As the recession bites, the world’s third biggest retailer must deal with a range of challenges
‘WE’RE ALL middle class now,” said Tony Blair in 1999, throwing open The Big Tent, a place that promised something for everyone. The rise of Blair and New Labour coincided almost too neatly with that of Terry (now Sir Terry) Leahy’s reinvention of Tesco. Or should that be New Tesco?
Blair’s great political skill was to play down his privately educated, middle class roots and adopt the pose of the Everyman. Tesco’s chief executive however, was the real thing: the working class boy made good. Clever and fiercely hard-working, Leahy noted the social aspirations of Blair’s Britain. He took The Big Tent and industrialised it.
In the mid-1990s, the supermarket chain had begun to shrug off its “stack ’em high, sell ’em cheap” reputation, the legacy of market trader Jack Cohen, who founded the group in the early part of the 20th century.
In 1995, Tesco outsold Sainsbury’s in the UK for the first time to become Britain’s pre-eminent food retailer, a position it has retained ever since. It is now the third biggest retailer in the world, with global sales for the last year of more than £62.5 billion.
In the UK, Tesco sold £42.25 billion (€47.8 billion) of goods and services in 2010, the equivalent of £80,000 a minute. It now offers banking, insurance, mobile phones and clothing amongst many other things. Food is just a part of it.
One secret of its success is the information it holds on customers, derived largely from its Clubcard loyalty scheme. The first Clubcard was launched in 1995; today there are more than 12 million of them across the UK (and 35 million worldwide), helping Tesco create what it believes to be one of the largest databases anywhere in the world.
It has been estimated that shoppers buying 20 items each a week generate about 12 billion pieces of data each year. This allows Tesco to monitor changes in taste.
For example, the Finest range of more expensive food was created to stem the leak of customers who went off to Waitrose or Marks Spencer for special treats and during key spending periods like Christmas. Tesco Finest now sells more by value than Coca-Cola in the UK.
Other trends were spotted early, such as the green consumer and the desire for a healthier lifestyle among groups of shoppers.
Leahy was able to move quickly to reposition the Tesco message to take advantage with innovations such as 24-hour opening, the Healthy Living range, Organics and SoGood (a private label soya milk brand), as well as in entirely new sectors like mobile phones and financial services.
Tesco now controls over 30 per cent of the grocery market in the UK. In 2010, the chain announced profits of £3.4 billion. To this is added their ambitious international expansion. Its Irish stores are part of a broader growth strategy that has India, China and the US firmly in its sights.
But then, there is the other part of the Tesco story, in which it has been forced to defend itself on several fronts – from its treatment of suppliers and its impact on competition to the social and environmental cost of its out-of-town store building programme.
Tescopoly is a campaigning group dedicated to challenging the rise of the supermarket. It claims there is growing evidence that Tescos success is based partly on trading practices “that are having serious consequences for suppliers, farmers and workers worldwide, local shops and the environment”.
The supermarket says they take care to identify the right sites to build new stores and work with councils to ensure their developments benefit the community, and in some areas offer regeneration opportunities. Opponents accuse them of bulldozing their way in with armies of lawyers.
One local councillor said: “When a new store is turned down, supermarkets often appeal, return with new applications or throw money at the planning process until they get their way – and their new shop – regardless of the wishes of local people.”
The promise of new jobs created by the stores came under fire recently following the revelation, in Tesco’s own annual reports, that the number of full-time jobs offered had fallen over the past two years. The suspicion remains that the creation of new jobs is matched by cuts in other areas. The Association of Convenience Stores, a UK lobbying group for smaller retailers, argues the building of new supermarkets is killing off small stores in town centres, and in doing so putting many people out of work.
In response, a Tesco spokesman said: “We said we’d create 11,000 new jobs in the 2009/10 financial year and we created 10,182. Tesco’s track record in job creation is second to none.”
Ironically, given its humble beginnings, Tesco is now fighting a battle from below, from cost cutters such as Lidl and Aldi. As recession bites, Tesco must drive costs down ever further to remain competitive just as world commodity prices spike sharply.
The dilemma of placating already squeezed suppliers will define the next phase of its development just as Sir Terry Leahy leaves his job: the architect of the company’s growth stood down this month after 14 years. His era was a period of unparalleled retail success, in which Tesco came to mirror the tastes and aspirations of the British people. But like all mirrors, we don’t always like what it shows us.
