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30 Reasons Why Tesco PLC Could Be A Terrific Turnaround Buy

According to retail trade bible The Grocer, embattled grocery chain Tesco (LSE: TSCO) has welcomed in management consultants the Boston Consulting Group to help it axe up to 30% of its stocked items across a staggering 40 categories.

Tesco is hoping that a vastly downsized product portfolio will make it easier for customers to compare prices and bring it closer to the successful approaches of Aldi and Lidl. As a result, the firm will cut an astonishing 20,000 stock-keeping units — or ‘SKUs’ — from its shelves.

Many commentators believe that this huge downsizing across its core operations is long overdue as customers, broadly speaking, remain committed to just one or two products in each category — how many different brands and types of tomato ketchup, for example, does the average shopper tend to buy?

Indeed, Tesco’s One-Stop subsidiary, which boasts some 750 stores up and down the country, has already trialled a similar stock-reduction scheme during the past year to much success.

On top of this, more selective product base will also allow Tesco to manage the task of keeping its shelves filled more effectively, while also stripping out a fortune in unnecessary costs as staff numbers can be greatly reduced.

As well, the swathes of empty space created by the disappearance of thousands of products could also allow Tesco to generate fresh new income streams. Industry rival Sainsbury’s (LSE: SBRY) announced plans late last month to introduce pocket-sized Argos catalogue outlets in 10 of its stores, a plan that it said it could roll out to its other supermarkets if successful. The firm already has more than two-dozen other in-store ‘partners’ including Timpson and Jessops.

But will measures REALLY stem the tide?

The steps mentioned above of course represent a welcome move in taking on the discounters. But in my opinion Tesco still has much, much more work to do to stem the nosediving popularity of its hulking megastores, and the business will have to keep steady stream of other ideas rolling to reduce its reliance upon aggressive, margin-crushing discounting to bite back against its competitors.

Added to fears that convenience store sales are beginning to slow — 30 of the 43 stores Tesco plans to shutter are smaller Metro or Express outlets — and the hot online growth sector also becoming more and more congested, Tesco’s sales outlook for the coming years remains murky at best, in my opinion.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.