Tesco. A brand new story needed. What will 2020 hindsight say?
Tesco hit the headlines today having had a big wakeup call over Christmas with a significant fall in Sales. Are Tesco losing their way or taking their eye off the ball?
The globally successful retail giant, revered abroad and reviled by some here at home, saw like for like sales fall of some 2.3% in the 6 weeks before Christmas – while its competitors saw growth. Much blame was put on a misleading “Big Price Drop” campaign, but it’s clear that Phillip Clarke, Tesco’s new CEO, understands the issues are strategic rather than tactical. These surprising results, along with disappointing profit forecast, caught the City out – a 16% fall in share price that also hit their competitors. Mr Clarke’s statement yesterday signalled that Tesco had taken their eye off the ball.
They’d been running UK stores “hot” for too long – boosting productivity by under investing in staff and service – in order to keep the international expansion going strong (under Mr Clarke for recent past) and keeping analysts happy at continuous quarterly growth messages. The core business suffered as Sainsbury’s, Morrison’s and the others got their act together and improved their own offer – the service, the location, the choice – and everybody competed on price. Low prices have become cost of doing business rather than a differentiator for supermarkets, which means customers acknowledge these other elements of the offers to help decide and choose to shop.
Where the “Big Price Drop” made a mistake was the decision to reduce the clubcard points on offer to loyal shoppers, in order to pay for some of the price discounts. The Tesco Loyalty scheme has been hugely successful, but to deliberately reduce its effectiveness has had the opposite effect for Tesco than it had hoped. Rather than bring in new customers alongside its loyal customers, it has swapped them. Some Tesco loyalists have become disillusioned and tried out the competitors. For some this may be terminal. Price is not a differentiator. Clubcard points are.
By under investing in UK stores, Tesco has exacerbated the perceived value of their competitor’s over investment in raising their offer. More staff who better informed, fresher produce which more regularly replaced, good reward programs – some of which were pioneered by Tesco but improved by competitors.
Mr Clarke knows this. He says he will increase staff levels quickly. He says they’ll reduce their Hypermarket growth plans too. Tesco’s locations are pretty much ubiquitous for most of the core UK market anyway. If Tesco’s in store experience and service improve then this could be a positive pivotal point in Tesco’s history. If this is lip service, and the in store experience doesn’t improve to better Sainsbury as a minimum, then the pivotal point may be much more negative.
The core Tesco UK business experience – from the different store formats, to the digital offer, to the environments and different categories of offer and, vitally, to the communities they serve – must become the prime focus for Mr Clarke. His old remit of International must not effect investment decisions at home.
The Tesco brand can help. My friend, Robert Jones, tweeted yesterday that “Tesco needs a big brand rethink – one that’s too big to fail.” He’s right. But the knee jerk reaction is not to start this by launching a new master advertising campaign like “Every Little Helps” or looking at a new set of guidelines that shift colours and packaging and periphery collateral. The Tesco brand must aim high – and stand out again. It must stand for the best experience of UK retailing. This experience will be delivered by real staff, who are interested and knowledgeable in store. The products in store must be the best value not simple the best price. The store experiences must be positive as judged by the communities it serves. No easy fix. No single answer. But the brand must become strategically grounded in the core UK businesses for the next 2 – 3 years. This isn’t in rapid growth via new stores. This isn’t in low price tactical campaigns. Customer loyalty must be earned and re-earned not bought by discounts. The brand effort must start inside first. Staff and customers must be intrinsically involved in building and testing this experience positively.
The next few months will be interesting for one of the UK’s biggest organisations. How they reinvent themselves for their customers will be a huge case study in 2020. What we don’t know is whether it will be a positive or negative story. We just know it starts this week!