The bill hit Tesco’s profits last year. On one measure they dived 28% to £145million.
Hapless chief executive Philip Clarke was dumped and replaced by Unilever executive Dave Lewis , nicknamed Drastic Dave over his radical shake-up at the supplier of kitchen cupboard staples.
Lewis has overseen an equally radical overhaul of Tesco over the past two-and-a-half years.
Ranges have been cut by nearly a quarter, products improved, store expansion curtailed and scores of loss-making branches closed. Last summer the firm announced the sale of its restaurant chain Giraffe.
A lot of the changes are behind the scenes and seemingly dull – but vital to boosting trade.
Lewis also had a victory over his ex-employer in the Marmitegate row, when Tesco refused to accept a wave of price rises by Unilever. Looking tanned and relaxed as he updated the City yesterday, he said the recovery was going better than planned. “We are further down the track than we thought we were going to be,” the boss added.
But the City’s later reaction to the results may have wiped away his grin. Tesco’s share price crashed 5.7%, wiping nearly £1billion off its stock market value.
One reason for the collapse was concerns that its recovery could be knocked off course.
First, food prices are beginning to rise, partly because the pound’s weakness since last year’s Brexit vote is pushing up import costs.
Tesco insists its average basket of goods is still 6% cheaper than in September 2014. But prices are up 0.6% in the past three months.
Then there is the controversial issue of its proposed £3.7billion takeover of wholesaler Booker.
Tesco insists the tie-up makes sense, giving it access to the rising eating out market. Booker’s customers include Wagamama, Carluccio’s and Byron.
But critics say the deal, which will also result in it supplying thousands of corner shops, will hand Tesco too much power.
Adding to its problems, the black hole in its pension fund has more than doubled to £5.5billion.
Yet impressively, it takes almost 28p in every £1 spent in grocers.
And while Tesco may never match the past glory days, it is again a force to be reckoned with.
Tesco by numbers
£50bn – Global sales for 2016
£235m – Fine for overstating its profits in 2014
5.7% – Drop in share price on yesterday’s results on fears of rising food prices
£3.7bn – Cost of proposed takeover of cash and carry company Booker
‘Saviour put customers at the head of the queue’
By JOHN IBBOTSON, Retail Vision
Only a few years ago, shoppers were deserting Tesco in droves. They were heading in particular for Aldi and Lidl, who knew it was struggling and went for the jugular with aggressive pricing.
Tesco had become a shadow of its former self – and some days it felt like it might not even survive.
So what’s the reason for the big turnaround? It starts with the arrival of Dave Lewis, the current boss, in late 2014.
He did something some of his predecessors turned their noses up at: he went back to the basics of retail and shifted the focus from making shareholders rich to making customers happy. Imagine that.
He accepted Tesco had taken its UK customers for granted in its bid for global domination and knew that had to change.
To make British shoppers the priority for Tesco again, he had to make Tesco the priority for Tesco.
On top of the humiliating retreat from the US market, he ditched non-essential parts of the business like the Harris + Hoole coffee shops and Giraffe restaurant chain.
That made things simpler and meant he could be more focused on the Tesco customer.
With more and more people doing shops online, he shut down underperforming stores, especially the big out-of-town ones.
He knew Tesco had become top-heavy so made cuts within management and hired more people for the shopfloor to improve customer service. Tesco had lost its personality in-store and to regain the trust and loyalty of shoppers things would have to change from the ground up.
But rather than give the money he saved to shareholders, he used it to cut prices, create new and simpler product ranges and take the fight to his competitors.
The result – a better, cheaper and friendlier place to shop.
Nothing Mr Lewis has done has been rocket science.
But by making the UK customer the number one priority all over again, he has managed to bring it back from the brink.