Tesco is one of the largest chain grocery stores in the world. They have thousands of locations in Europe, North America, and Asia. However, they have been suffering profit losses for more than two years. CEO Dave Lewis announced a massive plan to cut costs by closing 43 stores, withdrawing from certain markets, selling some assets, and taking a closer look at Tesco’s supply chain.
The 43 stores Tesco plans to close are currently unprofitable. Most are local convenience shops under the name “Tesco Express.” Investors favor the CEO’s decision and this was marked by an increase in shares of more than 13 percent at the beginning of 2015. In addition to the closure of 43 stores, Tesco will not move forward with the 49 stores they had previously planned to build.
Closing stores is not the only thing happening at Tesco. Staff pension plans will also be eliminated to reduce overhead. Plus, Tesco is selling their entertainment service Blinkbox to TalkTalk and the Halfords Group will take over operations of Tesco stores in the UK and Ireland starting in June. These changes are expected to make Tesco profitable again with more streamlined services and a more functional supply chain.
Dave Lewis said, “We have some very difficult changes to make. I am very conscious that the consequences of these changes are significant for all stakeholders in our business, but we are facing the reality of the situation.”
With their anticipated money savings, Tesco plans to fund their price war with the other Big Four supermarkets. The money will also be used to adopt a more omni-channel approach to distribution. As a matter of fact, Tesco has also sold a distribution center in London to change its logistics network. We will see in the coming year whether the changes were worth it for Tesco.