Tesco's "most difficult period", warns analyst

19 March, 2012

Tesco is facing its “most difficult period in history”, following Richard Brasher's decision to leave his role in July, according to one analyst.

The unexpected news last week (15 March) that the chief executive of Tesco UK and Ireland was to step down meant the business is under further strain. Brasher spearheaded the supermarket chain’s Big Price Drop concept and brought over 25 years’ experience to the business.

Phillip Clarke, Tesco Group’s chief executive, has now absorbed the responsibilities of Brasher’s position and will be much more heavily involved in the supermarket chain’s core UK arm. This could mean passing on his responsibilities of global regions, such as the company’s US Fresh & Easy convenience store business.

Cliona Lynch, senior analyst at Verdict, said: “A difficult Christmas showed that the investment in the ‘Big Price Drop’ was not reaping sufficient rewards. As the UK’s number one grocer, Tesco, with 28.3% share in 2011, has the most to lose to competitors.

“Verdict estimates Tesco’s space in the UK is to reach 37.7m sq ft in 2012, with coverage in every postcode in the UK. This strong coverage is not being supported by growing sales, with the result that sales densities have been falling since 2009, and we expect them to fall by a further 2.9% in 2012.”

Tesco’s struggles were apparent when its share price fell by -1.28% at 8am last Thursday after the announcement, which at that time stood at 320.52p per share (9.30am) – a significant drop from its 420.05p high point over the past 52 weeks. The firm’s trading update for the six weeks to 7 January 2012, announced earlier this year, highlighted just a slight increase of 1.7% in UK total sales, including VAT and excluding petrol.

Clarke said: “I have decided to assume responsibility as the CEO of our UK business at this very important time. This greater focus will allow me to oversee the improvements that are so important for customers. Richard will leave behind a UK business which has very strong plans for improvement and, over the last two months, these plans are beginning to show progress, in line with our expectations.”





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