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Tescofication

Who would have thought it ? Tesco, the poster child of British grocery retail, has run into trouble. Loved by the City and housewives alike, it was, at one time not so long ago, the third largest retailer in the world (by profits) and estimated as the second largest by revenue.

Its growth has been spectacular. The 500 stores Tesco had in the mid 1990s multiplied to 2,500 within 15 years and it expanded into the US, Europe and Asia. In the process it  has knocked Sainsbury’s off the number one spot in the UK. Alongside its core grocery products, Tesco also sells books, clothing, electronics, furniture, toys, software, financial services, telecoms, internet services, DVD rental and music downloads. It also set up a joint deal with Esso to sell petrol, and even ventured into tech by introducing it’s own tablet, the Hudl.

That, in my humble opinion, and with an outsider’s perspective, is the root of Tesco’s problem.

It’s  become a couch potato; overweight and complacent. And has moved so far from its core offer that customers no longer know what it stands for.

So I wasn’t completely surprised last year when, according to one City analyst, I learnt that Tesco was losing customers (or, more accurately perhaps, individual customer sales) in their millions to rivals Aldi and Lidl. Ironically it is these stores which offer their customers a similarly simple proposition to the one Tesco did before it expanded so dramatically.

What distinguishes Tesco from Asda, Morrison’s, Sainsbury’s, or any of the others anyway? Nothing that I can see. Their quality doesn’t seem to be any better. Their prices aren’t really any lower. Their staff aren’t any better trained and their stores don’t have a unique look and feel about them.

So where’s the differentiation? Apart from parenting the phrase Tescofication (which is regarded by many to be a euphemism for regeneration) I can’t see that there is any. So it’s going to be fascinating to see what shape their turnaround takes under the new CEO, Dave Lewis.

The process has already begun. Staff numbers at its HQ have been cut and the office will be closed. Blinkbox, the video streaming rival to Netflix is being sold off along with Tesco Broadband. The shareholder dividend is to be slashed and the pension scheme is being reviewed. On top of that, and most significant of all perhaps, is the closure of 43 of its stores and a huge cut-back on store expansion.

So it looks as though they’re heading back towards where they started. Instead of adding to the core offering, they’ll be taking away. In my view that has to be a good thing because I’ve always felt that ‘simplicity’ is the key to success.

On top of all the pruning, Dave Lewis has also just appointed Bartle Bogle Hegarty (BBH) as Tesco’s advertising agency. BBH are currently working with Waitrose. That’s an interesting move. The two supermarkets are so far apart it will be fascinating (for me at least) to see what BBH comes up with. I’m looking forward to seeing what they do with the Tesco brand. Will they continue with price cuts or play Aldi and Lidl at their own game by adopting a simpler approach while maintaining their margins?

I think Tesco will survive and I can’t wait to see what it looks like in five years’ time. I hope they’ll drop the tired old ‘Every Little Helps’ line and take a new approach. Something radical. Maybe take a few cues from Waitrose, who are the quiet stars of the John Lewis Group. I’d love to see them create shopping environments that seem less sterile. And of course, I’d love to see them forge a new connection with their customers.

I’m really hoping that once Dave Lewis gets the company structure right, a new, slimmer, leaner and more attractive Tesco will emerge to compete with the rest. But I do fear there will be one casualty; and that, I think, will be Morrison’s.

I’d love to hear what you think. Do you have a view?

To be continued . . .

2 Comments

  1. It’s not all about the price. If it was then Waitrose would have disappeared long ago. For Tesco it all shows that bigger is not best. When the new giant superstore opened in Spytty, Newport a while ago it was obvious right at the beginning that they had not got it right. Maybe it was rushed. After all Morrisons opened a new build store a few hundred yards away and beat them by a week.
    There is something about a giant floor area that is fine for large items, sofas for example, but when you reach the end of a snake like journey around the bigTesco stores and remember you forgot the sugar it is just a long walk back.
    I think Tesco have tried to compete with all sections of the market forgetting that the drivers for each section are different. Consequently they put out a mixed message. Reaching for the cheapest, most friendly, high quality, most convenient and appealing answer to everything in our lives ends up pleasing no one.

  2. Tim Masters
    Tim Masters

    Bob, you’re right, and thanks for commenting. It’s not about price. What customers really want is value. “Will this (thing) improve my life/wellbeing/business?” (delete as appropriate) is the thought process we go through before parting with our cash. The problem arises when, after spending our money, the
    purchase doesn’t deliver.

    In today’s, Tesco are being investigated by The Groceries Code Adjudicator (as well as the Serious Fraud and the Financial Reporting Council) over their supplier relationship. It looks as though the turnaround has become more challenging.

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