Tesco is going to war: the British market leader is facing its myriad of problems head-on, but it does so with measures that are not always very consistent. The question rises if Tesco's image has been permanently damaged.
Revenge is sweet for Asda
Tesco's main war target is Asda, the Walmart daughter that ranks second in the British market, but still quite far behind Tesco. Asda however senses opportunities as Tesco is meeting resistance in a lot of different areas, like legal problems and issues with the public opinion.
One of the battlefields is advertising: Tesco's complaint about possibly misleading Asda advertising was not upheld by the British Advertising Standards Authority. Sweet revenge for Asda, after last month's outrage over Tesco's promotional campaign that – according to Asda – was a copy of their earlier coupon campaign.
The industry has to pay
Last month, Tesco started a more subtle campaign, in which it used focused price reductions on Tesco Value products in less affluent areas, and price reductions on more up-market products in 200 Tescos in richer areas. The campaign could well be a test for a more general strategy in aiming promotions to specific demographic groups.
A part of the money Tesco needs for this new campaign is provided by the industry, says specialised newspaper The Grocer. Analysts expect that suppliers will be entering fierce price negotiations with Tesco, as the price war with Asda and the discounters costs Tesco tons of money. Last January, the group announced it would expand its procurement team to serve both British and Central-European operations, in order to maximise its buying power.
Collecting money through real estate
Tesco also wages war on the real estate front. In England, the group wants to release itself from the badly performing Home Plus non-food chain (an entirely different entity than Tesco's Korean Homeplus supermarkets). This measure might not be possible however, as most of the thirteen Homeplus stores are leased through long contracts with – for Tesco – unfavorable terms.
In Thailand, Tesco is aiming to raise 380 million euro through aflotation of fifteen of its shopping centres in the Tesco Lotus Property Fund; while in the UK the aim is at raising 542 million euro through an operation in which the chain would sell and lease back eleven supermarkets.
Record market share in Ireland, lasting board soap in Britain
Across the Irish Sea, Tesco still has room for growth: its market share in Ireland grew from 27.5% to 28.2% last year. Unlike in Great-Britain, Tesco Ireland still has blind spots where it can open new supermarkets.
In the UK however, Tesco is “already present in every postal code” and it has no room for expansion. Moreover, consumers' attitude is becoming ever more negative towards Tesco. The soap starring Tesco UK's COO Noel Robbins, who sold 50,000 Tesco shares just before his company issued a profit warning, has had a very bad influence on the public opinion regarding its market leader.
Especially the fact that Robbins was not laid off or demoted, but was instead promoted to work directly under CEO Philip Clarke, might prove to be a crucial PR mistake. This way, Robbins even managed to remain in present the highest decision-making board at Tesco.
Conserving food... and image
Another blow for Tesco's image was its recent decision to stop measuring and labelling the CO2-footprint for all its products. The retailer blames the work involved and the other retailers' failure to follow Tesco's example.
Better news from the green front came a few days later, as Tesco announced it is introducing a special kind of packaging to prevent tomatoes and avocados from going to waste. The announcement fits in the current British debate - and indignation - regarding food waste. Whether or not it is also capable of preventing Tesco's corporate image to go to waste, remains to be seen...