Drawn & quartered

Every quarter the UK retail market share figures make stimulating reading...winners, loses... but what are you meant to do with it?

Last week's Kantar Worldpanel trumpeted the huge news: Lidl is now the number seven grocery retailer in the UK.

What I found just as interesting was what's not being more clearly called out: inflation & store numbers

Hurrah! Inflation is driving top-line. So it should. The problem is, if you are not tracking ahead of inflation, you are still declining - and the big 4 are struggling and will largely continue to do so.

Tesco showing like for like growth should surprise no one. They have been rationalising their store base, so those staying open will see a natural rise in traffic as shoppers go to their next nearest Tesco.

If the Booker deal doesn't proceed. What then? If it does, Tesco will find themselves focused on store and supply chain optimisation and there are real risks of loss of short-term focus on the core as management time deals with structural property issues

Asda are stymied. The have the wrong store footprint for 2017 and beyond. They know it - but it's hard to see what they can do about it. They have over 600 stores, but for how long? They will need to find bottom line efficiencies to compensate for real terms top-line stagnation

JS are also in a bind, their NISA bid looks decidedly less tasty after the Morrisons/McColls coup and is already and unsurprisingly rumoured to be on hold. They have to hope the Argos move really delivers.

So of the four, only Morrisons seem to have their act together at the moment, but even then the McColls deal is not a slam-dunk and will have to deliver value. It buys Morrisons time, maybe two or three years as the deal expands their effective store base

The real inflation-busting action is happening in Lidl and Aldi who together notched up total market share gain of 1.3% points. And they are achieving this off a still-developing store base and c. 2000 SKUs many of which are confined labels

These factors are the killers. The limited range has a very limited impact on the number of items per trip shoppers buy, but they have a massive impact on system efficiencies and price. And will continue so to do. The more stores they open, the more winning they will do.

So here's a thought, when you see the quarterly share data, take half and hour and think about your business and retail customer investment choices moving forwards and consider what insights might be drawn

• Do the inflation check - who is winning, really
• Make sure you are modelling each chains store numbers and development plans into your thinking - where will each chain be in 1, 3 and 5 years - and what share will they have?
• If you aren't learning how to win with Aldi and Lidl, you are already losing
• If you are a food business - make sure you have a credible out of home strategy
• And I didn't even get to Amazon yet

Tesco: "It's the end of the world as we know it" - It really could be

Earlier today, Mark Webb - Head of Social Media Dixons Carphone - reissued an intriguing press release covering a two-store test, with Dixons operating concessions inside two Tesco Extra stores: Milton Keynes, opened 21st July and Weston Favell, Northampton which opens this Friday. 


The possible implications for Tesco and UK retail are profound.

Let's assume the test is a success (in terms of whatever KPIs Tesco / Dixons set), what then? The expansion across the remainder of the Extra estate would be a natural response, but what about the tech offer, albeit reduced in other stores and online?

It would make little sense to duplicate buying activities across Tesco & Dixons, not for the least part because the outcome would be a disconnected customer offer. So it seems the logical progression would be to hand over the entire suite of categories to Dixons.

Dixons get access to significant customer footfall in prime established retail territory enabling a further rationalisation of their retail space. Meanwhile, Tesco relieve themselves of backend and front-end staff and inventory costs. Instead of being a retailer, Tesco becomes a landlord charging rent and probably taking a % of sales.

Assuming this works for electronics, why stop here? Beers, Wines & Spirits could be outsourced to Majestic Wine; Health, Beauty and Pharma could be offered to WBA or AS Watson; F&F could be axed and Next invited in...In fact, there is very little Tesco could not out source to other people




In essence, Tesco would become to all intents a mini-mall operation and even their home delivery operations can be outsourced to a 3PL cross-funded by the suppliers participating in the delivery.

Given staff, inventory and rents are three drags on any physical retail model, the pilot with Dixons sees Tesco making a strategic inquiry as to whether it can liberate itself from these constraints.

Tesco - the property company that sells some stuff might be turning into Tesco the property company that let's other people sell stuff. This really could be the beginning of the end of Tesco as we understand it..

Morrisons: The safer way than Safeway

Morrison's capturing the McColl's supply contract is audacious. The decision to execute using the Safeway brand is not unproblematic.

Why so?

The continued expansion of Aldi & Lidl across the UK; JS's moves to acquire NISA and Tesco's drawn out deal to bank Booker means the battle for proximity store dominance is fully engaged and price competitiveness is crucial.

It is likely that most Safeway SKUs created will have an existing Morrison's counterpart and will be produced on the same lines. But this means more complexity for the factories to manage, more packaging, higher inventories of finished stocks, interrupted runs, more waste and overall impaired economics. This is unhelpful to McColl's; it could be damaging to Morrisons. Running with the existing Morrison's portfolio conversely would bring efficiency benefits to both.

Remembering Safeway?

Safeway is an old aunt who died some time ago. She wasn't anyone's favourite aunt and if truth were told, she had developed a rather unusual and not necessarily pleasant aroma over her last few years. Safeway disappeared in 2004 having seen customers flee away and then savaging itself with a programme of deep branded price cuts that proved self destructive. I dare anyone to name a signature Safeway SKU that they fondly recall or whose absence has been missed. Anyone making the "residual fondness" claim is either trying to post-rationalise or is seriously misguided.

A blow to Sainsbury & Asda

Whether this is a first step to a full acquisition of McColl's by Morrisons will have to be seen but overnight Morrison's have secured a serious grip on the UK proximity retail market. The deal blows a huge hole in JS's plans to acquire NISA. The value in that idea seems dead in the water. And it exposes Asda to the challenge of why they didn't see this play and make a move: as their sales continue to dip, there is no obvious path forward.

More reasons to drive with Morrisons

One can see the headline attraction of using the Safeway brand. Words like uniqueness and point of difference come to mind. And certainly one can make the case that it carries greater residual heritage than NISA's Heritage label. A less emotional view might have stressed the shared economic benefits of leveraging the Morrisons brand across the McColl's estate. Safeway may be nicer than NISA; but Morrisons is the safer way.

Tesco: Seeing the light, where's the tunnel?

It wasn’t meant to be like this. 

When Philip Clarke took over as Tesco boss, no one anticipated the pace of structural shift in shopper behaviours that is destabilising retail. Tesco were the most convenient and ambitious UK retailer;  they were and still are number one. So why does it feel so dire? The harsh reality is almost every reason underpinning Tesco's last twenty years of success has been turned upside down and inside out. It is hard to see any light at the end of Tesco's tunnel.

Being there

As enticing as it may be to believe Tesco decoded some retail holy grail and locked the secret away, deep in Cheshunt, the reality is much simpler and far less romantic: they have more stores than their competitors.  

According to the IGD Tesco operates over  3,300 stores in the UK with over 3.8million square meters of retail space. By contrast, Sainsbury have slightly more than 1,000 and ASDA over 500. Nor are the stores equally spread. Asda's northern and Scottish predominance presents serious growth potential in London and other regions where Tesco dominate. Tesco are the only truly national UK retailer.  Tesco just happen to "be there" more often than anyone else. But lack of choice should never be mistaken for love.

When Tesco launched Clubcard, it was no Harry Potter wizardry either: they just offered shoppers some extra, delayed gratification, value, accessible only through Clubcard. Their customers said "hell, I am here anyway, why not?"  Clubcard rolled out along with store expansion. Lots of people signed up, because lots of people shopped in lots of Tesco stores, in lots of places. It was just convenient. 

Convenience reframed

And convenience is the point. Most studies conclude the main reason shoppers patronise the stores closest to either their home or place of work, relative to whatever shopping trip / mission they need to fulfil. But, convenience is a moving feast. It used to be a hassle to shop on the high street: It was a high price, time consuming experience. Tesco drove out of town, superstores with spacious and free car parks. Everything under one roof.  Convenience delivered. 

And then came the internet and the symbiotic resurgence of small, proximity stores.  Do your big shop on line, and top up the incidentals at a locally convenient, small store, as you need to.   

That Tesco are growing their online sales is no help either. The greater their online success,  the bigger their structural challenges. The economics of operating large stores collapse rapidly when you rip out the high till-ring transactions, and then comes the second-whammy when residual spends head into small stores, even if they are Tesco's. For Superstores, it all means less staff hours to stack shelves, staff tills, cleans floors and provide shopper services. It harms the  shopping experience and drives more customers away. A truly vicious cycle. 

Tesco shareholders call for lower prices, better services and higher dividends: they yearn nostalgically for yesterday, rather than face the uncomfortable truths about today and tomorrow. 

As the UK grocery world reheats itself, Tesco can innovate all they like, cut prices as deep as they want, but they are, inconveniently, saddled with a collection of dinosaur assets: of Tesco's total shopping space, 76% is taken up by Extras and Superstores. Ouch.

Clarke knows this all too well - that's why he called time on Tesco's Superstore development. And while this trend will increase over time, it's not everyone's trend yet. Asda still see Superstore development as a valuable part of their model- they still have plenty of places where shoppers today can't access an Asda store.

Online - a glorified shopping cart

Tesco's success in online today, is a mirror of their physical success yesterday: they  had the shoppers and they got online first. But online is no more valuable a service to Tesco's shoppers than a trolley. It improves convenience. It serves to shift the location of purchase for existing shoppers. It is only an effective recruitment tool for emergent retailer and those with limited physical presence. In other words, Tesco's competitors. 

Tesco are vulnerable to a online pure-play like Amazon Fresh - who without legacy assets to support will, as an insurgent play, rip the ring out of prices. Scarily, Tesco are unwittingly and unintentionally preparing their shoppers for an Amazon future.

Being there...again

Clarke deserves no blame for any of this. If Sir Terry were still in the hot seat his reputation would be looking less shiny. Leahy drove UK superstore expansion, international expansion etc: yesterday's success is today's structural nightmare and whoever sits it the top job, these challenges and pace of change remain. Clarke's problem is he just happens to be there, now.

Seeing the light, finding the tunnel

So where from here? There are three possibilities facing Tesco.

1.      Tesco exits retail in the medium to long term and becomes a retail /leisure space operator – elements of this are already appearing and before you completely dismiss this idea, remember long before Costa Coffee, Whitbread had a 250 year history as a brewer.

2.      Tesco rethinks its land bank and become the UKs biggest provider of affordable housing - this idea is gaining some supporters.

3.      Tesco is acquired by a Chinese or Middle Eastern powerhouse keen to get its hands on Tesco's retail systems and talent. 

It is possible all three could happen. The final catalyst for change is not clear. 

At last week's AGM Clarke quite rightly said, "Reducing prices doesn't result in an immediate increase in sales....if it was purely an online and convenience business, Tesco would be shooting the lights out"...But it isn't and they're not ....

During one of the rounds of Middle East peace process discussions, Yitzhak Rabin was asked if he could see light at the end of the tunnel. Rabin responded laconically  “I can see the light, it’s the tunnel I can’t find”.  Philip Clarke may understand this sentiment better than most. 

Shopper Loyalty Part 3: The end of Clubcard?

Will Tesco axe Clubcard? I know, it is an absurd suggestion. Having spent twenty years building a veritable industry of activity around it, how could Tesco possibly abandon its golden child? Unthinkable.

Yesterday, Morrisons 
announced £1billion of price cuts over the next three years focused on basic products. Their message: the gap between mainstream retail and discounters is too great and must be closed to stem the loss customers: downplay like for like sales, focus on volumes.  Shoppers want value today, delivered with simplicity and are prepared to leave Morrisons to find it elsewhere.

Assuming these price cuts are for real, Tesco will have to respond, but how? Where can they find savings to fund continued price investments? A clue to the answer may lie in Canada, where earlier this week Safeway abandoned its loyalty card. 

According to Jim Tierney on Loyalty360:

"As of April 4, Safeway Canada eliminated the store’s actual loyalty card and extended the program savings to anyone, regardless of whether they were members of the program..Spokesperson John Graham said "Discounted items—an average of 4,500 per week—will now be available to all customers......We introduced card-free savings at Safeway, the intent is to offer everyone the lowest prices every day with no more card. The ability to carry one less card is seen as a greater convenience for our customers. A large percentage of our shoppers had used the club card. It’s been a fundamental part of the way we offer savings.” Graham said the initial early feedback has been very positive among customers. “The research and feedback we had over the years showed that some customers had a preference for not requiring a card”

Unthinkable? But then we live in strange times and thinking the unthinkable is not as dumb as it sounds. Don't be surprised if you hear: "One less card, one thousand lower prices. Every little helps: that's Tesco" 

Shopper Loyalty Part 2: Membership Matters

I am the world's worst golfer. After years of trying to play, the basic problem still haunts me: I stand too close to the ball after I have hit it. My golf bag sits forlornly in the corner, simpering, like a long-lost lover: "you never take me out any more!" she murmurs.

It's true. Despite being surrounded by plethora of Surrey's finest municipal and private golf courses, I haven't been a regular visitor to a golf club since I gave up my membership at Dunham Forest, almost fifteen years ago. 

Having stretched to find the money to buy the shares and fees, I was determined to drive every last penny of value from the investment. Membership made the difference.And it wasn't just the golf, the club had an active social side. I bought in. And on a shots per round basis, on the course and in the bar, I did pretty well. 

It's why Costco customers are so loyal. As David Mamos wrote in "Money Morning" last year: "Costco's "members only" set-up charges annual fees ranging from $55.00 to $110.00. Its loyal membership acts as a built-in cushion that allows Costco to deliver roast chickens for under $5.00 and offer super deals that are occasionally sold at a loss"

Costco plan their store locations around affluent consumers - they aren't everywhere - and once you've paid up, every visit helps you off set the initial outlay. You know you paid in, you want pay-back. And you can feel the value every time you shop. Financial investment precedes emotional connection. Getting members is one thing, keeping them something else. The discipline of paid for annual memberships means Costco must keep delivering, keep impressing or else people stop renewing. 

Tesco Clubcard by contrast is ubiquitous, democratic and free. 

Submit your details and your previously pointless existence is transformed. Simple and easy. Yet on another level it is deeply irritating: you must give up personal data. You were in the store shopping already, why not give you the value right there and then? It's odd: trading information for a sense of exclusivity is fine, but doing so to access value, available to all, feels somewhat different and not necessarily conducive to building a lasting emotional connection. 

Which is why Amazon Prime, combining the specialness of Costco with the ubiquity of Tesco, can change everything. Early Prime adopters talk like evangelists: "Have you got Prime?"  Like a naughty, thrilling secret: this question marks out the cognoscenti from the rabble. 

The more products and services wrapped in, the more access to value recovery exist and the smarter you feel about your choices. And, you don't have to stand in line behind other cardholders feeling very ordinary. Shopped in privacy, Prime membership can always feel special no matter who else has it. 

When it comes to loyalty it seems paid-up membership is the prerequisite for a meaningful relationship, but just the beginning. After this, the club has to deliver. Anything less is simply playing around.

Tesco: That David Moyes feeling...

Manchester United's ten month disastrous flirtation with David Moyes is over. To many, he had been "dead man walking" for months. Despite long-terms critics like myself incessantly calling for his head even before he was appointed, the prevailing mood among the faithful had been to tough it out. 


Moyes was Sir Alex Ferguson's pick and who could argue with that? I never understood the call to give him more time.  After all, why would you give a failing arsonist this luxury? Out of all competitions and no European football for the first time in two decades, time finally ran out for Moyes.

There are some striking parallels between Manchester United and Tesco - organisationally and managerially. Organisationally both have been at the top of their game for the past twenty years. 

Both had  leaders, peerless in their domestic arena who anointed their successors and both business models have been changing profoundly with the influx of massively funded competitors arriving seemingly from nowhere.

For United, the arrival of Abramovitch at Chelsea brought the first high profile billionaire in to the public glare but it is Sheikh Mansoor's arrival at Manchester City and his impending purchase of a new NYC MLS franchise that changed the game. At the same time the Qatari's bought Paris Saint Germain in France and spent $145m on new players last season. United, in transition, have been caught flat-footed.

In mass retail, Tesco are being outplayed by international competitors. Aldi and Lidl from continental Europe, Walmart in USA and UK. But it's the new, next generation giants Amazon and Alibaba that threaten to overwhelm mass retail globally. Tesco have plenty of ideas; possibly too many, without the bandwidth to deliver. Last week's announcement of the decision to open seven F&F Franchise stores in Boston was dwarfed by Uniqlo's declared intention for global fashion domination.

When Philip Clarke recently noted "bigger is no longer better", he was hinting at a problem Manchester United are also facing. Patchi prove how small focused retail businesses can deliver outstanding concepts - way better than anything a mass provider can execute. This is fine for niche, but neither Tesco or United are niche propositions. It's not “big isn't better”; it's more "the new big is bigger" - and for both soccer and mass retail, to play in the “new big world”, you need to have a deep reservoir of international cash to compete.

Asda (Walmart), Boots (Alliance-Walgreens), Aldi (Albrecht family), Lidl (Schwarz family), Sainsburys (25.99% owned by PSG's Qatari Sovereign Wealth Fund) and Superdrug (AS Watsons) appear to have the ownership structure to provide access to external capital. 

Tesco, big in local terms, may need a stronger, internationalised financial backer to secure their long term competitive future. Of concern, Berkshire Hathaway, one of Tesco’s two main institutional shareholders have been reducing their exposure. Similarly, United need to find investment minded billionaire owners to underpin their future.

In the ultimate paradox, United who have fallen furthest will turn around fastest.  United will hire a globally recognised football giant, who in turn will be given $150m and eighteen months to rebuild. Tesco, by contrast, retain their UK's #1 position, but their grip on share is slipping with challenges across their business model. None of this disappears whoever is in charge

Despite a torrid season and all the popular commentary calling for Moyes' exit, once the narrative became front and back page news, his position was untenable. 

Tesco has similar problems. Last weekend's heavyweight papers were filled with negative critique. Journalists are talking with fund managers: they speak of leadership replacements. The narrative is who and when, not if.  Interestingly, former Tesco executive Tim Mason, fancied by some as Clarke's replacement, broke his fifteen month twitter silence last week, referencing two damning articles on Clarke's reign. The jockeying is well and truly under way.

It was never going to be easy filling their respective predecessors' shoes. Both Moyes and Clarke inherited organisations that had over-traded their pasts whilst competitors were investing for new tomorrows. If Philip Clarke reads today's papers he might be forgiven for feeling he has been visited by the ghost of Christmas future. It's that David Moyes feeling...

Shopper Loyalty Part 1: It's not like we're married....

42% of UK marriages end in divorce. If the
ultimate "loyalty card" - diamonds, gold and marriage certificate - can't return outcomes much beyond a 50/50 bet, what chance have retail marketers on securing undying commitment through bits of plastic and smart analytics?

It gets worse. Open your wallet. Go on, try it. Take out all your cards. Here are mine, in no particular order:

RBS Visa Bank Card; Virgin Atlantic Visa Credit Card; American Express Platinum Credit Card; American Express Platinum Charge Card; Lloyds American Express Avios Card; Nedbank Visa Card;  Marriott Hotel Rewards Card; Priority Pass; Virgin Atlantic Gold Card; Tesco Clubcard; Costa Coffee Club; Cafe Nero Thingy; Nectar Card; SPG Card & British Actors Equity Card.

Each one of these is a de facto "loyalty card". My American Express charge card is my preferred travel booking partner because it provides free insurance. Preferred but not exclusive. The Costa and Nero's coffee cards say I like Americano's and don't care too much for Starbucks. The array of hotel and airline related cards remind me I travel too much, stay in too many hotels and never really worked out how any of these schemes work. And anyway, if I need a cheap rate, there is always laterooms.com.

The Tesco and Sainsburys cards remind me I shop at both though increasingly at the Waitrose and Aldi because I just can't stand the faff of a superstore any more.

These cards represent my portfolio of historic choices to date. They say little about loyalty; are no certain guide to my future decisions and have nothing to say about relationships. The only card  I have any emotional connection to is my Equity card (because I earned it) and I haven't used this beyond a talking point in thirty years.

In any case, I don't want a relationship with shops or service providers. I just expect them to do what they promise, and do it really well. If Amex cease offering free travel insurance, I will cease using Amex. If they offer insurance but their claims processes are a nightmare, forget it. If Tesco stop offering Clubcard points, the Clubcard becomes irrelevant. More to the point, if Tesco, Sainsbury, Waitrose etc can't provide the products I want, when I want them, how I want them, at acceptable prices...who needs them? It's not like they are the only shops in town.

Brands build loyalty to the devices they use to build loyalty.  If you predicate your attraction on gimmickry, god help you when your bells and whistles prove unaffordable or someone else offers more.

And please don't take me for granted and offer more value to new customers.  I don't think I am unique in being really irritated when banks offer preferential mortgages to new customers. Hang on, I have been banking with you for years, what about me?

Over-marketing is as irksome as complacency. Just because I bought an expensive gift once in your store doesn't mean I am now interested in anything else you do. If you bombard me with offers, chances are I'll simply ignore you. After all, if you are trying this hard perhaps I should rethink our "relationship".
It's like Groucho Marx said "I don't want to be a member of a club that wants me as a member"

Loyalty cards, schmoyalty cards! They provide customers with delayed value gratification. I don't drink more coffee with Costa because I carry their card. But hey, if they are going to give me one free drink in ten, just for carrying the plastic, why wouldn't I?

In my search for value, I shop around. Get over it. Be happy you are in my decision set. Keep your promises; keep impressing me; don't try too hard and don't give me reasons to rule you out. Just because I carry your card doesn't mean we are married. Hell, even if we were, you'd still have a 42% risk of losing me.

New Tesco Emerging

Tesco's preliminaries today holds few surprises. The 6% fall in annual profits and 1.4% decline in like-for-like sales haVE been well trailed and the markets may even mark the stock up after recent pressure. The announcement and other news gives a much stronger sense of Tesco tomorrow and joins dots on previous Cheshunt comments.

1.    Superstores will become mini-malls combining a mixed footprint of reduced Tesco food stores, other retailers, food outlets and other entertainment activities. In respect of the UK, today's announcement notes: 

"We have been testing the ingredients for our large destination stores.  We introduced our 'Next Generation' F&F departments to 104 of our stores this year, with around 140 planned for the year ahead. We will also expand our casual dining offer by opening over 100 Giraffe, Decks and Harris+Hoole outlets next year. As well as remodelling our stores, we have also trialled an overall reduction of our selling space in two Extra stores this year.  We repurposed a total of 41,000 square feet across both stores and introduced new tenants.  In Newport we reallocated general merchandise space, introducing discount-department store 'Original Factory Shop' and children's soft-play centre 'Funky Monkeys'.  At Stockton, we introduced an 'Xercise4Less' gym on the mezzanine, and a 'Funky Monkeys'.  We are pleased with these two stores and plan to complete another five similar projects within our Extra format in 2014/15"

     

And similarly in Central Europe

"We are making the most of our existing assets...Our store in Budaors, Hungary is one of our best examples, with c.50,000 square feet - around a third of the original store space - repurposed to include H&M and Sports Direct in the development".

     

2.    Dominic Walsh writing today's City Diary in The Times, calls out the "expanding Family Dining    Division" and the increasing presence of senior ex Mitchells and Butler management in the business. This looks like an earlier question of whether Tesco might become the next Whitbread, may be much closer to the mark than originally speculated.

3.    If you didn't see it, Tesco Finance made almost as much money as Tesco Europe.....but whether     either of these elements of the mix have long-term potential is unclear. The European profits fell by 27% this year and business operates on a paltry 2.57% trading margin. Banking whilst a stellar   performance in the group, with profits up 1.6% and 19.34% trading margin has a different  challenge: scale. One can imagine an Amazon Bank taking on all-comers and it is hard to see how Tesco creates long-term sustainable advantage 

 

Back to Dominic Walsh, he also notes Bookmaker Paddypower 

are taking bets on Phil Clarke's likely successor. This is especially harsh in the light of today's announcement. There are real signs of a New Tesco emerging. Whether shareholders give Clarke the opportunity to see his vision fulfilled, remains to be seen. 

Tesco: Dial F for Franchise

Persistence is admirable. Sometimes. So news of Tesco’s return to the USA could be encouraging. Whilst limiting their risks by adopting a franchise model, Tesco seemingly eschew the learnings from Fresh & Easy, taken on-board by Sir Terry Leahy and B&M, and will open F&F as a new US chain, starting in Boston, rather than buying an incumbent. 

Curiously, Tesco appear to have locked themselves into a rather strange naming process: First came Fresh and Easy (F&E), now comes F&F. Give it eighteen months there is a reasonable possibility we will see the emergence of F&G.....??

Tesco: A Passover Story

This week marks the celebration of the Jewish Passover. It is a festival of contrasts. Freedom and insecurity; enrichment and humility; arriving and departing all combine.  Under the leadership of Moses, the Children of Israel move from being a discordant rabble into a liberated people with national and geographic aspirations. 

Moses was an interesting leader. Of Hebraic birth, he was raised in  the Egyptian court for his first forty years and having fled, Moses worked as a shepherd. Sensitive to the condition of his people but not contaminated by its daily travails; of them, yet above them; within them, yet outside them: Moses he learnt kingship, law making and pastoral care. The perfect training ground for his ultimate task.

Like the Children of Israel in Egypt, Tesco's travails today seem without end. The Sunday Times (April 13th 2014) signalled the scale of bad news to come this week and the increasingly beleaguered positions of Philip Clarke (CEO) and Sir Richard Broadbent (Chairman) who are struggling to contain a damaging whispering campaign.

But who can redeem Tesco? 

If there was to be a parting of the waves, then look no further than Richard Brasher. Cast as Sir Terry Leahy’s second son, Brasher left for South Africa to lead Pick'n'Pay having been passed over, seeing the Tesco birthright handed to Clarke. Brasher is working his exile, building his CEO credentials. Of Tesco, yet outside it: he is gaining perspectives that will serve him well, should the call come.

Will the prodigal son return? Possibly... But only, one suspects, if Tesco lets Clarke and his people go. Happy Passover.

Tesco: Time to reset the clock

Yesterday's latest Kantar Worldpanel data brought little comfort for any of the UKs Big four retailers. The 0.4% drop in Sainsburys' share versus last quarter highlights Justin King's personal astuteness in calling time on his own leadership at just the right moment. His touch is almost as measured as was Sir Terry Leahy's departure from Tesco.

But spare a thought for everyone still at Tesco. Retail is tough when your weekly numbers are perpetually red. Missed targets drive stress and undermine confidence in equal measure. This is especially hard when you are still market leaders. You should be winning, you should feel like winners. You don't and everyone senses your pain. It is suffocating.

 

So what can they do? Tesco need a radical response and reset the clock on everyone's expectations. 

First, Tesco should explain to the markets what a great job they did historically in driving national UK coverage. Noting Asda's announcement this week of their intensifying moves South; Tesco can proudly note they are the only one of the top four UK retailers with a truly national footprint. They got there first, it has provided a competitive advantage for a period of time, but not forever.

Second, it follows Tesco should reset long-term expectations of their natural market share being somewhere between 20%-25% of the UK market. This will cause pain to the share price in the short to medium term - but it is a statement of inevitability. Tesco cannot open new physical stores as fast as others because they already have their footprint. And they can't acquire anything meaningful given their market share position. Furthermore, for all the success of on-line, the evidence so far is that it’s only a mechanism to slow Tesco's rate of share loss.

It is worth recognising for every new store opened by a competitor, as a rule of thumb, 30 pence of every pound through their tills comes directly from Tesco. So with Aldi, Lidl, Asda and Waitrose still expanding; who knows what course Mike Coupe will set for Sainsbury; and Amazon / Ocado expanding their remits: holding as much ground for as long as possible is Tesco's challenge.

Third, Clubcard needs a structural rethink.  Critics note it has evolved from being a strategic builder of store loyalty into a driver of supplier promotional investment. If the phoney price war ever starts, suppliers will be caught between the investing directly in price or through Clubcard mechanics: both may not be affordable. 

A simple switch in emphasis could prove powerful. Instead of offering schemes to let you redeem Clubcard vouchers outside of Tesco, they should work with third parties to give Clubcard vouchers to reward non-Tesco purchasing. Eat in Cafe Rouge - earn extra Clubcard points and bring the spend back in store. Likewise with Petrol: Tesco’s pump prices are already competitive- stop giving money off fuel in-store, give store vouchers on petrol sales instead.

These points are not panaceas. They bring pain.  Yet they will allow Tesco to celebrate "still above 25%" on each set of results, enable them to approach right-sizing based on a reframed future and refocus Clubcard on driving traffic in-store. Most importantly, they reset the clock on market expectations and buy Tesco some much needed breathing space. 

Asda's new strategy: EDMP

Asda, famous for EDLP (every day  low prices), launched the latest salvo in the UK grocery retail war. Presented as part of a package of 12,000 jobs over the next five years,  the underlying message was meant for Tesco: 

Walmart is serious, Walmart is investing, Walmart is coming South  and this is a five year plan bringing  40 new conventional superstores, 100 new supermarkets, 150 forecourt shops, 1,000 new click-and-collect points and greater online penetration. Ouch.

This was a master stroke of publicity for Walmart, announced by CEO,  Doug McMillon, under the approving gaze of UK Premier David Cameron, it places an ever greater spotlight on Tesco and their preliminary results in eight days time. The markets will be looking for some positive news.  EDMP? You guessed it..."Every day more pressure".