How Aldi Stole Christmas: Tesco CEO Lewis Can't Halt Stock Slide

Tesco Holiday Sales Won't Deliver Any Respite
  • Holiday sales set to decline for fourth time in five years
  • U.K. grocer seeking to close gap with discounters on price

Tesco Plc Chief Executive Officer Dave Lewis is ending his first full year at the helm with the stock at an 18-year low, and he’s facing a Christmas period that won’t deliver any respite.

Sales over the six-week Christmas period will fall by 3 percent on a like-for-like basis, analysts at UBS estimate. That’s a steeper drop than the 0.5 percent decline analysts at Sanford C. Bernstein foresee for competitor J Sainsbury Plc, and well below the gains achieved by German discounters Aldi and Lidl. Lewis, 50, was hired to revive Britain’s biggest retailer, yet so far it’s proved far from an easy task. Tesco shares have fallen 20 percent this year, heading for a sixth straight annual decline.

Normally the holiday season is when traditional grocers can outperform their no-frills rivals as customers seek finer fare. Yet Aldi and Lidl have convinced Britons that their products are just as good. Four out of ten shoppers planning to visit a discounter cited product quality as a main reason, according to grocery researcher IGD, which forecasts Christmas spending at those outlets will rise by 17 percent to 1.7 billion pounds ($2.5 billion) this year.

While the discounters work to close the gap with Tesco on quality, Lewis wants to close the gap to them on price. He’s reduced prices on packages of vegetables such as parsnips that are staples of a typical British Christmas dinner. He’s also handing out more than 2.6 million free samples -- the biggest giveaway in British retail history -- to showcase new products such as duck eclairs and gluten-free profiteroles.

“We’ve made our prices simpler, put more colleagues into shops to provide better service and have improved the availability of our most popular products,” a Tesco spokesperson said.

Lewis, a former rugby player from Yorkshire, England, joined Tesco in Sept. 2014 from Unilever with a mandate to restore the U.K. retailer’s battered reputation after a multimillion-pound accounting scandal sent its credit rating to junk and prompted a probe by Britain’s Serious Fraud Office.

Since Lewis started at Tesco, persistent deflation of grocery prices means that sales growth has been elusive, leaving the CEO to focus on what he can control -- increasing the amount shoppers put in their carts. Failure to deliver that volume growth would undermine the premise of Lewis’s turnaround, according to Mike Dennis, an analyst with Cantor Fitzgerald.

“If Tesco underperforms its rivals this Christmas,” Dennis said, “he’ll start to come under pressure.”

Watch Next: Food Retailers Set for Simpler 2016

Food Retailers Set for Simpler 2016
Before it's here, it's on the Bloomberg Terminal. LEARN MORE