Tesco Plc chief executive officer Dave Lewis is ending his first full year at the helm with the stock at an 18-year low, and he’s facing a Christmas period that won’t deliver any respite.
Sales over the six-week Christmas period will fall by 3 per cent on a like-for-like basis, analysts at UBS estimate. That’s a steeper drop than the 0.5-per-cent decline that analysts at Sanford C. Bernstein foresee for competitor J Sainsbury Plc, and well below the gains achieved by German discounters Aldi and Lidl. Lewis, 50, was hired to revive Britain’s biggest retailer, yet so far it’s proved far from an easy task. Tesco shares have fallen 20 per cent this year, heading for a sixth straight annual decline.
Normally, the holiday season is when traditional grocers can outperform their no-frills rivals, as customers seek finer fare, yet Aldi and Lidl have convinced Britons that their products are just as good.
Four out of ten shoppers planning to visit a discounter cited product quality as a main reason, according to grocery researcher IGD, which forecasts that Christmas spending at those outlets will rise by 17 per cent to £1.7 billion ($2.5 billion) this year.
While the discounters work to close the gap with Tesco on quality, Lewis wants to close the gap on price. He’s reduced prices on packages of vegetables such as parsnips that are staples of a typical British Christmas dinner. He’s also handing out more than 2.6 million free samples – the biggest giveaway in British retail history – to showcase new products, such as duck eclairs and gluten-free profiteroles.
“We’ve made our prices simpler, put more colleagues into shops to provide better service, and have improved the availability of our most popular products,” a Tesco spokesperson said.
Lewis, a former rugby player from Yorkshire, England, joined Tesco in September 2014 from Unilever, with a mandate to restore the UK retailer’s battered reputation after a multimillion-pound accounting scandal sent its credit rating to junk and prompted a probe by Britain’s Serious Fraud Office.
Since Lewis started at Tesco, persistent deflation of grocery prices means that sales growth has been elusive, leaving the CEO to focus on what he can control – increasing the amount that shoppers put in their carts. Failure to deliver that volume growth would undermine the premise of Lewis’s turnaround, according to Mike Dennis, an analyst with Cantor Fitzgerald.
“If Tesco underperforms its rivals this Christmas,” Dennis said, “[Lewis will] start to come under pressure.”
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