On December 30th 2013, approximately, a year before I wrote this article, individual Tesco shares were worth 336.35p. On December 24th 2014, Tesco shares were 186p. Over the course of the last year, the share price has nearly halved. Whilst other major supermarkets have seen a share price fall over the same period, none of them have seen as dramatic a fall as Tesco.
A battle on two fronts
Likewise, Tesco’s market share has fallen having to fight a battle on two fronts, with an encroaching low-end category of supermarkets taking a sizable bite out of its profit and driving a supermarket price war, as well as the increasing popularity of Waitrose and either marginally higher end chains. Waitrose has seen particular success with its Essential lineup, which has attracted many former Tesco customers. In summary, Tesco is being stretched between undercutting cheap competitors and trying to build a more upmarket image to compete with higher end chains.
However, the main issue facing Tesco is not an external climate or the competitiveness of rival brands, but internal problems affecting shareholder confidence. On 14th October 2014, headlines were made when it emerged Tesco had erroneously exaggerated their profits by a gargantuan £250 million. What immediately ensued can best be described as a crisis of confidence. Investors dumped stock and stopped buying. The week ended with Tesco nearly ten points down and eight senior executives were suspended as a result.
Needless to say it’s been a bad year for the supermarket. In addition to aggressive competitors, collapsed stock and accounting problems, they’ve also failed in their stateside expansion and have pulled the plug on the Tesco America programme. So what does 2015 hold for one of th UK’s largest and most influential corporations?
2015: A year of change?
It’s almost irrefutable that 2015 will be a divisive year for the company. Tesco will more than likely have to choose a market end in which to focus their efforts, although it is unclear which one at this stage. Whether they attempt to go toe-to-toe with Waitrose and Marks & Spencer or try and fight the cut price with no frills retailers like Aldi and Lidl remains to be seen. But regardless, the change in political climate come the May general election will almost certainly impact the economy and the way people shop as a result.
It will also be the first full year for the company under the command of new CEO David Lewis (he started in September) after former CEO Philip Clarke stepped down. It is unclear what style of leadership the new CEO will bring to the supermarket, having come from Unilever, a company that operates entirely differently.
A sign of things to come?
One of the few positive vital signs for the company have been sales over the holiday period. Tesco have been phenomenally successful in terms of grocery sales, particularly their Finest range. An advertising campaign for their Finest range, targeting the high end grocery market (with a clear focus on eating into Waitrose’s chokehold on that market sector), has proved effective and potent and may possibly be an indicator for the direction they are headed come the new year.
What do you think? What is the future of Tesco? Have your say in the comments section below.