Tesco Plc (TSCO), Britain’s largest grocer, is seeking to revive its hypermarket business with children’s playgroups, gourmet coffee and nail bars as customers on tight budgets move to competitors.
“If this works, there’s a great chance to speed it up,” Tony Hoggett, managing director of the Extra chain of 250 stores, told reporters yesterday at a revamped store in Watford on the outskirts of London. “All of the initiatives are scalable and funds will be found.”
Tesco invested 1 billion pounds ($1.6 billion) last year to slow the encroachment by discounters like Aldi and upscale chains such as Waitrose Ltd. into its home market. Shoppers, squeezed by rising inflation and stagnant wages, have also defected to the Internet and local stores. Tesco’s market share fell to 30.1 percent in the 12 weeks to July 7 from 30.7 percent in the same period last year, Kantar Worldpanel data show.
In April, the company said it would scrap 100 major store developments and wrote down the value of sites that were acquired five to 10 years ago by 804 million pounds to reflect a drop in property values.
In June, the retailer reported a 1 percent drop in U.K. same store sales in the 13 weeks ended May 25, compared with the previous quarter’s 0.5 percent gain.
Shares in Tesco, which generates two-thirds of annual profit from its home market, have risen 9.9 percent this year compared with a 10.7 percent gain in the benchmark FTSE 100 Index. (UKX)
The Watford outlet, which re-opens on Aug. 12, is a test site to see how customers respond to new ideas, Hoggett said. Fresh produce and delicatessen counters are front of store while gourmet coffee as well as tapas are on sale from upmarket chain Harris & Hoole and the Giraffe restaurant. A former bay for shopping carts is now an outdoor eating area.
Local children’s playgroups, back-to-work programs, yoga and Zumba dance groups are being offered surplus space in the store for free.
Tesco’s challenge now is to make its out-of-town hypermarkets “exciting, relevant and convenient,” Hoggett said. Tesco will open two more revamped Extra stores in the northern England city of Coventry and Purley, near London, next week, he said. He declined to say how many more stores are earmarked for the makeover.
“It’s an impressive job and should create some excitement for customers and shareholders,” said Andrew Gwynn, an analyst at Exane BNP Paribas. “However, the challenge is to repeat that excitement across the whole Extra estate whilst trying to stick to a budget.”
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