Is Tesco cutting too much?

Tesco announced a series of cuts this week – scrapping overnight restocking, in-store counters and the Jack’s discount chain – which put 1,600 roles on the chopping block.

The grocer’s UK and Ireland managing director, Jason Tarry, said the changes would make Tesco more efficient so it can reinvest the savings in things that matter to its customers.

Tarry explains: “We operate in a highly competitive and rapidly changing market and our customers are buying differently, especially since the onset of the pandemic.

“We’re always looking at how to run our business as simply and efficiently as possible, so we can reinvest in the things that matter most to customers.”

And what matters most to customers right now is price. Inflation is at its highest in 30 years and budgets are tight. This will only get worse when the price of energy rises and the National Insurance hike kicks in in April.

Richard Lim, managing director of Retail Economics, said: “April brings a perfect storm and it is going to hit less well-off households particularly hard. In this environment, customers will be looking for value and will be down. I would expect a flight to the discounters we saw in the last recession.

There is already evidence that this is happening. Kantar’s latest figures for the 12 weeks to January 23 showed growth in sales and market share from Aldi and Lidl, the first time this had happened since June last year.

Keep inflation at bay

To avoid losing to discounters, the Big Four must keep prices low.

There are undoubtedly Herculean efforts going on behind the scenes to minimize the impact of inflation and Tesco is doing a better job than most.

According to a study by Assosia, the price of a basket of 18 basic products increased by 8.3% in the grocery market, but by only 0.8% at Tesco. That compares with a 15.3% rocket at Morrisons and a 13.6% jump at Asda.

Tesco has kept prices lower than the big four rivals
Tesco has kept prices lower than the big four rivals

Efficiency gains are being sought across Tesco’s business and supply chain.

Managing Director Ken Murphy said last month: “We have efficiency and supply plans which mean we keep prices as competitive as possible for our customers.

“We’ve been in a state of food deflation for 10 years and we may see some inflation, but we’ll do our best to minimize it.”

Tesco may be succeeding in keeping prices low, but is its latest round of cuts justified?

Let’s take them one by one.

plug it in

Ditching Jack’s, the discount chain she started in 2018, is “sad but inevitable” to compete with Aldi and Lidl, according to Bryan Roberts, founder of consultancy Shopfloor Insights.

To truly compete with discounters, Jack’s needed hundreds of stores, not just 13, Roberts says, which requires a lot of investment.

Jack's is no more as Tesco abandons the chain
Jack’s is no more as Tesco abandons the chain

Meanwhile, Tesco has shown it can take on Aldi and Lidl on its own. When it unveiled its third quarter results last month, Tesco boasted its highest market share in four years and achieved 22 consecutive bouts of switching gains, according to Kantar data. .

It’s a much bigger win to have Tesco beating the grocers while being distinctly Tesco, than a much smaller Jack’s chain trying to beat the discounters at their own game.

In a climate where Tesco’s core business is automobiles, it’s hard to see Jack winning the case for investing in store roll-out.

Although some have called Jack’s mistake a costly mistake, Roberts is kinder and says Tesco has “learned a lot, brought a lot of efficiency back to the core brand”. “It wasn’t a total waste of time,” he adds.

Tarry says what he learned from Jack’s “has helped Tesco become more competitive, more efficient and has strengthened our value proposition, particularly through the launch of Aldi Price Match”.

“In turn, this has enabled us to consistently attract new customers to Tesco from among our competitors over the past two years and we know they are increasingly recognizing the value they can find at Tesco.”

“With Jack’s teachings now applied, the time has come to focus on ensuring that we continue to deliver the best possible value to customers in our core business.”

Cutting counters

Another of the grocer’s cuts comes in the form of getting rid of its fish, meat and deli counters in 317 stores. This is nothing new to grocery shopping, in fact Sainsbury’s closed all of its food counters just over a year ago.

It’s sad because so many butchers, fishmongers and delicatessens have disappeared from our high streets, unable to compete with the high prices of large supermarkets, however Roberts admits they were not a thriving part of Tesco’s business .

“If you go to the store, they look pretty empty. The staff behind the counter is not really in a hurry. People just don’t use them,” he says.

Tesco cut meat and fish counters
Tesco cut meat and fish counters

Indeed, Tarry insists the decision was made due to declining demand in recent years and says the 317 stores where the counters will be removed are those with the lowest demand.

However, Roberts points out that Tesco had no right to its counter-model. “Morrison has really succeeded here. The staff at the counter are not waiting for someone to order a rack of lamb, they are packing meat and fish to take to the shop.

He thinks grocers who still offer counter service, which enhances and personalizes the shopper experience, have a competitive advantage. In fact, Waitrose has pledged to focus more on meters following Sainsbury’s closure of its entire supply.

“You get the feeling that Morrisons is going to be rubbing their hands after Tesco’s announcement,” says Roberts.


No more night shift

Perhaps the most controversial reduction is the removal of inventory replenishment during the night shift. It is certainly the costliest in terms of lost jobs, with more than 1,400 jobs at risk.

Tesco plans to move restocking to the day shift, when shoppers are in store. Roberts, who worked in Tesco’s shop for a spell during the pandemic, says it’s a “much less efficient” way to restock.

“You get rid of a lot of people with moderately inflated overnight pay, but that makes the process a lot more difficult. During the night shift, cages can be unloaded all over the floor. This makes restocking faster and easier,” he says.

Daytime inventory replenishment can impact customer experience
Daytime inventory replenishment can impact customer experience

Performing this task during trading hours could make the store messy and untidy, which will hamper the store experience for shoppers.

“At Aldi, you are ready to climb mountains of cardboard to access the products you want. You expect something different from Tesco,” says Roberts.

In fact, he points out that Sainsbury’s had previously opted to move restocking to daytime hours, but reversed that decision as it impacted store standards.

Tesco says moving restocking to daytime hours means ‘more colleagues are available on the shop floor to help customers at peak times’.

However, Roberts says it could hamper both service and resupply business. “Having restocking staff dragged around the store to show a customer where the sauce isn’t ideal,” he says.

There is no doubt that price will be more important than ever over the next year as inflation hammers home buyers and retailers will need to do what they can to keep increases to a minimum.

But price isn’t the only consideration. Shoppers expect a polished store experience with good service. If supermarkets don’t offer this, then they really must offer better prices than discounters which, it must be emphasized, improve their own in-store experience.

Reducing costs without sacrificing experience is a difficult balancing act. One thing is certain, Tesco will not be the only grocer to grapple with this in the coming months.

All the big supermarket groups will be frantically looking for where to save money. We can expect more announcements like Tesco’s this week in the coming months. Hopefully UK grocers don’t end up cutting out what makes them special.

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