Price cuts no quick cure for Tesco's ills

Wed Oct 8, 2014 9:59am EDT
 
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By James Davey

LONDON (Reuters) - Cheaper meat and vegetables should draw shoppers back into Tesco (TSCO.L: Quote) stores but it will take time for the new boss of Britain's biggest grocer to win back market share.

Customers seeking to save money in a sluggish economy have turned away from the market leader to discounters such as Aldi [ALDIEI.UL] and Lidl [LIDUK.UL], igniting a price war in British grocery shopping and contributing to a series of Tesco profit warnings.

Tesco still wants to be a mid-range retailer and not a discounter but former Tesco directors, retail experts and analysts say Dave Lewis must urgently put lower and simplified prices for staples at the center of a new trading strategy.

He has over 1 billion pounds ($1.6 billion) to further cut the cost of goods such as milk, bread and carrots in the hope that shoppers will fill their baskets with more profitable products but international experience shows it takes time to impact sales.

"He can make a difference pretty quickly. Will it show up in the numbers straight away? Probably not," said a former director of the British business, which makes up two-thirds of group profit.

Tesco declined to comment for this story.

Having grown rapidly through the 1990s and 2000s by offering low prices, a range of high quality food and innovative marketing, Tesco responded to falling sales in the economic downturn by hiking prices. A second former Tesco director said that prices are now as much as 10 percent above Aldi and Lidl.

Tesco is now reeling from an accounting scandal and a downturn in trading that has knocked 4 billion pounds off its market value in a matter of weeks. Fears are also growing the scandal could impact Tesco's sales in the crucial Christmas period.   Continued...

 
File photographs shows shopping trolleys lined up at a Tesco supermarket in London April 15, 2014.  REUTERS/Luke MacGregor/Files