We're in the death rattle of the supermarket business
Professor Damien McLoughlin comments on the significant changes taking place in the grocery market
Tesco has reported a pre-tax profit of £562m for the first half of the year - a considerable improvement on the £71m figure for the same time in 2016. The British retailer said its revenues had risen 1.4% to £28.3 billion, while costs and debt had continued to fall.
Damien McLoughlin, professor of marketing at the UCD Smurfit Business School, said the figures show a marked turnaround for the business after a number of years of difficulty. "It's been a hard road for them," he said. The Professor said the company took some very decisive moves after its difficulties a couple of years ago - it changed its CEO and also changed a number of people in the senior management team. "They did what all great retailers have to do, which is to refocus on the customer," he stated.
Professor McLoughlin also pointed out the significance of Tesco's latest results in the context of Brexit. That vote - and the subsequent drop in the value of the pound - has led to significant inflation in Britain, however Tesco has managed to keep a lid on that as it tries to drive down prices and attract more customers. He also says that the company has made a concerted effort to innovate in recent years - which helps to make it more attractive to consumers. "It's not much fun going to a supermarket so what a lot of big retailers are doing is focusing on innovation to encourage people to come to their store rather than another," he said.
The professor also said that Tesco has sorted out its supply chain, which was a major issue for many years but has now been more streamlined under the watch of CEO Dave Lewis. Of course those changes were not just necessary because of Tesco's supply and accountancy scandals - the company is also competing in an extremely competitive space. The most recent figures from Kantar Worldpanel suggested that Supervalu, Tesco and Dunnes are within a half a percentage point of each other in terms of market share - while discounters like Aldi and Lidl continue to apply pressure in terms of price.
Professor McLoughlin said that, compared to other countries, Ireland has a very well developed grocery sector - with each company having different strengths that they can play on. "Dunnes is a family business and what that allows it to do is take a long-term view," he said. "Tesco is thought of as a big global retailer with a lot of innovation, Supervalu is a local kind of retailer but also with the power of scale to deliver on value."
However it is a difficult space to stand out in, and with online adding increased pressure to operations, Professor McLoughlin feels that the shape of the grocery market is in the early stages of significant change.
"If anybody goes to Tesco, Dunnes or Supervalu at 8pm tonight you'll see people on their way home from work stumbling around the store with baskets, looking for something to buy and having no idea of what to buy. Of course what they when they get home then they don't want to cook so they throw it out and order a pizza," he said. "There is really no doubt that in 20 years time there will be no such thing as supermarkets, we will have moved entirely to online purchasing of food with some local top-up kind of stores. Like we're in the death rattle of the combustion engine car industry, we're absolutely in the death rattle of the supermarket business," he stated.