Home Stock & Shares Tesco Moves To Revive Share Price By Cutting £1.5 Billion In Costs

Tesco Moves To Revive Share Price By Cutting £1.5 Billion In Costs

by Paul
Tesco share price

Tesco are to cut as many as 9000 positions between its supermarkets and head office in a move designed to save the groceries giant £1.5 billion a year in costs. It’s the latest step in a 4-year ‘turnaround’ strategy being overseen by chief executive Dave Lewis, whose readiness to make tough calls and sweeping changes has earned him the nickname ‘Drastic Dave’.

Tesco’s current market capitalisation of £21.69 billion is less than half of its late 2007 peak. Increased competition in the sector, not least the result of the market entry of budget German chains Lidl and Aldi, has pushed down margins. The Brexit-induced drop in the value of pound sterling has added additional pressure by increasing the cost of imports. While some of that has been passed on to shoppers a portion has also been absorbed by suppliers and supermarkets such as Tesco themselves.

While spending on groceries has held up well amid the wider retail malaise, the industry’s cut-throat competition has meant Tesco is having to streamline its expenses to maintain profits and its share price. A recover of the Tesco share price between late 2015 and August of last year gave way to further losses in the run up to the end of 2018 as equities markets suffered a general sell-off. 2019 has so seen a rally, with the grocer’s stock up 17.4% between January 2nd and the end of last week.

It will be hoped that the latest round of costs restructuring can keep that momentum going. However, while it is believed that up to half of the 9000 positions that will be cut will see staff redeployed to new roles, 4500 casualties are still a lot. The cuts will be made by taking fresh food counters out of around 90 stores and reducing many of those that remain in others. Tesco’s stated that time pressures facing shoppers mean they are using them less.

New processes that will increase efficiency and reduce workloads in merchandising and stock control as well as changes in the company’s head office structure will account for most of the rest of the positions cut. Other cost cutting measures announced include staff canteens providing hot food, which will be replaced by vending machines and kitchen facilities. That will affect around one third of Tesco stores.

Jason Tarry, the Tesco chief executive for UK and Ireland commented on the announcement yesterday:

“In our four years of turnaround we’ve made good progress, but the market is challenging and we need to continually adapt to remain competitive and respond to how customers want to shop.

“We’re making changes to our UK stores and head office to simplify what we do and how we do it, so we’re better able to meet the needs of our customers.”

While the changes are unlikely to be welcomed by the company’s staff, those investing online in Tesco shares will hope the move will maintain the push to greater competitiveness and long term financial health.

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