Without trying to ensure the Grocery Insight blog becomes somewhat of a tragic obsession of writing solely about Dave Lewis and Tesco, they are extremely newsworthy at the minute, and part of the wider Grocery Insight service offering is all about monitoring the market, spotting trends and activity in the shops. There’s plenty to look and consider with the Tesco empire.
The 12 days of Christmas Dave Lewis are all about tracking the 12 days before the announcement to the City on the 8th January which will highlight where the business goes next. This, as ever is all guesswork on my part as nothing has been given away to the City, journalists or otherwise.
If you will, it’s a list of priorities that I’d be looking at targeting ahead of a major announcement to the stock market. They all interlock as, well, they’re all linked to the business but some are intrinsically linked. Clubcard for example directly cycles back to price (investment in Clubcard could be ploughed into lower prices) alongside other elements (Dunnhumby?) Tesco invested heavily in Christmas (part of the latest profit warning) and the 49p ‘Festive Five’ was popular and took the fight back to the discounters.
Today, we consider stores and formats in what will be a relatively short blog, considering what Dave Lewis may choose to do with existing stores and formats.
Whilst I have blogged about space being an issue; Twitter came alive with people offering alternate suggestions to the space conundrum. Worthwhile suggestions that stores may be kept open just to prevent competitors getting sites. My golden suggestion of converting large stores to dark stores doesn’t necessarily stack up financially when one considers rent / purchase price of the store / land.
Quite simply it is a problem that no one can solve, or perhaps more accurately a problem no one can afford to solve.
In terms of store formats; HomePlus was discussed on the overseas blog briefly and it is difficult to see this format standing the test of time. The reasons for which are two-fold; 1) the non-food market is in decline and has been for a number of years, particularly with online. 2) Even Superstores now are able to offer clothing and non-food, if they can’t, then then you can have your delivery sent to the Express store anyway.
So, the future for each format under Dave Lewis? What does he need to look at? Are too many stores fundamentally the issue?
Express
The engine room of the business despite allegations that it has fallen by the wayside in terms of like for like sales. Last year saw a positive result recorded and the trend for convenience shopping helps Express. The majority of stores are in superb locations and offer a lot within a small shop, the move to offering click/collect has undoubtedly helped the business drive footfall to these sites.
There is a school of thought that customers don’t use a large Tesco store because their perception of Tesco is so poor via the Express they use. Perhaps unfair but the Express format is for many people their primary perception of a Tesco store. I would level that the investment in staff also needs to be seen at a convenience level.
Many times you can shop in a store and the only colleague you see is a sole worker at the checkout. No one expects 3 men down each aisle but you do get the feeling things are stretched. I know for a time Tesco were obsessed with the Aldi and trying to emulate their model, there is a lot of complexity in small stores and some Express stores are particularly hard pressed.
They do a great job in the local area too, but some are tired looking and perhaps need a rethink in order to compete with newer, fresher competitors who may have opened in the vicinity. Even adding a Coffee machine and some new signage would help in some stores, but the overall feel of the format could do with an uplift.
London of course sees some of the new model Express stores and these are, without question excellent. I’ve visited a few stores and have been impressed. However the learning now needs to be applied, upmarket Expresses alongside those in ethnically diverse areas have a proof of concept from London. Work should be carried out to enhance the offer as appropriate as the concept in London works.
Metro
For so long the forgotten format, there were even rumours that it may be cast aside and rebranded as either Express or Superstore but it does live on. The format itself has been given a new lease of life by London too. The Regent St Metro store just off Piccadilly Circus and Pall Mall is a ridiculous operation, trading food to go at unbelievable rates – the footfall is astonishing.
The first store to cut over to this style was Tooley Street, that is another store to perform well on food to go alongside offering a range of products for tourists, workers the nearby affluent bankers on their way home.
Further north, some Metro stores do good money and suffer high footfall, the store in outer Leeds isn’t a great store and seems stuck between a small superstore and an Express. For many stores, they too need a facelift and based on the central Leeds store (ex Safeway) it would benefit from a repurposing, not just a refit.
Metro stores can be mixed mission, but some are heavily town centre based so benefit from the high street / lunchtime trade, in the case of Leeds – the store is poorly set up to capitalise on this level of footfall where competition is fierce.
Some sites within Express are really solid, but Metro perhaps more than any other format; needs matching up to the demographic / mission it serves.
Superstores
Another format that vary wildly, one store in Bradford is larger than some Extra stores and as such is over spaced, with other superstores being the hub of a local community. This is the major repurposing job that Lewis needs to do, where propositional Extra’s were by and large a failure, the Superstore format hasn’t had much work done to it.
The work under Philip Clarke tended to centre on affluent stores such as Chelmsford and Bishops Stortford without anything ever going further into stores in the northern areas for example. Some really strong trial results on Fresh foods never saw a tailored roll out to suitable stores, it was all centred on trial stores.
Superstores are the biggest format within Tesco and herein lies the major opportunity, there is further work to be done around matching these stores to their local demographic. The format has suffered from a ‘one size fits all’ policy and this just hasn’t worked, real opportunity with superstores going forward.
Extra
Who gives you Extra? Well Tesco does with their format, fuelling growth and funding overseas operations, it has all gone a bit wrong since then. This format suffers with an abundance of space which is causing issue for the format and profitability – lower sales but lots of space still requires people to be around delivering customer service.
There is a lot of work to do here, again locally, a store in Leeds has an extensive premium make up area despite the demographic being hard pressed locally. Whilst there is a lot of space, the returns on this sales per sq.ft will be poor I imagine.
The propositional Extra stores were advanced for the time, and a departure from what Tesco had done before but didn’t make a positive difference to sales, certainly not quickly enough for the significant cost incurred whilst revamping stores. Clarke pressed ahead and as he left the business, the refit programme was abandoned and scaled back across the board.
A question mark remains over the future for the propositional Extra stores, alongside the wider Extra format. A decent refresh enhances the store environment but without re-purposing the store towards the local demographic; be it increasing world foods or sharpening up on value as appropriate – long term growth can be difficult.
Of course; the non-food conundrum remains an issue – converting some space to bulk buy cash/carry could be a workable solution in the right demographic. Focusing on own label bulk buying could be the future for some stores; they have parking spaces and ability to cope with bulk.
It could be a good solution for a number of stores, pricing would have to be carefully thought about but as a concept – it could work.
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Grocery Insight provide market insight on the UK sector with a focus on individual retailers such as Tesco. This insight is useful to various stakeholders and due to my store based focus. Insight can be delivered to suppliers to focus on growth opportunities, analysts and investors to assess the business performance and long term outlook and retailers themselves to assess best practice.