Tesco’s – Losing its way?

  • 17 October, 2014
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Tesco - who are weTesco’s has hit the news a few times recently. First it’s desperate stakes – senior managers over egging the pudding on their profitability numbers by a mere £250 million! Sales are down again this quarter and shares value has dropped by ~10%. Then its private jets have to go and more recently either talent leaving not wishing to be associated with the firm any longer or yet more senior executives being asked to leave. So, what is going on with the British born supermarket giant?

Rather than write a story about their rise to fame and all the good things about the company I think it’s more interesting in current circumstances to assess their challenges and opportunities if they are to build on their leadership position or continue headlong into a downward spiral.

So, before we start, let’s not forget credit where credit’s due, Tesco’s is still a highly successful, highly profitable company. Despite their unquestionable success in the UK, their international expansion efforts have not really come to much, pulling out of the US, with losses and struggling to get traction in the Far East and Eastern Europe – have these just been a distraction from their core business?

When you are a leader in your market, all eyes are on you, and with market leadership comes the responsibility to behave like a leader and stay ahead of the pack. Strong leadership should be about professional will and humility and not about complacency, over confidence or abusing one’s powers.

Markets are not static. They change over time, sometimes quickly. In this case the major changes have been a shift in the economy pushing consumers to become even more cost conscious; “needs must”. New competitors entering and other competitors evolving rapidly thus increasing the options for consumers.

Consumer information is ever more abundant, they are becoming more savvy and their needs and expectations are evolving. At the same time technology moves on. Tesco’s of all businesses should have amazing insight into customer behaviours with it’s loyalty card and customer database, at least when it comes to shopping habits. But they should also make sure they are eyes wide open to changes and their implications in the wider market landscape and be fleet of foot in reacting accordingly.

Tesco’s are now finding themselves in “no mans land”. Stuck between the premium and the discount end of the market. What makes this worse is that consumers now don’t really know what Tesco’s is. They probably have the nearest shop geographically, but they don’t any longer offer the best value for money, which is what their proposition used to be, nor the best quality, nor remarkable customer service

Leaders are expected to behave responsibly and this among other things can further secure brand loyalty. Unfortunately it seems when the going gets tough Tesco’s have built a reputation for being hard on their suppliers not least in squeezing margins but also in tardy payments. This undoubtedly has left a bad taste not only in the mouths of some suppliers but has also chipped away at the loyalty of customers who don’t find these tactics acceptable from a highly profitable giant.

Prior to this the “land grab” Tesco’s executed during it’s phenomenal expansion to market leadership, had already raised questions in the minds of some would-be consumers. It doesn’t take much to tip consumers over the edge if they are already starting to ask questions. A dose of respect, humility and an ethos of win:win with the wider community would go along way.

There are also some reports that staff morale is low, bonuses are no more and share value is currently falling. Staff are, after all, ambassadors for the business. We live in a highly connected world, essentially with a volume control on the “word of mouth” called Social Media and so it would strike me that ensuring high degrees of employee engagement is a must. The last thing Tesco’s needs right now is demotivated staff fueling the fire.

Customers are king and the name of this game is meeting their needs better than available alternatives. Customers are not all the same though.They fall into several categories or segments according to their needs. Any player in the supermarket business needs to understand these needs, both functional and emotional and decide who they are serving and what to exactly offer them. If for example the customer need is for reduced costs the answer to that, in my view, is not to offer complicated multi-buy deals or Buy One, Get One Free (BOGOFs) as Tesco’s have usually done. These deals are often frustrating for busy shoppers who don’t necessarily want to pile ‘em high or create extra wastage at home to be left feeling guilty. They just want a better deal because money is tight and on that basis may well end up in Lidl, Aldi or straight-talking Asda so they know where they stand and they are a few pounds better off each week.

Some customers may be more concerned about quality, than cost alone but Tesco’s it seems is even losing the fight here. Suggestions that Lidl own brand products, for example, may be of higher quality and less costly at the same time. I am sure this is not always the case but the very suggestion must be alarming for a leader to hear.

What doesn’t Tesco’s offer?!…banking, phones, insurance, beauty, kitchenware, electrical… oh and food! Diversification of the customer offering can be a good thing but again, as with their international efforts are they diluting from their core? On a cautionary note, busy mums looking for convenience don’t want to pass through multiple rows of children’s toys, beauty products or kitchenware before getting to the food shopping aisles. Particularly if it means a fight with the kids on the way.

All these examples don’t lead to a positive customer experience and there is no particular reason to believe Tesco’s customer service is of particular concern but it certainly doesn’t stand out above the rest and is indeed and opportunity for the business to address. So Tesco’s needs to change in order to maintain and grow its leadership position. After all it still commands 30% of the market, so there is a lot to lose here. They need to decide exactly which customer segments they wish to serve and what products and services they wish to offer. In other words a clear marketing strategy.

In addition to defining a winning strategy, I would suggest they focus on the following, non exhaustive, list of opportunities: responsible sourcing (locally where possible) with provenance, treat suppliers as partners, deliver exceptional customer service, always offer high quality products, ensure simple, transparent, competitive pricing to engender trust and freshen up to look and feel of their stores, perhaps even the brand and provide a positive overall customer experience. I also think they should always aspire to be an employer of choice with engaged, motivated, developed and competitively rewarded staff.

If these opportunities, above, were all to be addressed it would be a great start. Critically, ethical practices of the business clearly need to be addressed which may extend to an endemic cultural issue. On the bright side, Tesco’s are in a strong position to enhance their corporate social responsibility strategy and seek to better support local communities in which they operate, which after all, is most of our local communities! This could help to better serve the emotional needs of their customers, bring some disheartened customers back and enhance loyalty.

Exceptional growth is a choice and under their new CEO and leadership team as it evoles I think the wise words of Charles Darwin should be close at hand: – “Its not the strongest of species that survive, nor the most intelligent, but those most responsive to change”

David Allmond

 

David Allmond

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