Job cuts, counter losses and a Paperchase buyout: What is going on at Tesco?

It’s been a busy day at Tesco head office, as the UK’s largest supermarket began the morning by announcing a raft of changes within the company, putting as many as 2,100 jobs at risk.

An instore management restructure will see Tesco reducing the number of lead and team manager roles across all its larger stores, while all instore counters and delis will also be closing from 26 February, with the spaces being repurposed to “better reflect customers’ needs”.

Just a matter of hours later, it was revealed that Tesco had officially acquired the quirky Paperchase stationery brand, as part of a pre-pack deal which will see the grocer bringing the design-led brand into its stores, strengthening its offering across cards and greetings.

With these moves coming hot on the heels of Tesco chair John Allan causing some upset after accusing some food producers of hiking prices “unfairly”, we ask what is really happening behind the doors of the Big 4 grocer?

Job cuts and management restructure

The business changes announced in today’s plan will see Tesco cutting around 1,750 lead and team manager roles across larger superstores and Extra stores, introducing around 1,800 new shift leader roles in their place.

Commenting on the “difficult” decision to restructure its larger stores, Tesco UK and ROI CEO Jason Tarry said the move was “necessary to ensure we remain focused on delivering value for our customers” as well as making sure the instore offer “reflects what our customers value the most”.

“One of the biggest costs for Tesco is clearly its people,” says retail analyst Ged Futter, pointing out that Tesco is simply looking at how much it can reduce those costs across all areas of its business.

“Retailers are looking at every way they can save money, whether that is haggling with suppliers or even job cuts,” Futter said, citing Asda as an example, after the supermarket announced a series of proposals last week, placing around 300 jobs at risk.

“Clearly the costs of wages and people are one of the biggest costs supermarkets have got. That is always a place that any retailer will go to first.”

Counter closures

Retail analyst Ged Futter is “not surprised” at Tesco’s move, describing the counter closures as “just a continuation of what they’ve done before.”

In December last year, the supermarket giant said it was scrapping the remaining butcher and fishmonger counters in 279 stores as customers increasingly chose pre-packed items as a result of the ongoing cost-of-living crisis.

“The reason they closed them before is because they’re not investing in them,” Futter said. “If you don’t invest in something, customers will not want to use it and becomes self-fulfilling. It was always a matter of when, not if, they were going to close them down.”

Closing all counters also demonstrates how Tesco is looking to streamline its operation and remove unprofitable parts of the business, according to GlobalData associate retail analyst Joe Dawson.

“Deli counters haven’t been successful in many UK supermarkets for a few years now, as they tend to stock the same products as in the aisles, but without the packaging,” he says.

“Being competitive on price is the name of the game at the moment, so it isn’t surprising that Tesco would get rid of counters due to a lack of demand, in order to save money on energy, staff and potentially wasted produce that may not be sold.”

He continued: “This news is also coming at the same time as a number of other changes to the way stores are run, which will allow Tesco to realign its investments into pricing.”

The surprise Paperchase purchase

Earlier this morning, stationery retailer Paperchase collapsed into administration, following weeks of speculation. However, shortly after rumours began swirling that Tesco might acquire the brand, the supermarket confirmed it had done so, as part of a pre-pack administration deal.

However, the acquisition is expected to lead to mass store closures, as it is understood that Tesco will close all 106 UK high street branches, affecting 820 employees.

“Paperchase is a well-loved brand by so many, and we’re proud to bring it to Tesco stores across the UK,” said home and clothing managing director Jan Marchant.

“We have been building out plans to bring more brands and inspiration to the ranges we currently offer, and this will help us to take those plans further.”

The “unusual move”, according to Futter, is expected to mirror a recent collaboration between rival Sainsbury’s and greetings retailer Scribbler. The partnership, which was officially announced at the end of last year, features branded aisle ends offering over 50 of Scribbler’s own-brand cards.

Futter claimed the move is a chance for Tesco to upsell stationery products to its customers, offering a point of difference and comparing the move to Argos’ concessions in Sainsbury’s.

Zoe Mills, lead retail analyst at GlobalData, believes that the acquisition will “enable Tesco to enhance its non-food categories outside of homewares”.

However, she also notes that bedding in the brand is “unlikely to be smooth sailing” as Paperchase’s target audience is younger than Tesco’s and the brand typically appeals to a more affluent shopper.

“While Tesco may be able to encourage existing Paperchase shoppers to its stores, persuading its existing customer base to trade up will be a challenge.”

While this year is  expected to be “challenging” for all major supermarkets, Mills also believes that Tesco may have tapped into something with its latest move.

“If this acquisition proves successful, Tesco may have further opportunities to bring other complementary brands into the fold,” she adds.

With Tesco itself saying it will still work with third parties to offer instore counter experiences where it can, could the possibility of future collaborations – which of course are a far more affordable and less risky way of offering services instore – be on the cards?

And if that’s the case, who knows what third-party partnerships could be round the corner?