This week’s surprise exit of Tesco chief executive Philip Clarke, to be replaced in the role by Unilever veteran Dave Lewis, has sparked a flurry of debate, suggestions and questions to be answered. Centre stage is a consensus that Tesco will now focus on price under the leadership of a fast-moving consumer goods (FMCG) expert. But among the suggestions is also the idea that the supermarket’s estate is simply not set up for the way people want to shop today, in an age when ecommerce and multichannel shopping are becoming an accepted norm.
The supermarket today warned on profits as it announced that Clarke would be replaced by Lewis on October 1. It warned of trading conditions that were “more challenging” than had been expected.
Tesco chairman Sir Richard Broadbent today said that Clarke had agreed this was “the appropriate moment to hand over to a new leader with fresh perspectives and a new profile.” He also had praise for Clarke, noting in particular the work that the 40-year-Tesco-veteran had done “to set a clear direction and reposition Tesco to meet the rapid changes taking place in the retail market.” Meanwhile, Tesco also emphasied Lewis’ experience in business turnaround situations within Unilever.
Analysts will be looking to see what Lewis’ turnaround plan is, and already many believe that price will be key to the new plan.
Chris Edger, professor of multi-unit leadership at Birmingham City University, says Tesco has been hit by three key issues: the economic crisis, the emergence of technology and changing consumer behaviour. “All,” he says, “have changed how people shops – which is smaller, more often and in a more promiscuous manner.” The internet, he said, had become a facilitator for price comparison – and Tesco profit margins of more than 5% were simply “unsustainable” in this climate.
The emergence of Aldi and Lidl, said Edger, showed that “price is trumping service to some extent,” with price being “the blunt instrument” needed at the moment. And price, he said, would be something that an FMCG veteran such as Dave Lewis knows all about. He said that while Tesco was known for the flexibility, localisation, customisation and convenience that come with multichannel retailing, those, he said, “don’t ameliorate falling like-for-likes.” The supermarket, he says, has a large estate including large out-of-town hypermarket that don’t fit with the current consumer trend towards smaller baskets, and top-up shopping.
Our view: What seems clear is that despite the pioneering work Tesco has done in online and multichannel shopping, its core infrastructure was set up for an age when customers shopped differently. It was grown in the age of the weekly shop, inevitably accessed through a car trip to the largest nearby supermarket. But the way we shop has now changed. More of us buy online, more of us go to the local shop for top-ups and more of us buy at several different food stores rather than just one. All of this change has come about thanks to the growth of ecommerce and the internet and, as Professor Edger points out, as the result of economic changes that mean shoppers are keeping a tighter hold on the purse strings as they consider what they’ll spend on their weekly shop.
But Tesco has large hypermarkets and out-of-town sites where sales simply aren’t keeping up. While most food sales still take place in stores, it seems that we’re no longer prepared to drive a distance to get our food – and that’s something that Tesco’s new management may now look to address.
