Tesco results: The lessons for Dave Lewis's big rivals
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Version 0 of 1. The old adage that the higher they climb the harder they fall was exemplified perfectly by Tesco’s record-breaking loss. Much of the blame can be laid at the feet of Phil Clarke and, to a lesser extent, Sir Terry Leahy: both created a business they thought was immune to the ups and downs of the rest of UK plc. Their arrogance and self-congratulatory backslapping, however, finally caught up with them as new boy Dave Lewis threw not just the kitchen sink, but the entire kitchen, at the markets to end years of over-expansion and grandiose visions of a Tescopoly utopia. The sheer scale of the overhaul – and that massive £7bn writedown – took the whole day for investors to digest, with shares initially rising, only to tank 5 per cent by the end of trading. But yesterday’s results will have implications for the grocery sector more widely, with the heads of Tesco’s rivals trying to figure out if this is the start of a grand supermarket contraction. Tesco, Sainsbury’s, Asda and Morrisons all know they probably have too many stores, in out-of-town locations that are no longer profitable. But it takes guts to be the first to start shutting stores, or at least to slow the rate at which they open. It requires admitting defeat; which is essentially what Mr Lewis has done regarding any hopes that the discredited legacy he inherited has a future. He has already closed 43 stores and scrapped 49 planned ones, yet has admitted that more stores are still losing money. But if he can pull off a £6.4bn car-crash loss and keep the City on his side then surely more store closures can’t be far behind? And if he starts closing more stores, that could embolden his rivals to follow suit, giving them the opportunity to push up profits, improve the good bits and stop propping up the bad bits. The era of “big is better” has come to an end – and the sooner the supermarkets realise this, the sooner they will finally be able to tackle the rise and rise of Aldi and Lidl. |