The world's third biggest retail player, British giant Tesco is to place more emphasis on cheaper pricing as it changes its approach to operating margins and accelerates its store revamp programme. The retailer also plans to pump more money into online and convenience channels. The retailer's refreshed strategy is its attempt to catch up with super-cheap discount mega-stores.

25 February saw the decision maker at Tesco unveil its new strategy. Tesco's turnover in 2013 hit EUR87bn. The hypermarket still experiences some difficulties, yet its online sales are surprisingly profitable. Skyrocketing online sales at Tesco over Christmas underscored the growing significance of the internet as British consumers become more comfortable with online shopping. Britain's Big Four Wal-Mart's Asda , Sainsbury's, Morrisons and Tesco- are currently losing share to hard discounters Aldi and Lidl.

Great Britain rife with price wars

The retail giant decided to invest EUR480m into price reductions. Tesco has to confront impressive results of such successful price warriors as Aldi and Lidl, even though they are not the British giant's direct market rivals. For instance, the German retailer Aldi is currently promoting its price reductions with a series of new ads featuring people unable to control their facial reactions as they hear about the discount supermarket’s price reductions. Aldi has used its success in a series of awards and blind taste testing competitions to promote the theme it is selling high quality food at budget prices. It has been able to beat own-label foods from the major supermarkets and even defeat much more expensive luxury products. Aldi and Lidl are only around 10 percent of the total market, but they are growing at around 20 percent. They are significantly cheaper than the competition and they are putting more space down. Tesco must start trimming prices if it is to stop a rapid loss of customers. Part of the giant's plan is to move away from temporary price promotions towards more stable, lower prices overall.

Big surfaces threatened by online and convenience stores

Tesco revealed its same-store sales figures, reporting a 3.1-percent drop in that area during Christmas season. At the same time, convenience store Express registered a 1-percent increase in sales, while e-commerce grew by 10 percent. According to retail experts, hypermarkets located at the city's outskirts have been losing fast to convenience stores and online shopping. Tesco decided to invest more into modernization of its stores and training of its fresh food department's staff. The retailer, which makes about two thirds of its revenue in Britain, has suffered more than many rivals because it has more large stores and traditionally sold a higher proportion of large-ticket non-food items, such as domestic appliances, where shoppers cut back most in an economic downturn. Facing new market circumstances, Tesco also 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 on fuel.

Online sales wag retailing dog

In 2013, Tesco' turnover generated via online sales hit EUR152m. Over the course of a year, the share of digital in Tesco's sales is said to have jumped several percentage points from under 5 percent of sales. For a business of Tesco's size - with its 10 percent share of the entire retail market - the result is impressive. Responding to the growing consumers' interest in online shopping, Tesco will rely on its Delivery Saver service which has grown a client base of 190,000 users since its launch in 2012. By joining Delivery Saver, shoppers can make savings on their delivery. Monthly subscription fee starts at EUR9. Members can place an order and book any available delivery slot on Tuesdays, Wednesdays and Thursdays with no additional delivery charge. To use the service each day of the week, members have to pay EUR12.10 per month. Tesco's delivery and savings scheme matches the Amazon Fresh service to be launched in Europe this year.

Sources: http://www.businessinsider.com; http://www.lsa-conso.fr; http://www.dailymail.co.uk; http://www.telegraph.co.uk; http://www.express.co.uk; http://www.bbc.com Photo: http://www.flickr.com/photos/94418464@N08/
*quoted after Tesco's founder Joseph Cohen