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Tesco focuses on the customer

News, 23 April 2015

LONDON: While Tesco's headline results make grim reading – its £6.4bn loss in 2014 was the largest ever seen in UK retail – top executives say their focus on the consumer is starting to pay off.

"More customers are coming through the door and they're buying more with us," said CFO Alan Stewart in an interview for Tesco's own employees.

And chief executive Dave Lewis reaffirmed his intention to rebuild trust in the Tesco brand. "Building of trust is something we have to do every day but we've definitely made progress," he said.

In particular he pointed to the in-store experience, with improvements in availability and service that "make us a dependable ally for customers".

He was also keen to promote "price integrity" as the supermarket chain sought to improve its competitiveness in the UK where it has faced a growing challenge from discount chains such as Lidl and Aldi.

The strategy appears to be working as Tesco's YouGov BrandIndex score – which looks at consumer perception of quality, value, reputation and satisfaction – has increased by 6.8 percentage points to 16.9 over the past six months.

Of the changes coming down the line, Lewis advised employees: "Be really good at what you do. And what are we good at? We're good at serving customers.

"Customers will answer 90% of the questions we have for ourselves," he added.

The size of the loss was largely due to one-off writedowns in the value of the company's property portfolio, as customers signalled a move away from doing big weekly shops at out-of-town superstores.

Bruno Monteyne, senior analyst of food retail at investment firm Bernstein, estimates that 20% of Tesco's store space is "heavily underutilised" and there has been much speculation as to the ways in which that could profitably be used.

Ideas have ranged from opening Sports Direct concessions to converting bigger stores into mini-malls, but veteran retail analyst Richard Hyman, founder of Verdict Research, was sceptical.

"Generally these joint ventures, they don't work," he told the BBC, adding that they came out of a position of weakness. The big supermarkets, he suggested, have just got to get better at their core business of selling foods.

And that, in turn, is likely to mean a renewed focus on price. "I think the price war is down the road – it's going to happen," said Hyman.

Data soured from Tesco, BBC, Marketing Week; additional content by Warc staff