Following the news that Tesco has completed its exit from China, as well as announcing plans to cut its bakery facilities in its UK stores, a leading retail analyst has said that this is an indication that the retailer is taking a 'serious look' at the underperforming parts of its operation.
"With low carb diets being the order of the day, it is not that surprising to hear that Britain is buying less traditional bread," commented Nigel Frith, a senior market analyst at www.asktraders.com. "Adapting to changing customer needs is essential in the cutthroat food retail business."
Scratch Bakery
On Wednesday, Tesco announced that it would continue to offer scratch bakery services in 257 stores, while 201 stores will move to a part-scratch, part-baked operation, and 58 stores will move to full bake-off.
According to the retailer, this move would result in 1,816 members of staff being put at risk of redundancy, adding that it would be seeking to find alternative roles for these employees within the business.
"Its proving difficult to gauge investors reactions given that the news has come on the same day that Tesco revealed that it is leaving China," Frith commented. "However, what is clear is that Tesco is taking a serious look at its business and disposing of what it views as unnecessary parts."
New Reality
Elsewhere, Clive Black of Shore Capital said that Tesco's decision to scale back its bakery operation was in keeping with efforts by other UK retailers to streamline their operations, as they "adjusting their operating models to cope with the realities of a mature, concentrated and quite low growth market, whilst still fully coming to terms with the German discounters".
As he noted, in the past few months, Sainsbury's have cut head office numbers, Asda has scaled back its butchery and fish counters, and Morrisons has adapted its labour processes.
On Tesco, he added, "We shall watch to see how this ongoing change is implemented and whether or not shoppers notice. Tesco has become a much more functionally effective grocer through the Dave Lewis era. However, in being much more capable, the business is not at the forefront of current retail theatre and removing counters and fresh food production does little to remedy what may be considered stores that score reasonably modestly on the experience front.
"More broadly, therefore, we see a Tesco UK that is grappling with low current overall market activity, extolling positive mix virtues and structurally cutting operating expenses along with the rest of the trade."
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
