I’ve been following the developing Tesco’s story with some interest as Retail has been my thing in various guises for quite a while now. I’ve worked for retailers and with retailers as well as being a too frequent visitor and so understand the models they use and the pressures they are under.
This ongoing scandal, which has seen our biggest retailer take a hit on both its profit figure and market value, sounds to me like it’s the result of a panic reaction to three successive profit warnings and the chipping away of its market share at both ends of its market demographic.
So, has Tesco’s got too successful and is now getting its comeuppance?
Possibly, yes but here I think they have really suffered from the fact that they have previously been lead by superstars of the retail world in firstly Jack Cohen, then Ian McLaurin and latterly Terry Leahy who have all left a positive mark on the business and the last encumbant, a Tesco’s veteran, just wasn’t up to the job. Didn’t have that retail stardust if you like.
Having lost a bit of momentum to the discounters in the form of Aldi and Lidl who are both opening new stores as well as Waitrose who continue to up their game, the previous management team, unsure of what to do to halt a decline in market share paniced.
Rather than take the time to sit back and reflect on performance and where things might be improved, it would seem that they went down the route of being a bit, err, creative over the booking of rebate payments received from suppliers.
The payments by suppliers to retailers is a pretty standard feature of the industry and whilst I have to admit, it does seem strange when you would expect a retailer to pay the supplier for the goods it sells, it is an established practice when you are a supplier keen to get your product in one of the best spots in a store or have a particular product on promotion.
What would normally happen is that rebates are paid over at the end of a month or a quarter but here, I suspect that they were booked as payments before the money was actually received, making it look like Tesco’s were doing better than they otherwise would have been.
A true knee jerk reaction of a management team who wanted to make it look like the Tesco juggernaut was not slowing down as much as it actually was.
Instead it’s had the effect of making the business look like it has run out of ideas. The pioneers of the out of town supermarket, who then became one of the first to move BACK into the high street with their Metro and Express formats, who were one of the first to harness the power of consumer loyalty-led marketing with the Clubcard and then to link grocery spends to rewards to financing your weekly shop have hit a wall.
Tesco are NOT going to go bust but the business does need to re-group and re-think. The co-location of Harris and Hoole coffee shops are a positive in my view and provide a good alternative to the old in-store cafés which looked, at best, like a school canteen. I also think they need to take a good hard look at some of their Metro stores in prime locations to see if they work. Some undoubtedly do but the one I use every weekday morning doesn’t. At 7.30 in the morning, shelves are being replenished, the floor is being cleaned and there are always cages littering the shopfloor making it have the look and feel of an assault course. It’s not a pleasant experience, just a convenient one and if the M&S further up the road stocked my favourite brand of energy drink, I’d go there instead as the stock levels are better, the choice is wider, the store looks nicer and I wouldn’t be tripping over empty boxes or dodging the floor cleaning machine.
Tesco’s needs a strategy re-think, it needs to become a better shopping experience, it might even need to have different store formats for its Finest and basics ranges so they can take on their competitors at either end of their market. Maybe it should take the Florence & Fred range which is currently being advertised as a fashion brand OUT of a generalist retailer and into its own stores to see if it can cut it on the High Street in its own right and move it away from the feel of a supermarket pile it high, sell it cheap brand. They have the real estate portfolio to make either option relatively straightforward.
RETAIL IS DETAIL – it’s about getting things right for the customer. It’s about SERVICE.
Let’s hope our biggest retailer will take the time to understand what has been lacking this time and fix it.