Tesco Extra UK store front

Tesco PLC on Wednesday unveiled a GBP 1.1 billion (EUR 1.3 billion, USD 1.76 billion) strategy to boost the profitability of its UK stores, primarily by adding staff and upgrading its service counters and perishables departments.

“We are committing over GBP 1 billion to make the UK shopping trip better for customers — more staff giving improved service in-store, refreshed stores that are better and easier to shop, lower prices and even more value from an improved product range,” said Tesco CEO Philip Clarke.

The UK’s largest food retailer announced the store improvement plan after releasing its earnings statement for the most recent quarter ending 25 February. The company’s trading profit declined 1 percent in the UK to GBP 2.5 billion (EUR 3.06 billion, USD 4 billion), but its overall profit increased 1.6 percent to GBP 3.9 billion (EUR 4.77 billion, USD 6.25 billion).

Tesco plans to make a GBP 40 million (USD 64.12 million) investment directly in UK store improvements this year. The retailer’s initiatives include hiring 8,000 new employees to work in its fresh food departments and quickening the pace of its refresh/renovation program, which features warmer colors, better lighting, improved sight lines across stores and clearer signage. 

“They have to refresh the whole estate. The older stores are too clean and clinical, in comparison to their competitors in the UK,” said John Ibbotson, managing director of Retail Vision, a retail consulting firm based in West Yorkshire, UK.

Tesco’s chief competitor, Sainsbury, has spent “a lot of money” adding more service and a warmer appearance to their stores, noted Ibbotson. “As a result, their perception of quality and store ambience is a lot better than Tesco’s, and they have been gaining market share,” he said.

In Tesco’s seafood departments, the retailer must improve the appearance of its fresh seafood displays, add more service staff and put fish on sale more often, recommended Ibbotson.  

While Tesco executives focus on improving profitability at their UK stores, they also announced some relatively positive news about the retailer’s U.S. brand, Fresh & Easy. For the quarter, losses at Fresh & Easy were lower than any other quarter, dropping 18 percent to a loss of GBP 153 million (EUR 187 million, USD 245.27 million). Tesco does not expect to break even on Fresh & Easy until its 2013-14 fiscal year. The retailer opened its first Fresh & Easy store in Hemet, Calif., in 2007, and there are now 151 stores in California and 45 in Nevada and Arizona.

However, due to shareholder pressure over the continuing losses at Fresh & Easy, Ibbotson expects Tesco to close the chain sometime in the future. “My bet is they will close Fresh & Easy, maybe in about a year,” said Ibbotson.

Editor’s note: Fresh & Easy was the subject of Blank’s “What’s in Store” column in the March issue of SeaFood Business magazine. Click here to read the story. 

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