Tesco launches 200m pounds price war, speeds up shop refits - UPDATE

25th Feb 2014 14:13

Troubled British supermarket group Tesco on Tuesday launched a fresh 200m pounds price war and unveiled plans to speed up store revamps to kick-start its lacklustre turnaround drive.Tesco, which launched the programme of price cuts yesterday, said it wanted to eliminate "frivolous" promotions and reduce prices on a range of essential products like vegetables.Chief Executive Philip Clarke told analysts at a conference on Tuesday afternoon: "Prices must get better and more stable. Frivolous promotions should end and sensible ones should stay."UK Managing Director Chris Bush said: "Prices in the UK have been too volatile for too long. I am committing to lower, more stable prices on the products that matter most to customers. Promotions have been too complicated and it is an industry-wide problem we intend to solve. We are putting more money into more stable pricing."Clarke said all stores in the UK would be revamped by 2017, particularly larger stores, speeding up a programme in which only about 100 of its 900 larger stores have been refurbished so far.The group plans to open more than 150 convenience shops a year and revamp all convenience outlets by the end of 2016. He also said the group plans a further significant reduction in net new space, resulting in a reduction in overall capital expenditure.Capital spending will fall to no more than £2.5bn in each of the next three years. It had previously indicated a figure of £3.2bn or more for 2013/14.Tesco is 22 months into a turnaround programme for a 3,150-store UK business that has already invested more than £1bn in store revamps, more staff and new products.But sales at UK stores open for more than a year, excluding fuel and VAT sales tax, fell 2.4% in the six weeks to January 4th and, according to monthly industry data, have continued to fall since.Tesco's pricing move is likely to be seen as a response to the challenge being posed by discounters.Tesco and mainstream rivals like Asda and Morrisons, in particular, have felt pressure from the likes of German chains Aldi and Lidl and upmarket stores like Waitrose and Marks & Spencer.Clarke paid tribute to the discounters, saying: "Many of our competitors have done a great job and I admire the way that they have exploited their niches, in particular Aldi, Lidl and Waitrose. We don't ignore them."But he added that there was unlikely to be an instant turnaround, saying the market remained tough and Tesco does not anticipate a let-up any time soon."The consumer squeeze continues. There are signs of confidence in the UK economy and consumers, but they're not seeing it translate yet into spending power," he said.Clarke said the company planned to reduce space given over to consumer electronics, although it does plan to launch the second version of its Hudl tablet computer this year.It also aims to devote more capacity to food and clothing, the latter of which would be revamped with new spring and summer ranges in the next few weeks.Clarke also plans to invest heavily in its online business, where internet grocery sales now accounting for about £2.5bn of sales, and click-and-collect points.Analysts believe Clarke is unlikely to change Tesco's overall approach to growth and returns outlined in April 2013, with a target of mid-single-digit annual growth in trading profit and dividend growth broadly in line with underlying earnings.Shares in Tesco closed up 1.8p or 0.54% to 335.2p in London.PW