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 . . .