Wednesday, October 01, 2014

Are Tesco and Sainsbury's going the way of the dinosaurs?

Oh dear oh dear. The news about some big supermarkets has been pretty grim recently. Tesco has admitted that their half-year profits have been overstated by £250 million. That's more than the slip of a finger on a calculator. We'll know more after the Financial Conduct Authority has completed their investigation. But that's not the half of it. Tesco announced a delay in opening two new out-of-town superstores in September. There was fury in Chatteris, Cambridgeshire when the promised store, and the 250 promised local jobs disappeared behind chain-link fences.

Sainsbury's has not been immune to changes in shopping habits either. This morning, they announced that like-for-like sales had fallen for the third quarter in a row, after 36 previous quarters of growth. Sainsbury's is not being particularly bullish about the future either, saying that they expect sales in the second half of the year - including the busy Christmas period - to be "similar" to the first half.

So what went wrong? It seems that like many businesses before them, Tesco and Sainsbury's took their eyes off the ball. They failed to notice the impact of nimble-footed competitors like Aldi and Lidl taking customers away. In July, a YouGov BrandIndex poll found that Aldi was now the UK's favourite brand, despite taking only five per cent of food sales. Lidl was ranked fourth. Sainsbury's was hanging on to tenth place, but Tesco didn't make the top ten.

Warren Buffett said "It takes twenty years to build a reputation and five minutes to ruin it". It's not all over for Tesco and Sainsbury's by any means, but they need to think about evolving pretty fast. 

Image Credit: Creative Commons licence

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