Today Tesco supermarket, UK’s largest retailer reported the worst results in its history…one of the biggest losses in UK’s corporate history.
The news brought shockwaves in the financial market and in retail quarters.
Personally, I am not surprised.
What I am perplexed about is, why is anyone surprised?
What were they expecting? Miracles?
When Tesco CEO Dave Lewis announced his so-called recovery plan for the retailer, I wrote a blog post in which I categorically stated that it was a plan that was destined to fail.
His plan reminded me of a scene in Argo in which one of the ministers asked the Ben Affleck character: do you have a better bad plan?
Mr. Lewis could not have come up with a better bad plan for Tesco recovery.
Sometimes I think to myself, those guys in high places are paid millions to think and the types of ideas they come up with; you wonder how they find their way home at the end of the working day.
What Is Tesco’s Problem?
I have a client who is a medical doctor. He practices a new type of medicine called ‘Precision Medicine’.
Precision Medicine targets the root cause of a disease.
He said, in the conventional healthcare system, the medics ask the question: what symptom is the patient experiencing?
In ‘Precision Medicine’ the question that is asked is: why?
If someone has diabetes, in the conventional healthcare system, the doctors attacks the symptoms of the diabetes.
In ‘Precision Medicine’, they ask the question, why does this person have diabetes?
Diabetes, is not an infectious disease, it has long incubation period.
So the question ‘Precision Medicine’ ask is, what behaviour was the person engaged in to cause them to contract diabetes?
The two questions produce completely different answers.
How does this analogy relate to retail and Tesco in particular?
Tesco and the other big three supermarkets are struggling because Aldi and Lidl are eating their lunch.
The question Mr. Lewis needs to ask that he failed to ask is: why is Aldi and Lidl eating Tesco lunch?
Least I forget, Waitrose is eating the dessert.
What is Aldi and Lidl doing right that the big four supermarkets are doing wrong?
That is the question Mr. Lewis was supposed to start with when he took over as Tesco CEO.
Instead of focusing exclusively on price, and engaging in price war with Aldi and Lidl, he should have asked the question, what is it about Aldi and Lidl that they are succeeding in pickpocketing Tesco customers?
What Can UK Big Four Supermarkets Learn From Procter & Gamble?
The highlight of Mr. Lewis recovery plan was to close down so-called unprofitable stores and sell properties.
Mr. Lewis is not a retail guy, he is a corporate turnaround guy.
When corporate turnaround people arrive at a sinking business, instead of finding the leaking hole and seal it, they throw grenade into it….fire staff and close divisions.
Before a retailer decides to open a store in a particular location, they conduct demographic research into the area.
They ensure the local population fit their target audience and the market is big enough to warrant them opening store in the area.
Those stores Mr. Lewis closed down were opened because his predecessor determined that the population in those areas fit Tesco target audience.
The fact that the stores where unprofitable has almost nothing to do with location.
It has to do with the fact that they were not making enough sales and they had high shrinkage levels.
Instead of addressing those two core issues:
Mr. Lewis opted for the easy solution…close down the stores.
How motivated and enthusiastic does he think staff from his other stores are going to be, when they see other stores being shut down?
Small wonder Tesco had the worst results in its history.
Remember my ‘Precision Medicine’ doctor…Why does the patient have diabetes?
Mr. Lewis does not want to answer the questions:
When you ask the question: why? It suggests you might have the answer.
Who want to find answers when you can easily blame difficult trading conditions?
As to the reason sales were down, Mr. Lewis and his team should have conducted ethnographic research, which is the type of research Procter & Gamble is well known for.
They should have left their hundred stories offices and go into the stores themselves to speak to their customers and staff.
Instead of shopping at Waitrose or John Lewis and expecting a marketing agency to get the answers for him, he should have mystery shopped his own store at night to see the type of service his staff deliver.
How To Increase Retail Sales
Aldi and Lidl are munching on the lunch of the four big retailers because they are answering these three questions:
Who are we selling to?
When Sir Terry Leahy was asked how he transformed Tesco into a global giant, he responded that when he took over Tesco, he asked the question: who do we serve?
When he got the answer to the question who Tesco served, he went about creating a business model that served his target audience.
Aldi and Lidl reached out to customers who wanted reasonably priced but quality products.
It just happened to be the customers of the big four supermarkets.
What are we selling to them?
When Sir Terry Leahy asked the question: who do we serve decades ago, the answer he got was Tesco served the ‘Ordinary Joe’ who wanted to sneak out of his office at lunch, rush into a supermarket and grab a quite bite.
He did not want to be stood in a supermarket queue for half of his lunch time.
Well, times have changed.
That ‘Ordinary Joe’ now have the option of going to Waitrose or Prêt à Manger.
The ‘Ordinary Joe’ can now do his shopping from the comfort of his sitting room.
So how can Tesco craft its offer to entice him back?
As far as I can remember, there have not been a ‘Potato Black Plague’ in recent years that swiped out a portion of the population.
Those Tesco customers are still very much alive and kicking, even in areas that Mr. Lewis decided to close down stores.
The problem Tesco has is, its offering is not enticing enough to entice the ‘Ordinary Joe’ any longer.
Does Mr. Lewis want a hint?
Aldi and Lidl sell high quality reasonably priced products made in Germany.
Made in Germany is what Aldi and Lidl are selling, not price.
How Are We Going To Sell It To Them?
Remember, people shopping behaviour have changed.
The damn internet has removed the need for shoppers to even visit retail stores.
The question is, what is Mr. Lewis going to do about that?
Is he going to whine and moan like his predecessor or is he intending on closing down all Tesco stores?
Years ago, people went to retail stores to buy merchandise.
These days, they go to buy the experience of buying the merchandise.
This is the reason the same crappy made in China product that is sold in Tesco for £50 is sold in Harrods for £500.
Those who buy from Harrods do not go there only to buy the crappy stuff but the experience of buying the stuff.
What types of experience can Mr. Lewis create in Tesco stores that will entice the ‘Ordinary Joes’ to return?
This is your assignment Mr. Lewis!
I believe Tesco can still recover its position in the world of retail if only Mr. Lewis will answer the question: why?
And he does not even have to try harder. It’s not like his competitors are doing any better.
It’s a case of, even though we are bad, we are still better than our closest competitors.
It will take years for Aldi and Lidl to get anywhere close to dethroning any of the big four supermarkets.
Therefore, we do not need to start pressing the panic button and announce Tesco obituary…Not just yet.
However, if the lessons of Woolworth has taught us anything, it is the fact that the line between success and failure in retail is very, very thin.
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