They don’t sell rocket fuel at Tesco, but its new chief executive “Drastic” Dave Lewis stuck an Ariane under the company yesterday.
Point by point, he ticked practically every box that needed ticking in one of the most comprehensive and intelligent opening salvos in a corporate restructuring of recent times.
Scrap the dividend: check, close loss-making stores: check, scrap costly out-of-town developments: check, reduce staff costs: check, cut HQ overheads: check, sell off daft distractions from the core business: check. Hire a great retailer to drive the UK turnaround: check.
Now the business is cheaper to run, he can invest in shoring up the balance sheet and slashing prices without resorting to the rights issue that investors had feared. That would have been too drastic, Dave.
Sure, there will be carping over the dividend cut. But even the most churlish shareholder can see they should trust this man’s instincts. The biggest one-day share price jump in Tesco’s history indicates they get that.
Also importantly, Mr Lewis made clear this is only for starters. So, expect to see him flog off the poor performing Asia division, possibly through a stock market floatation, expect a sale of Dunnhumby, the data monitoring business that spawned the Clubcard.
And amid all that corporate activity, don’t forget trading over Christmas was none too shabby either: still in negative territory at minus 0.5 per cent on the year in cash terms but more than 5 per cent up by volume. In other words, either Brits are consuming more (unlikely) or Tesco is eating up market share.
Now, about those price cuts: Mr Lewis said these will be done with precision, targeting a relatively small number of the most popular branded goods. That means he’ll be able to match Aldi prices but with famous brands rather than the take-a-chance labels the discounters offer.
It should also help him drive down prices when he reduces the number of product lines in store: will shoppers really notice if there’s only one Italian brand of spaghetti rather than two? Unlikely – leave that to Waitrose.
Anything else? Yes: Mr Lewis showed himself aware of the potentially lasting reputational damage done by the £263m missing profit scandal. Relationships with suppliers are being simplified, accounts made less opaque, starting from yesterday’s set. To quote Bernstein Research’s analysts: “We at least get the impression there will be less of the smoke and mirrors of the past.”
As the credit rating agencies were quick to point out, implementation will be hard and remains a risk. But Mr Lewis’s actions over Christmas – more staff in store, better stocked shelves in the evenings – were put into practice well. Grounds for confidence.
There’s still plenty wrong with Tesco, but this is a start straight out of the Finest range.Reuse content