Tesco is to cut prices as it relaxes its view on operating margins and steps up its investment in convenience channels.
That's according to a report by news agency Reuters, which quotes the chief executive of the world's third-largest retailer, Philip Clarke, as saying the measures accelerate a turnaround plan aimed at countering increased competition in the British retail market, but which has so far failed to boost its languishing sales.
Speaking at an investor and analyst seminar on Tuesday, Clarke allegedly effectively abandoned Tesco's target for a UK operating margin of 5.2 per cent, the highest in the industry, by saying 'the margin will be what the margin will be.'
At a later media briefing, Reuters reported, chief financial officer Laurie McIlwee said the firm would not be giving a new target because of uncertainties in the grocery market due to more competition and structural changes.
'If I was to give you a margin it would be a false sense of precision. We need the space to operate, we don't want to be backed into a corner,' he said.
In common with Asda, Sainsbury's and Morrisons, Tesco is being squeezed by the hard discounters Aldi and Lidl, and losing market share.
Thus, a commitment to reduce promotions and invest an additional £200 million cutting prices on basic products like carrots and cucumbers will be seen as a direct response to the rise of the discounters, as well as moves by its biggest rivals, such as Asda, which has pledged to spend more than £1 billion on price cuts over the next five years.
Kevin Grace, Tesco's group commercial director, was grilled on the subject during a panel debate at the second day of the NFU Conference this afternoon (26 February). He stressed that Tesco will take a hit on margins if they cut prices, rather than producers and suppliers.
According to the same report by Reuters, Clarke also has plans to open 150 convenience stores a year, while other initiatives include a planned doubling of click-and-collect locations and the expansion of a scheme allowing loyalty card holders to save money on fuel.
He also said the UK's largest retailer would reduce net new space significantly, resulting in lower overall capital expenditure.
And, Reuters reported, Clarke reiterated that the pursuit of disciplined international growth remained a priority. An example he gave was that Tesco is in talks about a possible restructuring of its business in Turkey.
