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Trading Lessons

Tesco Supermarket Crisis Worse To Come as Customers Vanish!

Companies / Corporate News Oct 18, 2014 - 01:06 AM GMT

By: Nadeem_Walayat

Companies

It's a year since I started warning that Tesco was in crisis and that investors should bail out immediately (£3.80) and so far with the share price more than halving (£1.74) this mega corporation trend trajectory towards becoming a penny stock remains in tact. However, I fear things are about to get worse, much worse even to the point that within a few short months we could even be contemplating unimaginable, EXTINCTION!


Firstly a quick recap of Tesco's trend towards becoming a penny stock

22 Sep 2014 - Tesco Super Market Giant Fast Disappearing Down a Financial Black Hole

Tesco, Britain's giant supermarket chain continues in its death spiral trend towards eventually becoming a mere fraction of its former size as barely a few weeks after its latest profit warning of a 25% collapse, today we find out that its financial controllers (bankers) and accountants can't control or count anything as the management wakes up to find that £250 million of expected profits no longer exists the news of which wiped out £2 billion in market capitalisation as panicked stock holders belatedly start to jump ship as the mega-corp is literally disappearing down a financial black hole.

31 Aug 2014 - Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed

Tesco stock Investors in a state of denial if not shock who clung on in hopes for a recovery have now been dealt a cold hard reality as they see their dividend slashed by 75% to just 1.1p a share, so that Tesco can bolster its balance sheet by an extra £1 billion per annum that too ultimately will vanish down the expanding black hole that seeks to consume the super market giant.

24 Jul 2014 - Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand

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).

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!

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.

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%).

Where Have All of Tesco's Customers Gone?

Pulling into my local Tesco mega-store Thursday at 7pm (Abbeydale Sheffield), puzzled as to why the car park was virtually empty, surely the stores not closed? No, it was open as usual, only one problem NO customers! Eerily quiet for a Thursday evening, one could literally play find the customer as aisle after aisle was devoid of shoppers. How are Tesco going to be able to cover their costs without any customers?

So where have all the customers disappeared to be ? Obviously the relentless Tesco bad news in the mainstream media that focuses in on Tesco's competition from Aldi and Lidl has finally prompted many of Tesco's loyal weekly shop customers to finally do the unthinkable which is to actually try out the competition to see what all the fuss is about. After having overcome the shock of less choice and therefore quicker shops, the greater shock would be at the checkout when the bill comes in approx 25% cheaper than a similar shop at Tesco's would, and there lies Tesco's crisis for the supermarket giant looks as though it has finally slipped over the event horizon of the black hole that has been slowly devouring it all year.

Those that say this is just all anecdotal experiences, well this is what successful investing is all about! Where one recognises disconnects between the REAL world and the picture painted by financial world. After all that is what first flagged me over a year ago that Tesco was in deep trouble.

Warren Buffett Bails Out of Tesco

To compound the mainstream media bad news, this week we had supposedly the worlds smartest investor starting to dump his huge holding of Tesco stock at a huge loss.

BBC News:

Warren Buffett's Berkshire Hathaway investment company has sold more than 245 million shares in supermarket giant Tesco.

The sale brings Berkshire's holding to below 3%.

Earlier this month, Mr Buffett, nick-named "the Sage of Omaha", said his decision to invest in Tesco had been a "huge mistake".

Berkshire Hathaway owned 3.7% of Tesco at the end of 2013, a stake worth about £1bn.

The supermarket's share price has plunged more than 50% over the last 52 weeks after falling sales and accounts mis-reporting has unsettled investors.

"I made a mistake on Tesco. That was a huge mistake by me," Mr Buffett told CNBC in early October.

Another major investor, Blackrock, also began selling down its 5% Tesco stake in September.

The bottom line is to expect far more bad corporate earnings news out of Tesco's as it grinds its way towards zero for the fundemental reason that it just CANNOT compete against the likes of Aldi and Lidl, it just cannot cut prices and stay alive! Furthermore, I would not be surprised if Tesco does not even make it to the end of this financial year (31st March 2015) as it effectively becomes a zombie supermarket awaiting takeover or breakup, so Warren Buffet, depending on how much stock he has left,could still end up looking like a genius for not losing everything.

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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