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2002-2005 > UK > Consumer society
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Springs
The Daily Telegraph
25.9.2005
'What's wrong with giving customers what they want?'
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/09/25/cctesco25.xml
Reference:
Wanderer above the Sea of Fog
1818; Oil on canvas, 94 x 74.8 cm; Kunsthalle, Hamburg
Caspar David Friedrich b. Sept. 5,
1774, d. May 7, 1840
http://humanitiesweb.org/human.php?s=g&p=c&a=p&ID=115
'What's wrong
with giving customers what they
want?'
Filed: 25/09/2005
The Daily Telegraph
Tesco's chief executive, Sir Terry Leahy, is
profoundly unimpressed with those who say that the hugely successful supermarket
chain has become a dangerous monster. He puts the case for the defence to James
Hall
It is Monday lunchtime and there is mayhem at a newly opened Tesco store in
south London. The 25,000 sq ft supermarket on the site of the former south
London Hospital for Women in Clapham is just four hours old and already the
yummy mummies of Wandsworth are getting belligerent - they are using their
three-wheeled buggies as weapons in a gladiatorial contest.
Harry, the Clapham checkout manager, puffs out his chest in pride at the volume
of people in the store and the queues at the checkouts and shushes me when I
point out that the J Sainsbury store down the road is a more relaxing place to
shop.
The Clapham scenes symbolise Tesco's success. Local shoppers have 10 big
supermarkets to choose from on a 5km stretch of road, and yet this mob has
descended on Tesco.
Its latest interim statement tells the story. Last week Tesco said that
like-for-like sales - ignoring the effects of new selling space - at its UK
stores during the first half of the year were up by 6.7 per cent excluding
petrol. Pre-tax profit across the group rose by 18.7 per cent to £908m.
At a time when almost every other retailer in the UK is seeing sales fall (total
like-for-like sales across the UK over the three months to September were down
by 1.2 per cent), the growth is remarkable.
"The phrase 'firing on all cylinders' is over-used with respect to Tesco, but
looking at the first-half performance, it remains apt," says Mark McCullough, an
analyst at Goldman Sachs, the US investment bank.
Sir Terry Leahy, Tesco's chief executive, says he actually wanted to open a much
bigger store in Clapham but was prevented from doing so by the planning
regulators. But he pours scorn on my squeamishness about the noise and bustle.
"In terms of the shopping experience - it is not me saying it, it is the
customer. They say there is more product on the shelves, the price is better and
the checkout services are better," he says.
It is probably naive to want soothing ambience. "It is not about love, it is
about convenience," says Andrew Seth, a serial director and author of
Supermarket Wars, a new book on food retailers.
Tesco's expansion is exceptional. Between now and February the group will create
7,500 jobs in the UK and 9,500 in its 12-country international division. By
contrast retailers such as Kingfisher, the DIY operator, and Matalan, the cheap
clothing retailer, have all sacked staff recently.
"Tesco is bucking all the trends. Some of the reasons are short-term, and some
are long-term factors that are not going to go away," says Seth.
The secret behind Tesco's success is that Leahy is focused on "following the
customer", according to a former Tesco director.
This means that Leahy is obsessed with trying to give consumers exactly what
they want at a price that will surprise them. "It is a simple recipe. It is
stepping up your organisation to serve customers rather than serve other
interests," says Leahy.
Through its size and its multiple formats - such as the Express convenience
stores or the Tesco.com website - Tesco has a wide reach across demographic
boundaries. For example, a convent of Carmelite nuns in Darlington orders its
groceries from Tesco's internet operation.
But the retailer's biggest advantage - its sheer size - is its most
controversial. According to figures released last week by Taylor Nelson Sofres,
the market research company, Tesco has a 30.3 per cent share of the £80bn
grocery market, almost twice as much as Asda, which occupies a distant second
place.
Leahy disputes these figures, saying that Tesco's share of the food market is
actually 20 per cent and its share of the total retail market is 13.5 per cent.
But there is little doubt that it has huge and ever-growing muscle when
negotiating with suppliers - which reinforces its ability to offer the cheapest
prices.
Inevitably, Tesco's dominating position in the market makes rivals jittery. Last
week Justin King, the chief executive of Sainsbury, which has a 15.7 per cent
market share, spoke out about the land banks he says that Tesco has amassed.
King says that if these were to be converted into stores, Tesco could quite
quickly have 40 per cent of the market.
Leahy says that those figures on Tesco's land banks are simply wrong. "One has
got to be careful to discern between competition and sour grapes," he says. That
said, this year Tesco will open new space equivalent to just over half of Marks
& Spencer's total store estate.
However, observers with a global vision say that Tesco's size should be put in
context. Compared to Wal-Mart of the US it is a titch. This year alone Wal-Mart
will open new space equivalent to the entire size of Tesco.
So what does Leahy think of Wal-Mart's complaint that Tesco has become too big
in the UK? Leahy, who is a fairly earnest executive, simply chuckles.
'What's wrong with giving customers what they want?', DT, 25.9.2005,
http://www.telegraph.co.uk/money/main.jhtml
xml=/money/2005/09/25/cctesco25.xml
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