Search Here

Standing with bags of groceries outside discount store Lidl in Thetford, eastern England, Jodie McGloughlin explains simply why she turned her back on Britain's biggest retailer - its high prices.

"With Tesco.. all them pounds add up," the 22-year-old mum says. "I think that's what people notice."

Tesco has issued three profit warnings in two and a half years as McGloughlin and other former customers depart for discount rivals Aldi and Lidl. It has spent more than 1 billion pounds ($1.62 billion) to try to win them back with better-looking stores and product promotions but industry experts say the nation's former favourite has a more fundamental problem to fix - that of shoppers' emotional response to it.

"People no longer feel that Tesco is on their side," said Marc Cave, who worked with the retailer for nearly ten years during its heyday. "We, the British public, just don't like it anymore. It's a cold, commercial monolith."

The world's third largest retailer is in part a victim of its own success.

Founded in 1919 as a market stall in London's East End where Jack Cohen could "pile 'em high, sell 'em cheap", Tesco grew fast in the 1990s by expanding its range from basic food products at one end to "Finest" top of the range meals at the other - in the process more than doubling its market share.

Its "Every Little Helps" campaign mixed advertising with loyalty schemes and wowed shoppers by seeing to every detail: more tills opened when queues were long, extra staff came to help shoppers pack their bags and wobbly trolleys were fixed. So-called Clubcards registered purchases so that customers got promotions based on their weekly essentials.

But then came complaints that Tesco was too aggressive, gobbling up retail space and building out-of-town superstores that drove smaller businesses out of existence. At the height of its popularity, its annual results were being compared to the economic output of small countries by the financial press.

Those profits fell away fast after a long economic downturn made Britons rethink the way they shopped and Tesco - despite being renowned for its ability to gauge the British mood - took too long to respond.

"You're seeing a resetting of values as a result of a period of austerity and a strengthening discounter retail presence," said Russ Lidstone, head of ad agency Havas Worldwide London.

NO ONE-STOP SHOP

Britain's supermarkets once reflected the country's class system with Waitrose and Marks & Spencer the most upmarket, Tesco and rival Sainsbury fighting for the largest market share from middle-income shoppers and Wal-mart's Asda and Morrison's offering cheaper products.

But the recession, and people's need to save money, broke down those distinctions. Shoppers are now willing to go to several different stores for different products in an attempt to keep down spending - Marks & Spencer says 67 percent of its consumers also shop at discounters.

That kind of behaviour is a big blow to Tesco, which built itself as a "one-stop shop."

"The market has repositioned around Tesco," said Tracy de Groose, the UK head of advertising group Dentsu Aegis Network. "I think they've lost their way. The brand is tired. The concept of value has changed."

Critically for Tesco, shopping in Aldi and Lidl is now seen as cool, as well as clever.

Both discounters have won over Britons who might have turned their noses up at them by selling award-winning champagne and other luxury products such as prized Wagyu beef at rock-bottom prices. They have also introduced time-saving strategies like sticking several barcodes on every product to save cashiers from having to inspect each one closely at the till.

Neil Saunders, managing director of consultancy Conlumino, said Tesco was sometimes cheaper than the discounters, but those products were often too difficult to find because it had branched into so many areas. In many Tesco stores shoppers have to pass by a cafe, lottery stand, cigarette outlet, clothes and electrical goods before finding the produce.

"In Tesco it is difficult to find value. You have to do a lot of work to find the cheapest products," Saunders said.

Michelle Atherton, a 30-year-old cleaner shopping at Aldi in Thetford - a small market town where flint cottages sit alongside kebab shops and pubs - says the retailer's stores now make shopping stressful.

"You've got the toy aisles and I've got kids," she said. "It ends up costing me an arm and a leg."

MAKE IT EASIER

But value is not just about saving money. Before Tesco can persuade shoppers to come in and spend from their reduced budgets it must decide what it wants to be to them.

Some city analysts proposed breaking Tesco into different rebranded formats to better compete at either end of the market. But that was dismissed by marketing experts as too drastic.

Rather than break up, the grocer needs to tailor its supermarkets to their local environments, said Danielle Pinnington, founder and owner of insight group Shoppercentric.

"It's not really splitting it but it's almost trying to give different parts of it different personalities," she said.

Fundamentally, Tesco needs to make shopping easier for its consumers than it presently is, Cave said.

That means raising its standards again, having more staff around the store, and squeezing the most out of digital and social media services in order to innovate and rebuild its relationship with its customers.

It could also use all that store space for cookery demonstrations or to explain how to use many of the gadgets it sells - such as its recently-introduced recession-proof computer tablet Hudl that sells from 99 pounds.

"You can always be copied on price," Cave said. "Tesco needs to get back to an emotional relationship with its customers, not just a transactional one."