TESCO - how are the mighty fallen? 5 important lessons for us all

How are the mighty fallen.  

At its peak, it was said that one pound in every seven spent in the UK went into a Tesco till. Those days appear, at least for the forseeable future, to have gone with calamity after disaster overtaking the troubled supermarket.  

With their shares at a 11 year low, dividends being cut and the market capitalisation falling nearly half since the beginning of the year, the marketplace has lost confidence.  Warren Buffet announced his dollars invested in Tesco as possibly his worst ever investment and with analysts at HSBC estimating a wapping £3bn to rectify their problems, this story appears have a long way to go.  

The new CEO, Dave Lewis, is encountering a rotten structure apparently built on corporate greed (the lavish private jet is on the market for £23m and big bonuses have been frozen), corruption (allegations of the sale of personal information of 5m customers) and desperation (misposting of income and costs to massage financial trading information by c£260m).  8 Senior Executives have been suspended pending their investigation whilst Deloitte have been brought in to investigate the scale of the scandal.

Tragically for Lewis, these issues are underpinned by a more serious concern - the TESCO model for making money no longer works.  Like for like sales are down 5%+, whilst thin margins are under pressure and profits are down over 90%.  Once the dominant brand that reshaped the high street, Tesco's brand has been, some say, irreparably tarnished with customers, suppliers and the financial markets.

So what can we learn from this?

1. Understand your customers.  Tesco prided themselves on understanding the behaviours of their customers. This may have been true for those who shopped with them but they seem to have massively misjudged the scale of changing customer shopping habits:

• Time poor. Customers have forsaken the weekly shop and are avoiding the weekly shop at the out of town supermarket replacing it with more spontaneous, focused visits to local providers for specific requirements. A recent survey suggested that 3 out of 4 people don't know what's for dinner at 4pm that afternoon.

• Energy poor.  Online sales continue to increase (with increasing deliveries being made to the workplace) with less brand loyalty and more focus on value. Wealthier customers are favouring premium players, like Waitrose, who provide exceptional service and quality.  
• Cash poor.  Discounters like Aldi and Lidl are showing exceptional value and customers are able to bulk buy on a wider range of products.

Action: to really understand your customers and, more importantly, those who aren't your customers - find them and talk to them.

2. Values based Leadership.

The cultural malaise of Tesco seemed to confuse the concept of bringing value to consumers to creating a negative culture which did not value sustainable links with suppliers (remember the horsemeat scandal?), did not value the wider community (including other businesses and retailers) and can not have listened to its staff who are often the best placed to understand what people really think.  Through valuing profit above everything else, Tesco Executives created a vortex that would inevitably undermine the company itself.

Action:  be clear what you want the organisation to be known for and ensure that you measure it as much as the more tangible finance related indicators.  As part of this, make sure you listen to your staff.

3. Clear strategy. Michael Porter's seminal growth strategies paper still rings true.  To be successful across the marketplace, businesses should strive for either cost leadership or differentiate themselves.  Trying to do both, a business risks doing neither and becoming stuck in the middle. Lewis has mentioned that he favours a return to the "brand archaeology" and  core values of TE Cohen.  This approach will require a wholesale reshaping of the business.  

Action:  Be clear how your business will differentiate itself successfully and be single-minded in achieving this.

4. Organisational simplicity.  In the last 18 months, Tesco's product number increased by 31% - each product requiring management, adding greater cost.  Tesco should have reflected their customers' behaviours who who have adapted to the recession by wasting 20% less.  Organisational complexity, whether through increasing product numbers, serving different markets or creating new delivery channels will result in a model which is more expensive and difficult to manage.

Action:  new products, markets, and delivery channels should only be introduced following sound analysis. 

5. Never believe your own publicity.  The trouble with "doing rather well" is that it is quite easy for organisational arrogance to take over, impairing judgement and clear thinking. Irving Janis' "Groupthink" concept suggested that organisations need to constantly bring in new viewpoints to offset the inevitable increase in confidence that repeated successes will bring.   

Action:  constantly remind yourself that you are one step from disaster and that you have done well due to the support of customers, suppliers and staff - not despite them.


Chris Lorimer has over 20 years Executive experience in business in both public and private sector and works with a wide range of businesses of all sizes.  For further information on this article or on Lorimer Consulting Limited, email chris@lorimerconsulting.co.uk