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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