Tesco cuts range by 30% to simplify shopping

http://www.theguardian.com/business/2015/jan/30/tesco-cuts-range-products

Version 0 of 1.

Tesco’s new boss Dave Lewis is pulling up to a third of products off its shelves as it calls time on policy that left shoppers baffled by a choice of up to 90,000 products on their weekly shop.

The struggling supermarket, which has lost market share to low-cost, low-choice retailers such as Lidl and Aldi, has called in outside consultants to cut back up to 30% of its products in an attempt to cut costs and make the weekly shop simpler.

Tesco stocks up to 90,000 different products – in industry jargon, stock-keeping units or SKUs. For each big brand, every pack size and flavour is a different SKU. In air fresheners alone Tesco offers 228 different options ranging from basic own-label sprays to posher varieties that come complete with propellers or disguised as stones.

With tomato ketchup, Tesco offers a bewildering array of 28 sauces while in Aldi there is just one ketchup in one size.

Bryan Roberts, an analyst at the market research group Kantar Retail, said the grocery industry had been guilty of self-serving innovation as big suppliers want to grow their businesses by bringing new products to market, while buyers with financial targets to hit receive cash payments for listing new products. “If you go into Tesco you will be faced with three of four bays of air fresheners,” he said. “It’s painful for the shopper to navigate.”

According to Kantar Retail, the average household buys only 400 products a year, with just 41 items in their weekly shop.

Lewis, Tesco’s new chief executive, announced the shake-up as part of a complete overhaul of the supermarket, which is also struggling to emerge from the shadow of last year’s accounting scandal. By stocking fewer products it will be able to cut prices, make shopping easier and improve availability on its shelves.

Tesco has drafted in management consultants from the Boston Consulting Group to decide which products will have to go. They are expected to reduce the number of lines it stocks to between 65,000 and 70,000, looking at every product from aluminium foil - where Tesco offers 13 different varieties, while Aldi has two and Lidl only one - to white bread, where Tesco has 50 different loaves on its shelves to Aldi’s seven.

Aldi and Lidl are described as limited-range discounters because they stock fewer than 2,000 products. That dramatically far smaller number gives them a lot of buying power and makes the business much simpler to run – meaning prices can be more competitive.

“Ranges in superstores are a real point of difference versus the discounters who, with their smaller assortment, are able to drive down prices and offer a speedy shopping experience,” said Steve Dresser of the retail consultancy Grocery Insight. “A customer likes to look at one tomato ketchup and know it’s of sufficient quality, a good price, and then purchase it. This is where the discounters have gained traction and, crucially in food retail, momentum.”

Wide ranges help the big grocer because they can demand payments from suppliers to put their products on their shelves. Over the past two years, as Tesco has come under increasing pressure, its range has mushroomed by a third. Morrisons, Asda and Sainsbury’s, which have not expanded in the same way, stock 20,000 to 30,000 lines.

Lewis has the job of leading one of the biggest turnarounds in retail after a collapse in sales that left the major UK chain barely turning a profit.

This week Tesco confirmed plans to close 43 loss-making stores, putting 2,000 jobs at risk. Several thousand jobs are going as a result of Lewis closing its Cheshunt head office as he tries to cut running costs by £250m a year.

Dresser said stocking fewer products is another way of saving money. “Having less items also makes it easier for staff to fill up the shelves and they are less likely to have to fill up during the day, which is expensive,” he said. “People do want choice but there has to be a happy medium. Tesco is miles ahead of the pack [in terms of SKUs].”

But slashing the ranges could leave Tesco with a new problem – too much shelf space. Its biggest stores are already a drag on the business as shoppers have switched to doing more frequent shops at smaller local shops.

According to the industry bible the Grocer, the unwanted products will be swept off the shelves in one go, possibly at the end of summer, giving Tesco stores a dramatic new look.

It could also cause big problems for smaller suppliers with specialist products.

A spokesperson for Tesco said: “The review is ongoing and no changes have yet been set.”

Supermarket choice

Air freshener Tesco 224 options, from Tesco gel air freshener to Glade sense & spray relaxing zen. Aldi 12 options, all own brand

Rice Tesco 98 options, from Tilda steamed wholegrain basmati to Yutaka sushi rice. Aldi six options, all own brand.

Ketchup Tesco 28 options, from own brand to GranoVita organic tomato ketchup. Aldi one option, own brand.

Coke Tesco 60 options, including Coca-Cola Life, Zero and Citrus Zest. Aldi four options: Diet Coke and Coca-Cola, in 12-can packs or 4x1.5l bottles.

Coffee Tesco 283 options, from Nescafe to Taylors of Harrogate lazy Sunday coffee beans. Aldi 20 options, 5xNescafe and 15x own brand.

Dishwasher tablets Tesco 26 options, from Tesco everyday value dishwasher tablets to Finish quantum powerball tablets in apple and lime. Aldi three options, own brand in different pack sizes.