More Staff and Brighter Stores Won't Cut It - Tesco Needs a Culture Change

It is not often that a business story makes headline news but that is what happened when Philip Clarke of Tesco announced that he would start managing their UK arm direct, leading to the resignation of the man he appointed to run the business just a year ago.

The news prompted a rush of comment from investment analysts and business writers. Most referred to a profits warning following a disastrous  Xmas where a much publicised £500m price drop campaign actually turned out not to be such a good deal after all with customers instead going to other supermarkets where prices were not much different but the shopping experience much more pleasant. Deeper digging though shows that Tesco’s troubles have been going on for years. Market share, that critical barometer of competitiveness has been steadily dropping, and sales per square foot have been declining.

How did the mighty Tesco, much trumpeted taker of 1 in 8 pounds spent on retail products, get to such a state. The commentators talk about the resurgence of the other big supermarkets, Morrisons, Sainsbury and ADSA, and the growth of Waitrose at the top end of the market,  and discounter ALDI , all putting a squeeze on Tesco’s middle ground position. They talk of non availability of funds for investment in the UK because of the drain on resources from overseas investment. They point to structural issues like the rise of on line shopping making purchase of items such as books and CD’s in store less attractive.

Philip Clarke’s reasons for taking control of the UK are that “Greater focus will allow me to oversee the improvements that are so important for our customers”. To this end he plans to invest in more people and more exciting stores.

Clarke and the analysts have overlooked a key issue - it is arrogance that has landed Tesco in its current difficulties. Tesco has believed that it is so big and powerful it can treat customers (and suppliers) how it wants, and get away with it.

 It has forgotten the most fundamental principle of business success, namely that you ignore your customers at your peril. For years every article about Tesco has received hundreds of comments about the customer experience, some good, but mostly bad. Even a cursory tracking of shopper views across the internet, on Twitter, on social networking sites like Mumsnet would have revealed how many claimed to be fed up with shopping at Tesco. Tesco’s own market research must have told them this too. Yet, they did not act.

So, unless Mr. Clarke leads culture change at Tesco, shows some humility, and pays more than lip service to what shoppers want, brighter stores and more assistants at the fresh food counter won’t turn this ship around.  It remains to be seen whether a person who started at Tesco when he was 14 stacking shelves in his father’s store and been with them all his working life can recognise and correct the cultural issues.

Consumers Continue to Feel Gloomy

Despite the welcome uptick in consumer confidence reported in January many people remain worried about their finances.
Institute of Grocery Distribution data shows that over40% of the population feel that they will be worse off this year than last. It would seem that a slowing of the inflation rate combined with modest decreases in the price of gas and electricity are not enough to offset rising fuel prices, and a lurking fear that redundancy may be just around the corner. The gloom is confirmed by Bord Bia, the Irish Food Board people who regularly monitor consumer sentiment in Britain, Ireland’s largest export market. Their latest survey in the “Feeling the Pinch” series indicated that when asked the question “How well do you think things are going in the British economy these days?” 86% of people answer badly or very badly.

Little surprise therefore that when asked “What one thing will become more important over the next six months?”, 58% of people answered “saving money”. (Source IGD).

Out in the market place we see supermarkets continuing to burnish their value credentials, with offers ranging from money off promotions to vouchers for petrol. The generally quoted figure for goods sold on promotion is close to 50%. Even the more premium grocers have had to jump on the promotional band wagon with Waitrose recently saying that their percentage of goods on promotion had increased in the past year from 17% to 28%.

That said, consumers are not always hell bent on buying the cheapest possible items. When asked which  products were worth paying extra for,  54% said they were prepared to spend more for high quality ingredients, 47% for high welfare/ free range, and 41% for locally produced. The percentages dropped to 26% for Fair Trade and well known brands, and 20% for organic products. (Source: IGD).

There are some glimmers of light among the general battening down of the hatches. 2012 is an event packed year for the UK, and a combination of Euro 2012, the Olympics and the Diamond Jubilee may encourage some to splash out. Generally though, consumers will remain wary.

Red Tractor Logo - The Reality

The hoo-hah among some farmers about Countryfile’s piece on food labels and what they mean for animal welfare seems to have died down, replaced by a new furore over Panorama’s look at whether rich/non farming types should receive the single farm payment.

If the people behind the Red Tractor are returning to business as usual, breathing a sigh of relief that the story has blown over, then they should think again.

Careful viewing of the Countryfile piece reveals no inaccurate reporting but rather a gentle effort by John Craven to get at the facts behind three labels – Red Tractor, Freedom Foods and Soil Association.  

The bald facts are that when it comes to welfare the Red Tractor label stands for little more than compliance with minimum legal standards.  This was tacitly acknowledged by their spokesman.

Freedom Foods requires more than the legal minimum in some areas. Animals cannot be transported for more than 8 hours compared with the 24 allowed by the Red Tractor. Pigs get more space than the legal minimum. They have to have bedding to lie down on, and be able to root around, neither of which is mandated by Red Tractor. Farrowing crates are being phased out next year, but Red Tractor has no plans to forbid them. When it comes to chickens, Freedom Food says no more than 15 per square metre compared with 19 for Red Tractor, and chickens must have natural light and straw bales to peck on, neither of which are required by Red Tractor.

The Soil Association also requires more than the legal minimum in some areas.

What the Red Tractor team need to understand is that animal welfare matters to consumers, and whilst there is still huge confusion among the majority about the facts behind the different labels, consumers are becoming more sophisticated and knowledgeable by the day, prompted by campaigning groups and enabled by technology which allows instant access to the internet for research and verification.

Red Tractor therefore needs to be clear in itself about what it promises, and transparent about what it communicates because it will continue to be exposed if it is not. It is no bad thing for it to stand for a guarantee that the food which carries its label is produced to legal requirements. But it has to be confident that this is indeed the case. Headlines such as “AFS promises action after shocking Red Tractor expose” (Farmers Guardian February 2012), must not be allowed to happen. It would help avoid another expose if it uncompromisingly stood for food produced in Britain instead of being prepared to accept all comers and rely on having a Union flag on the packet to confirm Britishness.

Whichever way it moves forward, the 15 member strong Red Tractor board would do well to give thought to the changing nature of consumer feelings, the rise of ever stronger campaigning groups, and the place of Red Tractor in this new environment.