London: Tesco is set to unveil a plan to turnaround its UK business when it reports annual results on Wednesday, as the world's third largest retailer battles to regain ground lost to rivals in its main market.
Tesco's future strategy will be keenly watched after the company issued its first profit warning in living memory in January, having been one of corporate Britain's most consistent growth companies.
"The biggest challenge facing Tesco is rejuvenating the UK business. Tesco must undergo root and branch surgery in order to overhaul product quality, service levels and store ambiance," Oriel Securities analysts said.
Chief executive Philip Clarke, a year into the job, needs to convince investors he can reverse the fortunes of the UK unit, which contributes over 70 percent of group trading profit. He jettisoned the previous UK head last month and added the role to his own remit.
Most analysts expect Tesco to announce plans to concentrate more on smaller convenience stores rather than hypermarkets, and to invest in pricing, stores and staffing, with Espirito Santo analysts putting a figure of 400 million pounds (USD 637 million) on the UK investment programme.
However, the problems the retailer faces in the country are deep set and could take years to fix, a number of analysts warned, with Oriel Securities suggesting a turnaround could require "much more" than 400 million pounds.
Macquarie analysts think restoring the UK business to its former health will take two to three years and "setting it up as a one-year turnaround is not credible".
Espirito Santo's Richard Cathcart also said he believed positive results from any investment programme proposed by Tesco would take longer to show through than management expects.
"It (Tesco) has a considerable management challenge to drive the UK business back to growth," said analysts at Panmure Gordon, in agreement.
Tesco, which trails France's Carrefour and US leader Wal-Mart by annual sales, is expected to report a 2 percent rise in underlying profit before tax to 3.88 billion pounds (USD 6.19 billion) for the year to February 25 2012, according to the consensus of 20 analysts' forecasts provided by the company.
The firm warned in January it saw minimal group trading profit growth for the 2012-13 year and latest grocery industry data showed the firm still losing market share to rivals including US firm Wal-Mart's Asda.
The new plan will build on a pledge Clarke made last month to take on 20,000 new staff, and refresh hundreds of stores with a focus on better offers of fresh produce, fresh meat, bakery and counter services, as well as investment in price and a new value range.