Tesco/UK retail: promises on price are protecting market share

1 min


158
97 shares, 158 points

The last time Tesco faced an economic meltdown, in the global financial crisis of 2008, its focus was on protecting profits. The strategy backfired, allowing discount chains led by Aldi and Lidl to grab a chunk of its market.

This time, according to chief executive Ken Murphy, Tesco has a “relentless focus on value”. At results on Wednesday, he promised to protect customers by raising prices “a little bit less and a little bit later” than the competition.

Investors are not convinced. Tesco’s shares look cheap at a forward price/earnings of just 10 times — a decade low — probably because the German discounters continue to gain market share.

Still there may be some substance to Murphy’s claim. With minimal overheads and wafer-thin margins, Aldi and Lidl are less able to absorb rising costs. Whether his thesis stands up against larger competitors such as J Sainsbury is open to doubt. Indeed, Tesco’s own retail operating profit margins have dwindled in the past year, down 78 basis points year on year to 3.9 per cent in the interim to August.

Though Aldi and Lidl have raised prices by more than Tesco, consumers still see the two as cheaper. With budgets strained to breaking, customers may prefer a grocer with no premium range that might tempt them to overspend.

That much is revealed by the latest market share figures. Aldi and Lidl took a combined 2.2 percentage points in the 12 weeks to early September over the same period last year, according to Kantar. Tesco lost half a percentage point by comparison, not bad, but still a step in the wrong direction. Wm Morrison under private ownership and with big debts to finance may have found it even tougher to protect its market share.

Investors who have marked down the sector heavily this year back Murphy’s case to a degree. Tesco shares have outperformed Sainsbury’s by 7 per cent in the year to date. But the metric that may matter more to the market is Tesco’s market share. Should that keep falling investors will rightly continue to avoid the shares.

Our popular newsletter for premium subscribers is published twice-weekly. On Wednesday we analyse a hot topic from a world financial centre. On Friday we dissect the week’s big themes. Please sign up here.

Source: Financial Times


Like it? Share with your friends!

158
97 shares, 158 points

What's Your Reaction?

Cute Cute
8
Cute
Fun Fun
26
Fun
Hate Hate
21
Hate
Confused Confused
10
Confused
Fail Fail
2
Fail
Geeky Geeky
24
Geeky
Love Love
16
Love
OMG OMG
10
OMG
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Poll
Voting to make decisions or determine opinions
Story
Formatted Text with Embeds and Visuals
List
The Classic Internet Listicles
Countdown
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Meme
Upload your own images to make custom memes
Video
Youtube, Vimeo or Vine Embeds
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format