Anthony Hilton: Tesco pays price for neglecting PR

Everyone knows stock markets can be brutal when companies disappoint them.

Anthony Hilton: Tesco pays price for neglecting PR
Anthony Hilton: Tesco pays price for neglecting PR

Investors like nothing less than an unpleasant surprise, and while they clearly do not all rush to sell, enough usually do to send the shares into freefall.

Thus it was earlier this week with Tesco. The announcement of a disappointing sales performance over Christmas resulted in billions being wiped off the company's stock market value. Even more significantly for future relationships, the announcement, which was widely interpreted as the first profits warning for 20 years, has punctured the company's image of impregnability.

What should worry Tesco is that the savagery of the stock market reaction was out of all proportion to the nature of the offence. It should not really have surprised anyone that Tesco delivered virtually no growth in the holiday period given what is written on a daily basis about the economy. There was in the kicking more than a hint of it being payback time for Tesco's perceived arrogance in the past - in a way very reminiscent of the way the market dealt with Marks & Spencer a decade ago when Sir Richard Greenbury left and the company almost immediately stumbled. M&S never regained its early position of effortless high street domination.

It does seem that, like M&S, Tesco is paying the price for poor PR. Over the years it has made only the most desultory efforts to build bridges with the media and opinion formers in the City. It was not always thus. I have fond memories of long liquid lunches with its founder Sir Jack Cohen in the 1970s, often in his flat in Regent's Park, and with subsequent leaders.

But the recently departed Sir Terry Leahy was clearly uncomfortable with that side of things and the company on his watch appeared to get into a mindset best described as 'never complain, never explain'. It let the results speak for themselves and as long as its customers were happy then it would ignore all criticism.

New boss Philip Clarke has already missed a trick by not using his appointment to open things up. A setback in the numbers can cause a loss of confidence throughout the organisation. That needs to be prevented.

Anthony Hilton is City commentator on London's Evening Standard

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