Tesco’s re-focusing on the core starts to pay off

Screen Shot 2015-02-25 at 15.16.16Its very early days, but there are some signs that Tesco's re-focusing on the core, led by new CEO Dave Lewis, is starting to work. The company enjoyed its first rise in sales in a year, with sales up 0.3% in the 12 weeks to 1 February. This is a small rise but, as this report states, it equates to an additional 236,000 customers through the doors.

Investors (of which I am one) certainly like what they see, with the Tesco share price up 30% since the start of the year.

So, what has Lewis done to get some initial encouraging results?

1. Ruthless cost cutting

Dave Lewis didn't get the knickname "Drastic Dave" for nothing. And he has been much more radical in his cost-cutting then his predecessor, Phil Clarke, who was a long-term Tesco person. Being an outsider with no relationships or pet projects to protect perhaps made it easier for Lewis to wield the knife. He has closed the Tesco HQ in Chesunt, junked the private jets and announced 10,000 job cuts. In addition, 43 stores are to be closed, and 50 more new-build projects shelved, as reported here

2. Re-focus on the core shopping trip

Of course, cost cutting will only get you so far. Lewis does also seem to be re-focusing on the core shopping trip. Here's how he explains what Tesco is doing, as reported in The Times (subscription needed): "We decided to invest in service; invest in availability, particularly late-night, and then be selective on the investment in price for things that were most important at that time." He goes on to explain how he has started  an over-due investment in in-store staff: "We put 6,000 new customer-facing colleagues in store."

These are simple but important changes to fix the fundamentals. What we now need to see in the coming months and years are real innovations in the shopping experience, so Tesco can re-gain the lead on "making shopping easier and more affordable for everyone".

3. Selling non-core assets

Tesco has started to sell off non-core businesses under Dave Lewis. The Blinkbox video streaming service has been sold to Talk Talk, as I suggested it would here, back in July 2014. This re-focusing means that the top team are concentrating on the core business, sending a strong signal to employees and investors. Time will tell if he also follows the suggestion to sell the Giraffe restaurant chain and Harris+Hoole coffee shops. 

In conclusion, it is still very early days for Tesco's recovery. There is a long way to go to get this massive business in shape to compete in today's extremely challenging retail environment, with the dual discounter threat of Aldi and Lidl. But the first signs are encouraging. Having bought Tesco at 190p back in November, backing Dave Lewis to turn things around, I'm holding on to my shares!