Tesco unveils revival plans in wake of profits fall

Overall group profits were 1.6% per cent higher at £3.9 billion but at a trading level the company said the UK dropped one per cent to £2.5 billion for the year to February 25 as sales came under pressure from resurgent rivals.

Chief executive Philip Clarke said the grocer will spend £1 billion over the coming year improving the shopping trip for customers, including through the revamp of stores, recruitment of more staff and better prices and value.

He said: “We fully recognise that we need to raise our game in the UK.

“As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too.”

Like-for-like sales in the UK excluding petrol and VAT fell 1.6 per cent in the final quarter of its financial year, including a 2.3 per cent slide over Christmas.

Underlying sales of clothes, electrical items and other general merchandise were down 3.9 per cent over the year in the UK and the group said improving this section of its business was a priority.

But Tesco said it was happy that it will meet City profit expectations for the current year, allaying fears of another profits warning after it shocked markets in January.

Mr Clarke said many of the changes Tesco needed to make were in progress but the pace of change will accelerate over the current year.

His turnaround plan involves recruiting more than 8,000 staff to improve levels of customer service, particularly in its fresh food departments and its larger stores. It will spend £200 million on extra staff and on the training and tools they need to improve levels of service.

The group has already trialled the higher staff levels in 200 stores and has been encouraged after they delivered a 1.1 per cent sales boost.

Mr Clarke, who started his career stacking shelves in Tesco, said the retailer has also stepped up the pace of revamping its existing stores to give them warmer colours, better lighting and more attractive signage.

However, there will be a 38 per cent reduction in the amount of new store space Tesco opens this year, as it reins back big store openings and focuses its efforts on expanding its Express convenience stores and more picking centres to improve its online delivery service.

Tesco admitted that its £500 million Big Price Drop launched last year had failed to impress customers. It plans to revamp the initiative to focus more on giving customers special offers and money-off coupons after recent programmes proved a hit.

Other improvements will include a “complete relaunch” of the Tesco brand ranges, a process that has already begun with its Value range being renamed Everyday Value, with its austere blue stripes being replaced by softer colours. Some 2,000 new lines will be introduced this year.

Tesco plans to spend £150 million this year revamping its website and has already started allowing other companies to sell their products through it in a bid to compete with Amazon.

It will add a further 700 click-and-collect pick-up points to its stores over the next year, almost doubling the number available as part of plans to grow its online business.

Shares rose two per cent to 334p but are still 18 per cent short of the level seen prior to a profits warning in January that wiped £5 billion from the company’s value in a day.

Independent retail analyst Nick Bubb said there were few surprises in Mr Clarke’s plans but added that the sales figures for the final quarter were not “quite as bad as worst fears”.

The group’s overall profits were underpinned by a buoyant performance in Asia where profits were up 22 per cent to £737 million, although it warned that high inflation and the slower economy in China may impact future growth.

Its Fresh & Easy business in the US racked up further losses of £153 million, an improvement of 17 per cent on a year earlier, but Tesco warned it will take longer than expected for the venture to break even.

Tesco Bank saw trading profits fall 36 per cent to £168 million but it said migration to new systems will complete next month, which will pave the way for faster growth and the launch of mortgages.