Iceberg Right Ahead!

Titanic is one of my all time favourite films – a classic love story set in the midst of an important historical human disaster means that it has most bases covered so that even if your’e not overly fussed about the core story of the film you can still marvel at the visual spectacle being presented. But I am not here today to discuss Titanic, instead I am going to talk about another potential modern disaster but this time it involves icebergs of the lettuce variety…the big ‘T’ in question is Tesco and the current perception by some that it too is heading toward disaster.

As much as I love watching Kate and Leo, I’m not sure they’d be good at working in a supermarket

OK so that was a little bit of a tedious hook but there are certain parallels that could be made if I had the time or inclination, but instead I think it’s best for me to expand on my thoughts surrounding a giant of the retail world not just in the UK, but on a global scale too, and the seemingly perfect storm of events which have led to it being savaged by the British press and other public figures despite the fact it remains a major part of the lives of millions of Brits.

For those of you not familiar with Tesco, it is the largest of the ‘big four’ British supermarket chains and by far the leader in terms of market share and revenue with 28.4% and £63.5b respectively. Established in 1919 Tesco was predominantly a grocery store with a focus on the South East of England up until the 1990’s when it aggressively expanded into seemingly every corner of the UK with a focus on large out of town supermarkets and a diversification into everything from financial services and telecoms to electronics and clothing. In a time when bigger meant better Tesco managed to one up their competition by offering seemingly everything for every customer; the introduction of the Value and Finest ranges gave a broad price range of own goods on offer, and the revolutionary Clubcard scheme not only encouraged shopper’s loyalty but also allowed the retailer to identify customer’s specific needs and tailor their stores and offers to get more of people’s money.

In many ways Tesco seemed unstoppable and ahead of the times; closer analysis of people’s spending behaviours is something that most company’s can still only dream about, and although social media and Google analytics allows closer monitoring than ever of people’s interactions with brands it is still amazing that Tesco were able to get such an early foot on this road in a move which still sees results. Homogenisation of various services under the Tesco umbrella also seemed like a massive masterstroke and in some ways mirrored the huge range of products that retailers like Walmart offer, but tailored to the more reserved British audience to boot. Getting your phone, energy, internet, insurance and banking controlled by just one company may have seemed a little too science fiction for some, but the savings which could be made for some customers made it worth it, and of course although a lot was covered under the Tesco brand underneath it all was a raft of experts and underwriters from the industry to make sure it was all in safe hands.

The Tesco Extra store in Cheshunt is one of the larger stores and is often the focus of press when the company announces big news

My own relationship with Tesco started at a young age just when the company was in the throws of overhauling itself; our weekly shop was done at a larger Tesco store complete with petrol station and lots of parking and although we later switched to a slightly closer rival (my home has at least 2 large stores of every supermarket within a 15 minute drive!) my own brand preference has always been Cheshunt’s finest. It is possibly this fact that Tesco’s global headquarters is a mere stones-throw from where I live that for a while I had quite a strong urge to work for this retail giant at any level; when I was still in sixth form I (unsuccessfully) applied for a weekend job at the large Tesco superstore based in Cheshunt itself, and I also applied for several of their graduate schemes – some based at their head office but also out in the actual stores too.

It was shortly after I finished my degree in 2011 that I had my first (and last) brush with working for the company and it was at a time when the business itself was beginning to realise that the UK retail market was undergoing severe changes and as a result was reacting as quickly as possible. As part of the recruitment process Tesco requested that I spend a day in one of their stores before going to a more formal assessment day, by this time I had a job next door to that very same Tesco superstore I had once applied for (in an equally vast M&S…another foundering giant in icy waters). I had heard we would be allowed to choose which store we spent time in, but instead of being able to select the more traditional ‘Extra’ stores, choices were limited to a series of much smaller ‘Express’ stores which were already beginning to form a significant percentage of the over 6500 stores bearing the Tesco logo.

A lot of Tesco Expresses (like this one in affluent Cuffley near Cheshunt) are former pubs or shops

Maybe I was a little slow to realise that it was this weapon that the retailer had chosen to use in the upcoming war; the 2008 financial crisis had seen many shoppers change their spending habits dramatically and with the prices of everything from fuel to frosting jumping alarmingly, a lot of people decided that they no longer wanted to spend hours of their time aimlessly wandering overstocked aisles looking at BOGOF offers and then queuing to get out of the car park. Although Tesco had been very quick to adopt an online ordering service, the sheer logistics involved in getting shopping to customers meant that profit margins took a very steep dive. In order to combat this Tesco (and other retailers) jumped on the bandwagon of another key emerging trend; the shift back towards shopping more locally in a ‘little and often’ style as opposed to the traditional big weekly shop. Seemingly out of nowhere scores of small convenience stores sprung up like a near plague all over the UK – taking the place of empty retail units, disused pubs or other such properties, stores like Tesco Expresses and Sainsbury’s Locals quickly rejuvenated unloved corners of the high street and brought jobs and shoppers alike. I now realise that my near recruitment was a part of this, and had I jumped through the right hoops I may well now be sitting in the small back office of a Tesco Express somewhere in the Home Counties.

At this away day Tesco seemed to show some of this significant shift in a little more detail. The various case studies that I had to complete involved a choice in the type of site for new supermarkets; brownfield vs greenfield and the like, as well as which new technology profits to invest in as part of a debate etc. I did actually find these tasks pretty fascinating, and it was clear that they were attempting to see who would be on board with this new image they were crafting for themselves and who may be able to take it further. On a personal level I am a big fan of the type of large retail park that I currently work at, but I concede that it may well not be the future for the majority of retailers and with the shift to online sales and more savvy shoppers that things are really going to change. But despite these manoeuvers by Tesco and other retailers, it seems that they were moving in the wrong direction and instead of futureproofing themselves, they have instead left themselves exposed in other areas and may well have struck ice – the only thing is that I believe that reports of a fatal hit are much overwrought.

Some new builds, like this Cambridgeshire store, have been abandoned even before they are open

This year has been a particularly bad one for Tesco; following on from the horse meat scandal which affected the vast majority of supermarkets (even Waitrose, but not M&S I hasten to add!), it was revealed that several of Tesco’s top table had been suspended (and subsequently left the company) after a series of financial overstatements and fiddling. The mainstream press and anti-corporation movement in the UK, who already objected to the hijacking of high streets to small supermarkets and the loss of local traders (despite the fringe benefits I mentioned before) seized this opportunity to brand Tesco as a bloated behemoth, headed to near certain disaster thanks to taking on more than it could chew. Admittedly they did little to help this perception; several well publicised cancellations of building projects and several store closures let the haters smell doubt, as did failings in international markets and the rumours of selling their auxiliary businesses like mobile network and TV services (true in the latter case). Most shocking for some (although not if you had seen the state of the building) was the forthcoming closure of the head offices in Cheshunt and move of operations to the firm’s other base of operations in nearby Welwyn Garden City.

Now you can’t have an analysis of Tesco’s current state of affairs without mentioning the elephant in the room, and that’s not their £6.38b loss reported in 2015! That’s right it’s the ever growing presence and market share of former ‘budget’ supermarkets Lidl and Aldi which have made inroads into previously safe territory for supermarkets, not just Tesco but also Sainsburys and Morrisons who have both also seen heavy losses. Whilst both Lidl and Aldi have had presences in the UK for quite some time, it has only really been in the last couple of years that sales have really taken off thanks to a combination of low prices, no frills products and just a shake of European quirkiness. Of course all of these have been present in their stores for years, but thanks to a major PR victory (either for Aldi/Lidl or against the big 4…you be the judge) lots of people have been alerted to the apparent bargains available – and once the middle class deemed it acceptable to be frugal so the masses have followed (where they sneer at the poor who have always shopped there).

Although I am personally not massively convinced of the benefits of these ‘value’ supermarkets, it really has shaken the market itself up and has given consumers a whole lot of choice – in regards to the price savings at Aldi/Lidl you cannot really compare a 39p bottle of cola to paying £2 for 2 bottles of Coke Cola at a large supermarket…admittedly for those not fussed by brands things may work out slightly cheaper, but it is worth remembering that Tesco and erm co have always offered own brand products and will always do so. So what is next for what is still the UK’s largest retailer and the 4th largest in the world? Well despite such a huge loss being posted, a lot of that is to do with one-off costs and the writing down of the value of a lot of land that Tesco own/are looking to sell. I suspect they will continue to streamline their operations to a certain extent and look at overturning their image into a retailer which is focused not just on offering the cheapest and biggest choice, but at offering the best value for the customer. Most of this is in movement anyway but one thing I hope they do not rid themselves of is the Clubcard scheme – this is mainly for personal benefits that it brings, but in an age where information is worth it’s weight in…well it’s worth a lot and it would seem foolish to throwaway any future gains just for a short term saving.

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