I think it may be an indication of the trend "who can do the least bad business?" That we see in the UK that this news is not "shaken" as much as in the past. However, it is still bad news and one that Tesco will try to control in the coming days. Predicting the announcement is not good for colleagues at all. My thoughts are with them and the morale in stores will be low today.
That's the sad part, though we all chew on the news – the reality is that colleagues today would have gone to work and had to work at the counter, do chores, look after customers, and pretend nothing was wrong. Not easy.
Tesco's greater challenge continues to be that discounters have a low price and high quality, and continue to redefine the parameters for these elements compared to their larger competitors.
Premium tier products are the latest example of ranges that are less expensive than their main competitors, but whose quality is primarily equivalent or better given the lower price.
Tesco fought the discounters in Dave Lewis's reign well – they used to defend themselves against discounters in the beginning with self-inflicted deflationary tactics in Produce and Meat. Reduce the price of a range of Value Tier products, expand the range and use them no less than “farm” brands.
In this regard, we made further efforts last year when Tesco began to replace the “everyday value” layer with a number of sub-brands – TE Stockwell, Creamfields (dairy brand, not music festival) alongside Grower & # 39; s Harvest. These brands include a range of products (e.g. TE Stockwell in Beans, Tea, Lemonade) to help customers get used to the brand in the store.
The net result is that this work is deflationary; IE Tesco makes cheaper products more accessible and identifies them strongly. Customers will switch from more expensive mid-priced / branded products to these products, which will affect the sales line and profitability.
The range of Value Tier products was replaced last year by the "Exclusively at Tesco" brands.
The challenge for Tesco is to increase sales of these value tier products to such an extent that orders increase, which lowers the overall price for Tesco. While hoping that existing Tesco customers will continue to buy mid-priced products, they are not going to Aldi to open a "secondary" shop, and they may also be buying premium products in another area of the store in order to Maintain profitability.
With this strategy, if we leave existing customers aside, Tesco hopes that customers who have bought from Tesco but have moved on will return, or switch customers to Tesco to benefit from those categories where the added value is particularly high.
Of course – there are many numbers in this mix. Many variables and the fact that you are actively emptying yourself mean that you are chasing balance and "playing to win together". That means you can imagine that the buyers of products / meat were frustrated, that the cheaper added value areas were expanded, placed prominently on the shelf and also branded. You may sell more, but you'll need to sell 2-valued steaks for £ 2 to stand still compared to 1 mid-tier steak at £ 4.
The irony of this strategy is that the hunt for discounters in meat, fish, cooked meat, etc. has led to strengthening value / farm brands in terms of price and range, to prevent discounters from building a price gap. However, if you make your "gang" cheaper with products and are certainly equivalent to discounters, there are fewer reasons to visit the service counters unless you are a die-hard shopper.
Generations – Customers at the younger end of the spectrum are even less likely to visit counters, the age of their smartphone, self-service checkouts and actively avoiding contact with a real person. Therefore, switches are a challenge in the long run.
As we can see, the challenge of fighting discounters on this front is to open yourself to the world of unexpected consequences. IE measures in one area can encourage behaviors elsewhere that force an unexpected step change. A good example is the increase in the national minimum wage in order to reduce the state contribution for low-wage workers through the tax credit system.
This has been praised by campaign groups as a great thing, and no doubt it's another question if you want to see more direct action on public transportation / utilities, etc., but the net position for peers whose base wages have risen is likely to remain unchanged despite a lawful rate hike ,
Not surprising; Retailers were unable to endure the increase without changing the terms and conditions because the impact on the bottom line is too great. Paid breaks from contracts have disappeared, premium payments for non-social hours, Sunday and holiday work and benefits such as a free sandwich (pret) have also disappeared. It has also accelerated the adoption of technology – for example, self-service machines at McDonald’s.
The business case changes overnight if you change the colleague tariff to increase it over the next 3/4 years compared to the cost of installing the technology.
Regarding Tesco – the increased labor costs, national insurance premiums, business tariffs and the like all contribute to making the counter operation in many stores little sense. If you take "x" a week (sales on the counter are generally stagnant and there are increases, but if the trend is negative) and the costs associated with the staff increase, you can reduce the staff – but at a service desk, it has to Personnel being manned as it is not a real option.
Add the fact that some stores may have opened a discounter or two nearby, where an appropriate share of (£) will almost immediately disappear and the volume for the discount stores will also disappear if it is a smaller store that keeps a counter offer for loyal customers Then the profitability at store level deteriorates. If Tesco can bring some of these discounter customers back to the store, will they visit the service counter? It's unlikely. You will be in the aisle in the cheaper cooked meat …
Some counters are well suited for Tesco where differentiation is offered – IE Rotisserie serves a need for hot food, pizza does a similar job and offers something different. However, when meat, deli and fish counters compete with cheaper products in the aisle, this is a difficult old task. The bakeries were named as a model to switch to a frozen baking operation – this was attempted with the unfortunate euphorium disaster by baking bread and dipping a high-quality nose.
There are a number of scratch bakeries in the Tesco area and it seems that they could be safe. It would not make much sense to take a wholesale approach to reduce / maintain parts of the metering business, and it will boil down to local manufacturing and performance decisions. IE the cold, hard facts of the matter.
In part, you can also thank Phil Clarke (back in the news last week after the OFS was acquitted for the three Tesco), who oversaw the reintroduction of numerous service counters to improve the store environment and offering.
Tesco has been successful in mimicking and adopting discounts.
There is a belief that counter-investment, rethinking and redesign projects could support counter-efforts for Tesco, but it won't make a difference in the world of cold, tough economies. If it is, it is limited and there is no one who signs off millions of investments for an unclear proposal with no real chance of success.
The store isn't really in the same area as Morrisons or Sainsbury (to a lesser extent), and it's an uneven offering across the retail store.
The stars align themselves elsewhere for Tesco; Dave clearly outlined his profit margin targets and closed down loss-making deals, even if these "futuristic" analysts tell us that everyone does e-commerce – Tesco Direct (£ 40m loss) and Click / Collect went despite last year the growing trend for online.
Despite the numbers that make sense, the experience counts for many and the discounters differ significantly compared to the core retail trade. Customers have countless reasons to shop where they shop, make decisions, who / where / why they are loyal, etc.
The PR / public perception of a company is very important. Tesco has improved its reputation incredibly in recent years. However, customers do not like people losing their jobs (even if this is possible due to their shopping behavior at discounters). In this regard, the chain could be affected. Some customers do not use self-scan / scan / go handsets because they link them to cash register operators who, for example, lose their jobs.
Tesco does not want to win the least bad competition because it is a zero-sum game. Ultimately, someone will go too far and roam the shops too much, then what? They are still more expensive than Aldi and Lidl, but the store is a huge hangar that has nothing else to offer.
Their shops are no reason to visit, there is always plenty of parking and there is never a line at the cash register.
It takes little skill to close or shorten the opening times of a service counter. No skill is used in trade. There are no checkpoints. Sales still not good? You can close more, shorten a little more and further tighten the opening days / hours.
Ultimately, you commit suicide – you strangle your business with oxygen (sales).