UNITED KINGDOM – Bruno Monteyne, an analyst at Bernstein Research, is calling for Tesco’s new Chief Executive, Dave Lewis, to split the retailer into three separate stores: a high-end “Finest” store, the regular Tesco chain and a discount store. According to The Independent, Monteyne believes that a Tesco split would help stop the slow decline of the retailer.
“Splitting themselves into different channels allows them to use different strategies with different customers,” said Monteyne, a former Tesco Executive himself who was most recently the Supply Chain Director at Tesco Asia. “Rip out 20% of the range, have cheaper shelving and cheaper products in the more deprived areas and give customers a better deal. In London, where people want someone behind the counter who knows the difference between a parma ham and a Serrano ham, that requires more investment.”
Lewis is replacing Philip Clarke who stepped down as CEO last month. Since March 2011 when Clarke first took the job of CEO, Tesco's domestic market share has declined 1.3% to 28.9%. According to BBC, like-for-like sales figures over the past month were also down 3.7%, their worst mark in decades. For more on this decline, check out our previous articles by clicking here and here.
Discount grocers like Aldi and Lidl and upscale chains like Waitrose have pressured Tesco from both sides. “By Tesco promising to have the same prices in the most affluent areas as the poorest areas, it’s basically tied its hands behind its back by committing to an uneconomical model,” said Monteyne. “Tesco could probably be cheaper than Aldi in some areas, but national pricing would force them to do the same in Chelsea as well and Chelsea wouldn’t be successful.”
By splitting into three stores, the “Finest” store could compete with Waitrose and other high-end stores and a discount chain could go up against Aldi and Lidl. Monteyne admits that most people in the sector have received his views as radical but he argues that this is exactly what Tesco needs, according to The Independent.
As of 12:57 pm ET, Tesco stock is $0.59 up for a 2.90% increase in the U.S., and its stock is up $2.50 in the UK for a 1.02% increase.
Lewis will be taking over the top spot at Tesco at the start of October. It will definitely be interesting to see if he takes a ‘radical’ approach when the time comes. Stay tuned to AndNowUKnow for the latest news on this and other retailers.
