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Tuesday, 23 September 2014

Tesco

Sorry! I had to take up this topic.

Tesco has a new Chief Executive. It is notorious that new CEOs try to pile bad news onto their predecessors, and to make sacrificial victims of the close associates of the former CEO.

It appears that this case cannot be dismissed as another example of that syndrome.

There has been puzzlement at the fact that Tesco has been delivering reasonable profits, despite their suffering from a very costly mistake in America and losing market share in their UK base business. This has coincided in time with a significant recession in the European countries where they have become entrenched.

The picture that is emerging is of a massive acreage of shop space, and a costly on-line operation, run by a bureaucracy with a low-paid and dispirited mass workforce.

Meanwhile customers have become more conscious of what gives them value for their scarce money. Instead of going routinely to one store for a weekly [or monthly] 'big shop', there is much greater selectivity in customer behaviour.

The comparison of price with perceived value remains important: simply offering the cheapest goods with 'no frills' and minimalist quality control has only limited attractiveness. While price advantage attracts customers to new outlets, the slow realisation that the range of goods is modest, and the availability of many items in stores is intermittent, causes disillusion. The more quickly they grow, the more customers will go through a cycle of welcoming, doubting and dismissing the super-cheap outlets.

The stores with bigger ranges and more-assured quality will recover their competitive power; especially while the delusion of macroeconomic recovery prevails. But as the competition between John Lewis/Waitrose, Morrisons, M&S, Sainsbury's, the Co-op, Tesco and local markets reveals significant excess capacity. The role of charismatic business leaders will return to central importance: and the ability of such leaders to identify and empower adequate close supporters will be a decisive factor in their success or failure.

Retail is going to become much more exciting in the next couple of years: and for some of the biggest businesses it is a question of survival.

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