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Will price cuts at Tesco restore profits?

Tuesday, April 15, 2014 - 02:30

Apr 16 - Tesco is to slash millions of pounds off prices in an attempt to win back customers after a second year of falling profit. As Ciara Sutton reports the pressure is on chief executive Philip Clarke.

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TV AND WEB RESTRICTIONS~***~ A second year of falling profit at Tesco - this time the world's third biggest retailer saw a 6 percent drop. Trading slowed throughout the 12 months, with sales at most British stores down 3 percent in the fourth quarter. After two decades of growth - much of it under the previous CEO - the current Chief Executive Phil Clarke is under pressure. He now plans to slash millions of pounds off prices to win back customers. Robert Cole is from Reuters Breakingviews. (SOUNDBITE) (English) ROBERT COLE, REUTERS BREAKINGVIEWS "The big question they need to ask themselves is how aggressively they get involved in the price war. Numbers out today show that the trading margin in Tesco business was 5 percent last year. That's innevitably going to come down because of some of the innitiatives they've already taken. But I think the question they really need to ask is do they go in really really hard on prices and re-establish Tesco as a proper value proposition." Tesco has suffered from failed attempts to break into the United States and Japan, a costly expansion in China and fierce competition at home. It's spending a billion pounds on store improvements and new services. But it's still being squeezed by discounters Aldi and Lidl and upmarket grocers Waitrose and Marks & Spencer. It's core market share is now at a 10 year low although Edward Garner from Kantar Worldpanel says the group is still leading the way in some sectors. SOUNDBITE: EDWARD GARNER, DIRECTOR, KANTAR WORLDPANEL, SAYING (English): "There are areas where they are doing very strongly. Digital and omni channel. If you think about digital they are the largest online grocer probably in the world, let alone this country. They have things like the huddle which immediately is a tablet that takes you straight to Tesco and blinkbox. So they have a very large digital footprint. And the idea being that you deal with Tesco in all sorts of environments. Large scale, small stores, online". Overseas trading profit was down 5.6 percent in Asia and 28 percent in Europe. But Tesco hasn't given up on new overseas ventures - it's taking its clothing brand F&F to the States, hoping fashion will do better than the food. It's another gamble - and Tesco needs a winner. The disappointing results have raised questions about the direction and management of a company that's worth 23 billion pounds and employs 530,000 staff.

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Will price cuts at Tesco restore profits?

Tuesday, April 15, 2014 - 02:30