Imagine a world without Tesco. Difficult isn’t it? So ubiquitous is Britain’s biggest retailer that no high street seems right without it.
But then didn’t we used to say the same about Woolworths?
We shouldn’t underestimate the crisis Tesco currently finds itself in after half yearly profits were found to be exaggerated by £250m.
This is serious stuff. I’ve been there myself at Wickes. I had to overhaul the business and lead a rescue rights issue after it was found to have overstated profits. Turning corporate disasters around takes a monumental effort and in Tesco’s case the worst may be yet to come.
Billions have been wiped off Tesco’s market value and its brand is taking a battering. It’s like a giant supertanker with a hole in the bottom, leaking water and pointing in the wrong direction. But the reputational damage is just one of the challenges they face.
Too much debt on the balance sheet, years of declining sales and rapidly changing market conditions have seen cracks start to emerge in a formidable brand. But some of these problems are not unique to Tesco. The rest of the big four supermarkets that control UK food sales all face the same challenge of adapting to a market that’s in flux due to changing consumer behaviour. As the market shifts online the Big Four supermarkets’ huge fixed bricks and mortar costs could have serious consequences.
It’s not inconceivable that we could see one of the big four go bust in the next five to ten years.
And if this were to happen the ramifications would be massive. These businesses affect all of us. Our lives are inextricably linked to their fortunes. Every pension fund will have a stake in Tesco. And that stake has already lost half its value in the last year.
But that’s a possible scenario some way down the track. For now we should ask ourselves why we allowed Tesco to get so big in the first place?
I remember back in 2001 telling the Retail Week industry conference that we were heading for a world where the choice was Tesco, Tesco or Tesco. The Competition Commission had rolled over to let Tesco monopolise the market and was now bizarrely claiming that convenience stores were a different market to supermarkets even though they sold the same items. I got a standing ovation for that speech but it mattered little.
Tesco were just too powerful and the government did nothing. Thousands of independents went to the wall and the end result is that in some communities today you are now never more than a few hundred yards away from a Tesco. Some 13p in every pound that goes through British tills is spent with them.
I knew then that this wasn’t good for Britain and my view hasn’t changed. We cannot be so dependent on one company to distribute the nation’s food.
There’s a reason market leaders end up in trouble and it’s usually called hubris. The banking crash and subsequent recession changed the supermarket landscape. It was obvious that the consumer was now demanding lower prices and Tesco should have led this changing market.
But Tesco was tied up in trying to clear up the folly of a disastrous adventure in the US. They were too busy thinking of global domination to recognise the domestic troubles under their nose.
But while we await to see what else emerges from what one newspaper called “a corruption of virtues” that made people “go over the lines”, we shouldn’t discount the possibility that Tesco may ultimately need to be broken up.
I would support a government led initiative to break up the group. The government has allowed Tesco to become too big and the department could bring it to below the 25% market share threshhold.
As it stands Tesco is too big to fail. Dave Lewis already has enormous pressure on him and he has to succeed. Because there’s a lot more than just Tesco shareholders relying on him getting it right.
