What Next for Tesco after the £250 Million Profit Blunder?

- Leadership - Sep 29, 2014

It has not been a good year for Tesco.

The UK retail giant is under increasing pressure from discount supermarkets such as Aldi and Lidl, who are taking more and more custom away from what for so long has been seen as one the most affordable destinations for Brits to do their weekly shopping.

For several months now it has become clear that Tesco’s profits have been sliding at a steady rate, but nobody saw the scarcely-believable events of last week occurring.

In presenting its half-year figures the supermarket chain overstated its profits by a staggering £250 million, leading to the suspension of several senior managers including UK MD Chris Bush amid ongoing investigations.

What next then for Tesco? Only time will tell as to whether this episode will lead to even greater customer defection to alternative stores.

Years of trust-building and developing loyal customer bases could be set back by this PR disaster, which must have left many wondering whether those senior managers at Tesco for one moment thought that such a huge overstatement would not be noticed.

This is especially the case for shareholders. Share prices tumbled by roughly ten percent on the day the news broke, worrying developments for stakeholders who must be wondering how long it will take for prices to recover.

The profit blunder is also likely to discourage future investment in shares, with top fund managers revealing their intentions to stay away from the retailer in the near future.

Francis Brooke of the top-performing Troy Trojan Income fund, having sold his Tesco shares three years ago, told the Telegraph that he will not be buying more.

Losing the confidence of such highly-regarded fund experts is a blow, especially given how well Troy Trojan has performed in the past decade.

Average UK income fund's performance over 10 years has effectively seen £10,000 turned into £21,500, while Trojan has turned £10,000 into £24,600, making them a source worth paying attention to.

Further to this, politicians could also heighten the pressure already on the Tesco hierarchy if they choose to bring the company before a Commons Select Committee. Most alarming to MPs is the fact that Tesco had been operating for several months without a full time finance director.

With political and economic circles closing in on one of the UK’s most recognisable companies, the year ahead will be a vital one in rebuilding trust and getting its house in order. 

Like what you see! Signup for our weekly newsletter