The most famous statistic regarding Tesco (LONDON:TSCO) is that for £1 in £7 spent on the high-street takes place in their tills alone. It’s the largest retailer by sales and one of the largest private employers in the United Kingdom- with more than 320,000 staff in 3140 stores.
Truly an amazing operation.
So how has it come to the news released today of a dire profit warning, dividend cut and the shares at 11 year lows? Could it be, like most high streets retailers, the switch in consumer habits to purchasing items from comparison sites on the internet affecting in store profitability?
I don’t think so, in 2009 Tesco came out top in one online poll of how well its online delivery service was executed. Importantly, this also included US retailers. Could it be that market share is being eroding by budget rivals Lidi and Aldi?
Possibly,as these two new additions have made huge headway in the competitive UK supermarket sector against the industry leaders Morrisons (LONDON:MRW) , Sainsbury(LONDON:SBRY), Waitrose and of course Tesco. Additionally, their rise in popularity had not been expected, but came in the form of a new sales tactic of selling ‘one of good’s’ every week at extremely discounted prices to attract consumers to their stores.
For me, the real downfall comes in the combination of budget rivals but also comes from the expansion into non-core super markets actives namely Estate agent iSold, luxury coffee house Harris and Hoole and gastro eatery Giraffe.
Whislt the super market business is hugely cash generative, it seems the business plan to expand into others areas means they have taken focus off from their core business activities – with the outcome all too telling from the share price performance, down 30% alone this year.
Time to go back to basic’s? Definitely.