A cost-cutting drive by Britain’s biggest retailer should give investors “extra confidence” despite the scale of job losses, according to an investment analyst.
The supermarket giant Tesco (TSCO.L) confirmed today that up to 9,000 staff roles could be at risk as part of a radical shakeup of several parts of the business.
Only half of the staff at most are likely to be able to move to alternative posts, meaning thousands of workers are likely to face what a union called a “devastating” wave of redundancies.
90 stores are also set to lose their fish, meat or deli counters amid falling customer demand.
But Bruno Monteyne of research and brokerage firm Bernstein said his company was reassured by the details confirmed by Tesco today, suggesting it could improve the company’s profit margin in 2019-20 and 2020-21.
He said in a note: “The plan re-assures us in many ways: It is large but not as dramatic as the 15,000 [staff reported to be at risk] in the weekend press. It is much broader in activities than what was suggested over the weekend.
“Therefore the potential impact on quality differentiation is much smaller. Therefore the impact on its quality credentials should be minimal.”
Monteyne said such large-scale plans would have likely been tested already and reflected projects “planned and executed over several years,” rather than a more concerning “knee-jerk” reaction to difficult trading conditions.
“The market is obviously tough but we think this language is as much about reminding staff and unions why Tesco had to embark on this 4 year restructuring program rather than indicating that things got worse recently,” he said.
He called it a “balanced and most likely well-tested” plan that could save an estimated £150-170m a year.
“Anybody doubting the Tesco margin recovery should think again. This wave of cost-cutting is a helpful reminder of how effective Tesco is in reshaping its operations and should provide investors with extra confidence in the margin target for 2019/20,” he wrote.
Pauline Foulkes, a national organiser at shopworkers’ union Usdaw, which represents many Tesco staff, said staff deserved to be rewarded for helping Tesco in its turnaround project rather than facing redundancies.
She said: “Staff at Tesco are shocked and dismayed by the scale of yet another round of potential job losses, which clearly demonstrates the pressure retailers are under in the current very difficult and uncertain economic climate, as the cost cutting continues.
“This is devastating news for staff, who have played a crucial role in Tesco’s turnaround project, contributing to 12 successive quarters of growth, solid Christmas trading and over a billion pounds of profit.”