UK Supermarket Wars: Will Tesco Ever be the Same Again?

- Leadership - Jan 08, 2015

Tesco, in a bid to reverse what is the largest crisis to hit the company in its history, looks intent on challenging discounters Aldi and Lidl by saving hundreds of millions in costs and selling assets in order to lower its prices for consumers.

This week it announced wide-ranging cuts on a number of branded products, including Branston, Kellogg’s and Cadbury.  

Commenting on this development, Gilad Simhony, CEO of mySupermarket, the independent shopping and comparison website, said: "The news of price cuts from the major supermarkets this week demonstrates that we are experiencing a new price war in the UK.  

"To see supermarkets investing in keeping prices low is a positive thing for shoppers in the UK and will especially be welcomed in January when people are traditionally cutting back on their weekly bill. The price war between supermarkets looks set to continue as retailers are focused on giving the consumer the best value possible."

New Tesco CEO Dave Lewis has an enormous job on his hands if the company is to return to the days before the serious encroachment of the German retailers, not helped in the slightest by a series of accounting scandals and senior-level gaffes.

READ MORE: What next for Tesco after the £263 Million Profit Blunder?

Signs over the Christmas period can be taken as cause for some optimism, for trading improved significantly as the new boss revealed his plans for the company. Like-for-like sales in the six-week Christmas period were actually down 0.5 percent, but this is compared with a 4.4 percent fall in the previous three months.

Tesco wants to reduce its capital expenditure from £2.1 billion (this financial year) to £1 billion, and cut annual costs by £250 million, ironically the same amount it initially overstated profit for H1 of 2014. That error also led to the suspension of several senior personnel.

Part of this involves selling assets, and Lewis is looking at sale the Dunnhumby data business (driver of the clubcard scheme) having already put up for sale its new fleet of private jets.

The initial part of his plan he said was “the first important steps in the right direction”.

Several other factors have been cited as to blame for Tesco’s current predicament. Firstly, its aggressive international expansion has failed to deliver the returns it thought was possible having seen twenty years of domination in the UK market.

At the same time, online retail and convenience shops took away custom from out of town megastores, which are now subject to stiff competition from the discounters. Morrison’s has made the most obvious move against Lidl and Aldi by introducing its Match and More card, which promises to refund the difference in price on key brands.

Will the company be able to regain the trust of customers and genuinely challenge the growing might of the discounter? If so, will it ever be the same again? 

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