March 5 (Bloomberg) -- Tesco Plc said it will add 20,000 U.K. jobs to increase peak-hour staffing and improve service at its fresh produce, meat and bakery counters as it seeks to halt a slide in its dominant share of the country’s grocery market.
The recruitment plan is part of a “substantial program” that will also see Britain’s biggest supermarket chain renovate hundreds of stores and open new locations over the next two years, the Cheshunt, England-based company said today.
Tesco’s market share has fallen to a seven-year low of 29.7 percent as competitors win shoppers with a focus on discounts and innovation. The retailer in January posted sales that missed estimates and forecast “minimal” profit growth in 2013. Chief Executive Officer Philip Clarke has pledged to offer more fresh-food and product choices to regain customers.
Investing in both the workforce and product quality are necessary steps in rebuilding Tesco’s reputation, Jonathan Pritchard, an analyst at Oriel Securities in London, said in a note today. The measures will be at the expense of profit margins and Tesco’s sales will continue to underperform those of competitors over the next two years, Pritchard said as he cut his recommendation on the stock to “reduce” from “hold.”
“Management will ultimately get it right, but only the longest-term investors should be involved here for now,” said Pritchard, who lowered his pretax profit estimate for fiscal 2013 by 6.3 percent to 3.75 billion pounds ($5.9 billion). He also cut estimates for competitors J Sainsbury Plc and William Morrison Supermarkets Plc, citing Tesco’s “likely aggression.”
Tesco fell as much as 1 percent in London trading and was down 0.7 percent at 316.05 pence as of 9:22 a.m.
The recruitment drive will target unemployed young people, said Richard Brasher, Tesco’s U.K. chief executive officer.
Tesco is the U.K.’s largest private employer with more than 290,000 employees, including 70,000 under the age of 25, the company said. Britain’s unemployment rate was 8.4 percent in December, equal to the previous month and the highest since January 1996, according to the Office for National Statistics.
“In unprecedented economic conditions like these, major businesses have a big responsibility to step forward, invest and create jobs,” Brasher said in the statement.
Tesco isn’t alone in targeting jobs at young people. McDonald’s Corp., the world’s biggest restaurant chain, plans to create at least 2,500 jobs in the U.K. this year, with more than half of the new positions for people under the age of 25.
‘Massive Confidence Boost’
Asda, the U.K.’s second-largest supermarket chain, and Starbucks Corp., the world’s largest coffee-shop operator, have both promised to add 5,000 jobs this year as they open more grocery outlets and drive-through coffee stores, respectively.
Tesco’s initiative is “a massive confidence boost for the U.K. economy,” Prime Minister David Cameron said. “Their commitment to creating jobs and opportunities for young people at what is a difficult time for the economy is fantastic news.”
Tesco said last month it would guarantee jobs for young people who satisfactorily complete a four-week placement program after protesters criticized the retailer for offering unpaid work experience through a government program.
Execution Noble analyst Caroline Gulliver estimates the staff investment will cost Tesco about 260 million pounds. Given her expectation that the grocer will spend about 400 million pounds overall, there is a still a “material part’ of the budget remaining which could be used to lower prices, she said.
“At the core of this investment is our determination to deliver the best shopping experience for our customers, bar none,” Brasher said in the statement. “We will invest in more staff on the sales floor at busy times, greater expertise and help in the crucial areas of fresh food, and enhanced quality and service across our stores at all times.”
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