Tesco Watch

[Mean Mr Mustard]

David McCarthy, HSBC’s head of European Consumer Retail Research, warned that investing in Tesco is investing in the unknown and is a “high risk” activity at present.

McCarthy says:


The market is unsure what Tesco’s true level of profitability is, to what extent the new CEO may choose to rebase profits, and what today’s news will do to morale and the management team (4 senior executives have been suspended while the matter is investigated by external lawyers and accountants).

In short, confidence in Tesco has been undermined again, downwards momentum is accelerating, and it is unclear whether the real underlying level of profits has yet been found and to what extent the new CEO may choose to rebase profits.

Indeed, rather than working on a repositioning, the CEO currently has another (major) fire to put out. We remain Underweight.

McCarthy suspects that the accounting irregularities may be due to Tesco booking promotional rebates from suppliers based on historic precedent, even though current volumes have fallen (because shoppers are deserting to rivals such as Aldi and Lidl).

Looks like their greed has now caught up with them. We deserted them for Aldi and Lidl when they were caught exploiting people on workfare - night shifts for JSA - then initially denying it. Would like to see them gone for good, but they do supply 25% of food in the UK - that's still including Scotland (for now). Too big to fail...?

[adam2]

Not too big to fail at all IMHO.
A bank with a market share of 25% might well be considered "too big to fail" but a supermarket chain is different.
Any failure of Tesco would be most unfortunate for staff and suppliers owed money, but not of any wider significance. Other supermarkets could absorb the extra trade, though perhaps having to extend opening hours and engage more staff to handle the extra trade.

People still need to eat, and have the same amount of money to spend on weekly shopping, spending this money at a different shop would have minimal impact on the wider economy.

And any failure of Tescos would almost certainly result in most of the stores reopening quite soon under different ownership.
I would only expect a small number of the stores to close permanently.

[PS_RalphW]

But it would be broken up and sold to the other big supermarkets, reducing the number by one and making the others even bigger. Soon the rest will be too big to fail.

[kenneal - lagger]

We were getting more competition in the supermarket trade with Aldi and Lidl coming into the market so losing Tesco wouldn't be too bad. Unfortunately, the competition is on price not quality. If the competition remains on price we will see more "horsemeat" scandals as price cannot be continually reduced in an era of increasing fuel costs. Indeed we have had a Tesco store selling adulterated diesel in the south over the last few days and customers cars breaking down as a result. More similar problems are inevitable.

The supermarkets should be split up so that no chain can have more than 10% of the market. That might not be good for customer's wallets but it would be better for quality as the individual supermarket chains would have less power in the supply chain and prices would rise so there would be less pressure to substitute crap for good ingredients.

Part of the answer would be to teach kids about nutrition and to cook in school so that they would buy raw ingredients rather than ready cooked rubbish. But then that would stifle profit for the big chains so would be frowned upon as anti growth!!

[emordnilap]

ken, +1

[3rdRock]

Part of the answer would be to teach kids about nutrition and to cook in school so that they would buy raw ingredients rather than ready cooked rubbish.

Every little helps!

[Little John]

We were getting more competition in the supermarket trade with Aldi and Lidl coming into the market so losing Tesco wouldn't be too bad. Unfortunately, the competition is on price not quality. If the competition remains on price we will see more "horsemeat" scandals as price cannot be continually reduced in an era of increasing fuel costs. Indeed we have had a Tesco store selling adulterated diesel in the south over the last few days and customers cars breaking down as a result. More similar problems are inevitable.

The supermarkets should be split up so that no chain can have more than 10% of the market. That might not be good for customer's wallets but it would be better for quality as the individual supermarket chains would have less power in the supply chain and prices would rise so there would be less pressure to substitute crap for good ingredients.

Part of the answer would be to teach kids about nutrition and to cook in school so that they would buy raw ingredients rather than ready cooked rubbish. But then that would stifle profit for the big chains so would be frowned upon as anti growth!!

The only way that authorities in the UK would engineer the market to raise food prices and so increase food quality is is they are equally prepared to engineer the market to drop things like house prices. There's only so much money in people's pockets and in the end it just comes down to where it is directed.

They are not prepared to do that and so it's not going to happen. Or, at least, not by choice.

[kenneal - lagger]

If food prices went up most people could save the difference by not buying the food that they now throw away.

[biffvernon]

Food in the UK is absurdly cheap, the price rises having not kept pace with general inflation. We grow stuff we can't give away!

[Little John]

If food prices went up most people could save the difference by not buying the food that they now throw away.

I would wager one of the primary drivers of food waste at the consumer end of the food chain is down to the economy of bulk buying which significantly reduces the price per unit of food. In other words, the main way to not waste food is to just buy what is needed on a daily basis. However, food bought in small quantities like that is both very much more expensive and is also not well fitted to the way people have to live now in terms of their available time for shopping. If you want people to consume their food in a less wasteful way, then the main ways to do that is to make it as cheap to buy in small quantities as it is to buy in large quantities.

[kenneal - lagger]

If you look at the price of nearly all the large containers of food in a supermarket it is usually cheaper to buy two of the smaller ones. At least that's what my wife tells me.

Yes, there may be BOGOF offers but the supplier usually pays for these not the supermarket and they are loss leaders to get people into the store. What's the point of paying for one instead of two and throwing one away? You might just as well have bought one in the first place!

[RenewableCandy]

If you look at the price of nearly all the large containers of food in a supermarket it is usually cheaper to buy two of the smaller ones. At least that's what my wife tells me.

Yes I've found that too, recently.

Apparently "loss leaders" are illegal in Germany.

[PS_RalphW]

Twice in the last week I have bought items at the local Sainsbury's where the sale price listed at the shelf was not programmed into the self service tills. Each time this required me to request a member of staff, who checked the price, who had to call a manager to give me the discount price, whilst removing the discount price from the shelf label, adding 5 -10 minutes to a 3 minute visit.

Given the busy nature of the store and the popularity of the items, I am certain that at least a dozen customers will have inadvertently paid the full price on each occasion, and either not noticed or not bothered to get it fixed.

Just a small grouse that IT systems are no more reliable than the staff who operate them.