Improved Service and Price Cuts Lure Tesco Shoppers

27 Jun 2015 | Author: | No comments yet »

Dave Lewis turns on the Ed Miliband charm to win over investors.

Campaigners have hijacked Tesco’s annual meeting with calls to pay its supermarket workers the living wage, amid a shareholder revolt over chief executive Dave Lewis’s multimillion-pound pay deal.

Price cuts and better service helped Tesco win back shoppers in its latest quarter, Britain’s biggest retailer said on Friday, suggesting that the turnaround plan of the new boss, Dave Lewis, is starting to have an impact.Sales at Tesco Ireland fell by 4.4pc on a on a like-for-like basis in the thirteen week period to the end of May, according to new figures from the grocery giant.Tesco was accused of going from Rolls-Royce to Ryanair at its annual shareholder meeting yesterday as frustrated investors lamented a terrible year for Britain’s biggest supermarket.

Thankfully for Tesco, this cringeworthy attempt to connect with the audience was where the comparison to Miliband ended, because Lewis is a powerful speaker who did not forget to talk about the major problems facing Tesco. Tesco has had a terrible 18 months, with competition from the fast-growing discounters Aldi and Lidl, compounded by an accounting scandal, driving it to a record annual loss. In its first performance in front of shareholders, Tesco’s new-look board was given a bloody nose by investors as they expressed irritation over a string of recent failures. The accounting scandal was matter of “profound regret” said Allan, but Tesco is still a “great British success story” and can be a “customer champion again”. Shareholders and the campaigning group Citizens UK urged the grocery giant to raise its pay – with one even calling for a customer boycott if Tesco failed to comply.

Sales at British shops open for more than a year fell 1.3% in the 13 weeks to May 30, Tesco said, partly reflecting a drop in food prices across the industry. The supermarket has honoured £2 million in payoffs due to former executives, leading one investor to accuse it of making former executives “millionaires for failure”. Lewis was at least able to show off a new Tesco motto that appears to have replaced “Every little helps”, which was non-existent at the AGM in London’s QEII Centre. The issue was thrown into sharp relief by a revolt over Mr Lewis’s pay package, which the pension advisory group Pirc labelled “excessive” before the meeting. But that was better than analysts’ forecasts for a fall of 1.6% to 3%, an improvement on the previous quarter, and also better than recent figures from major rivals Asda, Sainsbury’s and Morrison’s.

Tesco Ireland sales had dropped by 6.7pc in the fourth quarter of Tesco’s previous financial year, while the two preceding quarters both saw sales declines of about 7pc. However, “Serving Britain’s shoppers a little better every day” – which could be Tesco’s raison d’être under Lewis – is hardly a pledge for world domination. Mr Lewis can earn bonuses of more than five times his £1.25m basic salary, but shareholders have had to swallow an axed dividend and tumbling share price since the company was sucked into a £263m accounting scandal. Remarkably though, this information, Lewis’s stage presence and a better-than-expected trading update appeared to dazzle shareholders, because in the Q&A session no one managed to ruffle “Drastic Dave”. While welcoming the improvements, however, some investors cautioned Tesco faced a battle to continue its recovery in the teeth of an industry price war.

Speaking in Dublin today, Andrew Yaxley Tesco Ireland chief executive said: “The retail market continues to be very competitive but we’re pleased to see some encouraging indications that our investments in Staying Down prices and improved customer service, in particular, are moving us in the right direction.” There were no questions about whether Tesco’s current strategy is actually working or why on earth it is selling Dunnhumby and its Korean arm when they look good businesses.

Neil Saunders, managing director of the retail researchers Conlumino, said, “Stemming the defection of consumers is the first, and arguably the most important, battle to be won.” Although Tesco said this was “largely offset” by favourable currency movements in Asia, the magnitude of the impact in the Irish setting is quite something.

If not, I highly recommend a customer boycott.” Mr Mason-Mahon continued: “Our society can no longer accept the greed of executives and directors. While currency fluctuations are unavoidable in any large international business, this still constitutes a sizeable erosion of the bottom line benefit Tesco derives from the Irish unit.

Slavery was abolished in the 1800s.” Pat Holloway, for Citizens UK, said Tesco was “benefiting from taxpayers’ money by up to £364m a year” through tax credits providing “vital top-up income” for workers. Mr Lewis – who axed 2,000 staff with 43 store closures and is shutting Tesco’s Cheshunt head office with 2,400 job losses –is also battling with falling food prices and changing shopping habits that have exposed its out-of-town stores.

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