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.