Tesco’s Triumphant Turnaround: How Britain’s Biggest Supermarket Fended Off the German Discounters
A New Era of Competition
When Ken Murphy, Tesco’s chief executive, presented the company’s half-year results in October, he emphasized the intense competition facing Britain’s largest supermarket. However, despite the challenges, Tesco’s profits rose by a fifth to £1.39bn, and its market share reached its highest level since 2017.
A Transformed Business
Industry experts attribute Tesco’s success to its transformation under Murphy’s leadership. Clive Black, head of research at Shore Capital, notes that Tesco can now “stand nose-to-nose” with discounters on price. The supermarket’s ability to maintain its market share and grow is a testament to its revamped business strategy.
The Rise of the Discounters
A decade ago, Tesco was struggling to compete with German discounters Aldi and Lidl. The discounters’ focus on low prices and limited product ranges allowed them to rapidly gain market share. However, Tesco’s predecessor, Sir Dave Lewis, recognized the threat and implemented a sweeping plan to slash ranges and reduce prices.
Project Reset: A Game-Changer
Under Project Reset, Tesco axed 30% of its products, allowing it to negotiate better deals with suppliers and reduce costs. The supermarket then launched its Aldi Price Match campaign, becoming the first British supermarket to do so. This move effectively cut off the competition, making it harder for discounters to differentiate themselves on price.
Loyalty Cards: A Key Factor
Tesco’s aggressive loyalty card drive has also contributed to its success. The introduction of “Clubcard Prices” in 2019 provided automatic discounts to members, making shopping at Tesco more attractive. Today, around 22m households in the UK have signed up for a Tesco Clubcard, giving them fewer reasons to shop elsewhere.
A Narrowing Price Gap
While shopping at Aldi and Lidl is still cheaper than Tesco, the price gap has narrowed significantly. A Tesco basket of 65 items is now only £12 dearer than the same goods at Aldi and £9 more expensive than Lidl.
A Clear Strategy
Murphy’s leadership has built upon the foundations laid by Sir Dave Lewis. The sale of Tesco’s banking business to Barclays earlier this year demonstrates the company’s focus on retail and its commitment to returning cash to shareholders.
Embracing Competition
Rather than fearing the competition, Murphy welcomes it, believing it keeps Tesco on its toes and benefits customers. As Britain’s biggest supermarket, Tesco is now well-positioned to maintain its market share and continue growing.
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