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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand

Companies / Corporate News Jul 24, 2014 - 11:10 AM GMT

By: Nadeem_Walayat

Companies

The Tesco stock price continues to slide as Britain's mega supermarket chain continues to haemorrhage market share and profits as the discount retailers like termites have been eating into its business as the too big to know what to do next super market chain's management has been sat in their bunker looking at artificial charts and graphs that deluded them into staying the course despite earnings report after earnings report revealing an accelerating crisis. Well now Tesco takes its first steps towards finally recognising that it has a destiny with extinction by ejecting its CEO Philip Clarke, YES it is that serious! Clarke over the past 3 years took one of Britain's strongest companies and turned it potentially into the next Woolworth's! And at best a lost in the wilderness for a decade plus Morrisons.


I first warned of the dangers of holding Tesco stock in October last year when the Tesco stock price was just 3% shy of its 2013 peak of £3.86, warning that the Tesco management had become focused on club card gimmicks whilst ignoring what customers wanted which was GOOD customer service and VALUE FOR MONEY.

24 Oct 2013 - Tesco Bubble Bursts - Profits Crash As Big Spending Customers Quit Shopping on Poor Service

The bottom line is that whilst Tesco management are busy conjuring up club card vouchers, tokens and sticker promotions to entice customers with, however these schemes are being actively undermined at store checkouts by badly motivated powerless staff who could not care less about Tesco's big picture and this is why Tesco's profits have collapsed and will likely continue their downwards spiral as Tesco stores are increasingly perceived as being places only good for a quick convenience shop rather than a place for the big weekly shops.

Tesco management need to go back to square one and realise that what customers want is value for money, not frustrating gimmicks that result in the waving of promotions in the faces of customers that they are frustrated out of capitalising upon. Tesco's demise seems certain as increasingly Tesco's wealthy customers will be found shopping at Waitrose whilst their poorer customers will be found at Lidl and Aldi (UK profits up 124%).

I then warned again in April following disastrous results that Tesco literally hit the panic button as evidenced by offering back to back £5 off for £40 shop discount vouchers so as to inflate revenues and market share.

18 Apr 2014 - Tesco Profits Panic! Back to Back £5 Off £40 Shop Voucher Promotions

Tesco, Britain's giant supermarket chain is once more reeling following its latest trading results that reveal another bad year with profits slumping by 7% as the discount chains such as Aldi and Lidl continue to consume King Tesco's market share that fell to a 10 year low of 28.6% that sows the seeds for the market leader ultimately to join the ranks of has been's such as Morrisons that has been floundering in the supermarket wilderness for over a decade now.

Tesco's reaction to another set of bad results can best be described as panic! As firstly Tesco management ahead of the expected bad results revised the usual periodic promotion of spend £40 for a £5 off voucher on your next weeks £40 shop to spend £20 for a £5 voucher off next weeks £40 shop. However following the results this was followed by ANOTHER back to back £5 voucher for each £20 spend of your next £40 shop promotion, so shoppers get to TWO consecutive weeks of discount shopping.

For example this would translate into a £200 weekly shop generating £50 off next weeks £400 shop, which would again result in another £50 off the following weeks shop.

During which time that whilst the FTSE trended higher by about 5% the Tesco share price entered into a death spiral that has brought the share price to £2.77 as of the last close, down by over 25% since October 2013 as illustrated by the following stock price.

The problem at the heart of Tesco is that shopping at Tesco does NOT represent good value for money! Tesco thinks it can charge the same prices as Asda and Waitrose whilst delivering Aldi and Lidl level of customer service. The bottom line is customers DO NOT LOVE shopping at Tesco's so are NOT going to PAY Waitrose prices! Which apparently has succeeded in seducing customers into LOVING shopping at their stores due to misguided impression of superiority over shopping at other super markets (toff's).

Clarke instead of encouraging LOVE has instead been fostering customer HATE!, That is the truth Tesco customers have increasingly come to despise the brand as a consequence of BAD customer service that they personally experience and numerous stories in the media of how mega-stores have sprung up all over the place despite resident resistance to create a monotonous shopping experience nationwide.

The best thing TESCO could do would be to DITCH the Tesco brand and CREATE a series of SEPERATE brands and pricing models based on locality. Go up market in wealthy areas and down market in poor areas because middle of the road DOES NOT WORK!

Therefore Tesco remains on the same trend trajectory as Morrisons that has remained lost in the super market wilderness for over a decade now, having lost most of its market share and fighting to survive. Tesco is not there yet but looks set to follow Morrisons example, which is a warning to those stock market investors anticipating a rebound. Those that read my article last October should have taken my warning more seriously as you would now be 25% better off. Ignore my warnings again and you will lose at least another quarter of your wealth by this time next year!

sixpack 24 Oct 13, 21:22 analysis or anecdote?

Hi Nadeem.

thank you for your continuing work. would love to have a reading list that would inform me the way it does you.

For this article, this sounds more like anecdote than analysis. The share price is very high despite everything. Seems like a long term holding for many.

Nadeem_Walayat 24 Oct 13, 21:54 Tesco

Hi

The share price will be high because we are in a stocks bull market, the price has to be analysed relative to competitorrs.

All companies eventually reach a point from where they decline, I think Tesco's best days are behind it.

It is just too big to adapt and will likely continue losing market share to much smaller competitors.

Best

NW

 

Source and Comments: http://www.marketoracle.co.uk/Article46578.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2014 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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