Tesco Boss Advised to Cut Prices
By Laura Elliott.
UK market leader Tesco has fallen flat in the London market. Analysts are now calling for the retailer to raise its game in the supermarket price war. A slump in sales has made the supermarket giant increasingly unappealing for investors, according to a recent review by ING analysts.
The review has also shed light on a widening price gap between Tesco and its Walmart-owned competitor Asda, following Tesco’s shock profit warning in January this year.
As reported by the Financial Times, the broker commented that “While we appreciate that Tesco is pursuing a range of measures to improve its customer appeal, we feel that deeper price cuts are the only way to prevent Tesco customers from switching to Asda. This may be an unpopular decision in the short term but we believe it will pay off longer term.”
ING also lifted quotes by former Tesco chief executive Sir Terry Leahy from ‘Management in Ten Words’, his business memoirs. In them, Mr. Leahy claims that Tesco resisted the threat in the 1990s of Aldi, the discount chain, by matching its prices and living with price deflation for over ten years.
ING said that similarities to Asda are ‘striking’, adding that “Ultimately, lower prices should lead to higher volumes, higher sales and higher profits, which in turn can be reinvested in lower prices. In our view, Tesco is reluctant to adopt such measures as they are likely to lead to another profit warning. [But] if Tesco continues on its current track and maintains its price premium, we think the company will be unable to convince Tesco-tired customers to come back to the store.”
Short URL: http://www.internationalsupermarketnews.com/?p=7328