Embattled supermarket giant Tesco’s (LSE: TSCO) transformation strategy unveiled late last week was initially greeted with unbridled enthusiasm by the market, with shares rising 15% on the day, the biggest one-day gain for more than a quarter of a century.
New chief executive Dave Lewis finally revealed his hand to investors by rolling out a raft of measures. From selling Tesco Broadband and Blinkbox to TalkTalk, through to shuttering swathes of underperforming stores and closing its Cheshunt HQ, Britain’s number one retailer certainly showed investors that it is getting tough to fix its battered balance sheet.
Still, in my opinion the firm failed to properly address the root problem of its ills: that of falling activity at the checkout. Sure, Tesco announced new rounds of discounting across thousands of branded products, a strategy that has seen sales declines lessen in recent months. But over the long-term such programmes are hugely expensive and unsustainable over the long-term.
With this in mind I have outline three measures which Tesco, as well as fellow grocery giants Sainsbury’s (LSE: SBRY) and Morrisons (LSE: MRW), could adopt to get shoppers flocking back through its doors.
Restructuring the role of the megastore
Without doubt, the megastore as we know it today is dead and buried, with shoppers now electing to make smaller but more frequent shopping trips. Against this backcloth Tesco and its peers have seen footfall collapse at these outlets, and capital expenditure cutbacks subsequently centred in this area.
Although this area is destined to remain difficult, I believe that Tesco and its peers could attempt to resuscitate sales by creating a ‘marketplace’ feel by stepping up efforts to fill floorspace with other High Street outlets. Such measures would also boost income flows of course through the charging of rent in space. This area is already being explored, and last year Barclays announced plans to close branches and open small outlets in Asda stores.
Tesco has also already started on this path by putting Costa Coffee bars in some of its Extra stores, and I believe that the mid-tier operators should look to step up their efforts in this area. Indeed, I believe that offering space for ‘Click And Collect’ outlets for other High Street retailers, a massive growth area, could also prove a successful strategy.
Pump up on premium products
Rather than continuing to focus on price, I believe that Tesco and its rivals should pay greater attention to quality by bolstering their focus on premium, luxury products. Recent Kantar Worldpanel statistics confirmed the terrific trajectory on show at the likes of Waitrose, where sales leapt an impressive 6% in the 12 weeks to December 7.
Given the surging demand for high-end products with decent margins, I reckon that Tesco et al should dedicate greater sums into both marketing and product development to latch onto surging demand here. Indeed, sales of the Taste The Difference range at Sainsbury’s rose 5% over Christmas, yet the recovery of the supermarket giants remains perversely centred around profit-crushing discounting.
Keep the headcount ticking higher
On top of this, one area where Tesco and company can steal a march on Aldi and Lidl is to continue filling their stores with staff. I don’t know about you, but whenever I nip into my local discounter I am confronted by long queues at the checkout and swathes of unmanned tills, as well as unfilled gaps on the shelves.
Indeed, Tesco’s sales improvement in the run-up to Christmas can be attributed to the company’s recruitment drive to assist customers and slash waiting times. I believe that offering an improved customer experience is a critical area in which the country’s established chains can strike back against the new kids on the block.
