Tesco Outgunned by the Competition - Some Reasons Why

So Tesco is getting outgunned by the competition. Third quarter results show their sales up by a miserable 2% compared with Sainsbury up 4.3%, ASDA up 6.9% and Morrisons up 8.1%.

The root cause is customer defection. An analysis by TNS the market research company, shows that in the 12 weeks to November, Tesco lost about £22 million of business to ASDA, a further £10million ALDI and just under £10million to Morrisons . Clearly "every little helps" is not helping enough. Why might this be?

There seem to be three reasons.

First, Tesco has a muddled consumer message compared with competitors. ASDA and Morrisons are known as value supermarkets. ALDI screams rock bottom prices. Sainsbury have stuck with a quality message. Tesco by contrast have responded to the economic downturn by adding a number of discount type products similar to those sold by ALDI and the like, but done little with their main ranges. So in the shopper's mind they are offering neither the cheap prices of an ALDI, or consistent value across everything in store like ASDA and Morrisons. And a slogan like "every little helps" means little to cash strapped consumers keen to hit a budget but reluctant to buy rubbish.

Tesco's prices are too high, and their quality too low. How do we know this? Just read the comments left by shoppers on newspaper articles about Tesco's performance. They tell of huge price hikes, inconsistent prices from week to week, promotions advertised but no product available in store to buy, and inferior fresh products such as bakery and fruit and veg.

And most telling of all, Tesco seems to have forgotten about putting customers first. Customers are outraged at Tesco's arrogant attitude and lack of service.

I'd also add that resentment about the way they treat suppliers is reaching boiling point. At the moment lack of facts means their alleged practices tend not to hit the headlines. This will change if Tesco is demonstrated to cross the line between tough negotiation and outright intimidation, and the publicity will do them little good.

There are lessons for all businesses from the Tesco story.

Successful businesses have a very clear marketing message, and they stick with it. Their actual product offer is often fine tuned, but they do not stray from their basic core principles. And they never, ever, take their customers for granted.

No one would bet against Tesco which is one of the most succesful businesses in Britain. Despite a slowdown in sales they remain almost twice as big as their nearest competitor, and their discount range is turning over about £1billion, which is nearly the same as ALDI's total sales. But they are not invincible, and if they don't learn the lessons then their performance will struggle.