfather Frans Colruyt once stated. It will be a tough task for Aldi to fulfil both its discounter's mission statement and its new promise to improve quality and experience. 


Aldi consists of two separate entities with clearly distinct territories. Aldi Nord has the North of Germany (hence the name), Belgium, the Netherlands and Poland, while Aldi Süd has the South of Germany and more southern countries like Switzerland, Austria , Hungary and Greece. Strangely enough, the UK and Ireland are Aldi Süd's territory, while Aldi Nord holds France, Spain and Portugal. The chain has about 8200 stores in Europe, the US and Australia.

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Albert Heijn aims to conquer Germany

Ahold, the Dutch parent group of Albert Heijn, has announced disappointing results for the second quarter. As a counter-measure, the holding plans to invade Germany through “AH to go”, a convenience concept focussing on immediate food consumption.

Small stores, huge possibilities

Ahold believes convenience stores to be the sector with the fastest possible growth, explains Gino Van Ossel, professor at Vlerick management school. “AH to go is actually more like a food service, not unlike Exki (just less expensive): more aimed at immediate consumption than 'real' convenience stores like Carrefour Express or Delhaize Shop&Go”. 


An AH to go has three main parts: food “for now” (immediate consumption), food “for later” (still the same day though) and about a 1000 other articles like coffee or tooth paste. Due to the locations where AH to go is already present, like train stations or Schiphol airport, most of the purchases are in the “for now” department. 

Easy to expand

The average surface of a Dutch AH to go is 125 m², meaning that it is an easy concept to expand – exactly why Ahold chose this concept to use for its invasion in the German market. Van Ossel: “Locations of that size are relatively easy to acquire in Germany, as opposed to supermarkets. If you want to find good locations for supermarkets, you simply have to buy an existing one. Besides, in a market so controlled by hard discounters, there is simply no place for a chain like Albert Heijn. They have to find another way – like this service concept – to avoid entering a price war in Germany.” 


 The investments needed for the introduction of AH to go in Germany would be rather small: “there is no need for a huge number of folders or a customer card system in what is essentially a large sandwich shop. Just a small number of small, strategically well chosen shops can be enough.”

Soon also in Belgium?

Much like their Belgian strategy, Ahold first looks for cities close to the Dutch border – like Düsseldorf or Cologne. Despite having only recently been discovered by AH's “normal” stores, the Belgian market might be the next target for AH to go as well. “The concept is over ten years old and has proven its worth in the Netherlands. It is time to go abroad: there has been an experiment in the US and there still is one in Sweden, with ICA to go – administered by our joint-venture with Hakon Invest. We can not deny being interested in expanding to Belgium as well”, says PR responsible Jochem van Laarsschot.


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Thierry Garnier new director of Carrefour China/Taiwan

French supermarket chain Carrefour has appointed Thierry Garnier as executive director of China and Taiwan. Garnier was executive director for growth markets until a musical chairs scene at the top of the world's second largest supermarket chain gave that role to Pierre Bouchut.

Bouchut punished for Brazil failure

Earlier this month, Bouchut had to leave his post of Carrefour CFO after failing to secure the takeover of Brazilian Grupo Pão de Açúcar. Pierre-Jean Sivignon (former Philips CFO and vice president) took over that post and Bouchut was demoted to director of growth markets, replacing Garnier. The chain then announced it would “find a suitable position for Garnier” - which turns out to be in China. 


Garnier, 45 years old, has risen through the ranks of the Carrefour directors since 2008, when he became managing director international, before becoming executive director of “South East Asia, European countries, India and International Partnerships.” Since 2010 he has been executive director for growth markets, a position he will hold until April 2012. For Eric Legros, the man he will be replacing, a new function will be created: that of Executive Director Group Merchandise.

A kingdom of 245 hypermarkets

Present in China since 1995, Carrefour currently owns 185 hypermarkets. Last year, it strengthened its position in China by acquiring a majority of Baolongcang, a chain of 11 hypermarkets in Hebei province near Peking. Much like in the rest of the world, Carrefour has to look up to see rivals Walmart, who have near 200 hypermarkets and a new discount chain to serve the poorer rural population. 


In Garnier's other country, Taiwan, Carrefour's network consists of 60 hypermarkets and 3 supermarkets. 


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Carrefour distributes 1.3 billion euro in cheques

Carrefour France has decided to start an aggressive campaign today to win back the large number of customers that left the chain in the last few months. The main weapon is the distribution of 1.3 billion euro worth of cheques to anyone visiting a Carrefour hypermarket.

1.3 billion worth of cheques distributed 

The principle is simple: 13 million visitors receive a booklet with 100 euro worth in coupons. Each week, two sections are chosen where customers receive a 10 euro reduction for any purchase larger than 30 euro – restricted to 20 euro per week. As the French school year is about to start, this week's sections are school utensils and children's clothing. 


“We invest heavily to allow our customers to make purchases in these difficult economic circumstances – especially in such key moments like the start of a new school year”, says new CEO Noël Prioux. “We hope to raise customer retention by 2 or 3% in this period”.

 "Back to school" campaigns

This action is only the beginning of the relaunch of Carrefour's French hypermarkets, which started the year so disastrously and now really need to do every possible thing to compensate for that. “The start of the school year is a very important moment to show our new self to all of our customers”, says Prioux, knowing that exactly those terrible results on the French market have lost Prioux's predecessor James McCann his job.


Carrefour already reduced prices for 500 'best sellers' in food and 500 other products by 5 to 12%. Another measure, allowing customers to buy certain articles per piece instead of only in large volumes, immediately resulted in a better score for the hypermarkets this month, compared to last July.

 "Save the hypermarkets"

Operation “save the hypermarkets”, absolute top priority according to Carrefour's worldwide big chief Lars Olofsson, is finally taking off – about time, as sales were 0.4% lower than the year before and food sales even went down 1.7%. 


Carrefour's competitors in the hypermarket world Auchan also struggled in 2010 and Casino's Géant hypermarkets – while harvesting a 3.5% increase in food sales – were also unable to stop the general trend of lower turnover. Only Leclerc and (supermarket chain) Système U are having a decent year – and even the latter had to admit that 2011 was “not such a good summer, mostly due to the weather”.

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Coop's Swiss agreement with suppliers saves duopoly

Much to Coop Switzerland's relief, they finally succeeded in offering 700 brands at reduced prices after almost sidelining themselves in the price war with Migros.


Last week, Coop Switzerland posted an emphatic message titled “Enough is enough” on its website, saying Euro-zone multinationals are “exchange rate leeches” as they kept profits from changes in the Euro – Swiss Franc exchange rate for themselves. This web page has recently been deleted, as Coop – just like its competitor Migros – has reached an agreement with these suppliers. 

Coop - Migros: 2-0

Today, a proud 'Great success!' features in capitals on the Swiss Coop website, accompanied by logos of international A-brands whose prices have been lowered by 10 to 20 per cent. In two ways Coop defeats rival Migros: Coop boasts 700 articles reduced in price (compared to 'only' 500 for Migros) and its price reductions were valid immediately (last Saturday) – as opposed to Migros's price reductions that only came into force today (Monday). 


Coop's management will be very relieved with this agreement, as pressure was immense. Its competitor Migros had already succeeded in convincing large suppliers to share its exchange rate gains with their customers in the form of lower prices, whereas Coop had not found such an agreement before last Saturday. As it was very unlikely that Coop's previous website post inclined its suppliers into being obliging, chances were there that Coop had sidelined itself.

In customers' and suppliers' best interests

With this agreement, Coop can claim a major success for its customers. Of the three companies explicitly named in their previous post, only Mars's articles are already included in the price reductions. L'Oréal and Ferrero, the two others, are not (yet) – but according to rumours there are also negotiations with those two.


As a situation with two dominant retailers is far better for suppliers than one with one predominant chain, it was clear that it was also in the suppliers' best interest to reach an agreement with Coop. If they have realised other concessions from Coop, it is pretty certain that they will be kept as covert as the Swiss banking secrecy.

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Swiss retailers Migros and Coop battle for prestige

 “Mars, L'Oréal and Ferrero are exchange rate leeches” is Coop Switzerland's outspoken opinion on its own website. The message is the climax of the Swiss price war between Migros and Coop caused by the strong Swiss Franc. While Migros has announced a wide price reduction, Coop has declared war on several A-brand multinationals.

For months already, Coop has been asking its international suppliers to share their exchange rate gains with Coop('s customers) through price reductions, but to no avail. Coop has decided that “Enough is enough” and it has announced to delist 95 international branded articles.

Naming & shaming

The Swiss cooperative is in such big trouble that it has adopted the naming & shaming tactics to force its suppliers into compliance. It is striking that two of the three companies Coop explicitly names on its website, L'Oréal and Ferrero, did agree to similar price reductions with Coop's rivals Migros.


Last Tuesday, 16 August, Migros announced it will lower the price of 500 products as exchange rate changes will be shared with the customers. This announcement came just one day after Coop's original complaint in this matter.

"Hard, but fair"

Now Migros proudly announced another range of price reductions, with – amongst others – Nestlé, Beiersdorf, Procter & Gamble and Unilever joining the agreement. “Hard but fair negotiations with our partners, with whom we have been cooperating for many years, have now resulted in price reductions of between 10 and 20 per cent”, as Migros chairman Herbert Bolliger boasted.

Migros's discounter Denner had already announced to lower prices of 50 brands like Pampers and Gillette (both Procter & Gamble) earlier this month. PlanetRetail stated Denner itself paid for these price reductions, partly through a larger parallel import, and claimed that these price reductions were meant to exercise pressure on suppliers still unwilling to share exchange rate gains – meaning that Migros succeeds where Coop fails (so far).

All about prestige

The clash between the two is all about prestige, as producers have been complaining about Migros's and Coop's market power in Switzerland. While true for smaller and medium sized producers, Coop's focus on large multinationals renders this complaint moot. “It is unacceptable that large international producers, based in the Euro-zone, keep the exchange rate gains only for themselves” says Coop's director of purchase Jürg Peritz, who does not exclude further delistings.

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Asda suffers from Netto takeover and petrol prices

Asda, Walmart's British daughter, has experienced a slower second-quarter growth due to higher prices for petrol – causing fewer consumers to turn up at their stores. “Economic indicators show that 2011 will be a challenging year for the British consumers, but we are convinced that both Asda and the renewed Netto stores will be well equipped to start the second half of the year.”, says Doug McMillon, president of Walmart International.

In the second quarter of this year, the like-for-like turnover went up 0.5%, slightly less than the 0.8% of the first quarter. The operational turnover suffered from the £19 million Asda paid for a part of discount chain Netto and the fact that the number of consumers visiting one of the stores dropped 1.2%.

 Changed consumer perception

Particularly worrisome for Asda is the changed perception amongst British customers: much like their American counterparts, they think that Asda/Walmart is too expensive and choose for hard discounters like Aldi or Lidl instead. Asda's market share dropped 16.7% in the twelve weeks ending on 7 August, according to Kantar Worldpanel's market survey.

Successful Netto takeover

Asda's new strategy focuses on convenience stores of between 450 and 2500 m², of which it hopes to open 250 new instances in the next three years. This strategy was inspired by the success of renewed Netto stores after their takeover by Asda: they witnessed an average sales growth of over 50%.

“At first, we wanted 100 additional new stores of this smaller size, but due to the success of the first few stores, we have decided to raise that number to 250 at least”, says Asda-chairman Andy Clarke. The Daily Maile quotes further: “Next week, the 100th renewed Netto opens its doors, a highly successful endeavour because of its prices, quality and service.” The price policy is remarkable indeed, as the groups maintains the same prices in the larger Asda stores as in the small Netto ones.

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