Tesco: Every little is helping

As retail analyst Steve Dresser puts it, running a supermarket is not the most complicated business in the world.

"Putting staff back in stores, opening enough checkouts, food on the shelves and lowering prices. Not rocket science is it?" he said, following the announcement that Tesco is losing sales at a slightly slower rate than it was three months ago.

To understand why Tesco is slowly turning the corner it is worth looking at the rather mundane world of the humble ham sandwich.

Tesco now offers 30% fewer sandwich lines after it realised that the wide range it was selling meant that customers often could not buy their favourite, simple sandwich, like, say, one with ham in it. So, it reduced the range and increased the supply of the top sellers. Customers were happier that they could buy what they wanted and the number of transactions increased.

It is the same across the business, with ranges often reduced by 20% to simplify the Tesco "offer" made to customers.

To rebuild Tesco, chief executive Dave Lewis is concentrating on "volume" (that is the number of items being sold) rather than profit. He says he needs to make sure the engine is running again properly before he focuses on the bottom line. Investors appear, for the moment, to be willing to sacrifice margin (the amount of profit made on sales) to encourage customers back through the doors.

As an emergency measure to right the ship, that seems reasonable to most. But in the end a business that is not making sufficient profit is not much of a business.