Part I: Tesco’s Leahy ID’s Global Opportunities
Sir Terry Leahy, chief executive of Tesco, told attendees at the first World Retail Congress in Barcelona last week that it wouldn’t have made any sense for him to appear at a conference on global retailing 10 years ago.
Back then, he said, Tesco was operating exclusively in Britain and expansion outside the U.K. was not expected to be a financial engine for the company. Today, the situation is much different. Tesco generates more revenues from stores located in 13 countries outside of the U.K. than it does as the number one grocery retailer in England.
“Globalization and the growing power of consumers act like some kind of giant particle accelerator and everything happens much faster than it used to… Just as the opportunities for businesses, which get it right, are greater than ever before, so the penalties for those who get it wrong are equally dramatic. There is no gentle decline, no hiding place for retailers or suppliers who fail to spot consumer trends or adapt to changing markets,” he told conference attendees.
According to Sir Terry, there are seven trends he believes will have a swift and dramatic impact on retailing either presently and/or in the near future.
The first is consumers’ desire for simplicity. The pace and related stressors of life are beyond what many feel they are able to handle. Companies that manufacture or sell products and/or services that make the lives of consumers easier will be richly rewarded.
Closely linked to the first trend, said Sir Terry, is helping consumers save themselves time. “I sometimes think we should rename the species the Human Doing rather than the Human Being. People are working later so they want to be able to pick up something on the way home. That’s why we came up with our Express convenience stores – they are now our most popular format, and provided the inspiration for our expansion into the Unites States.”
Next on the Tesco’s chief list is the concern that people have for their health and looks as they age (immortality as he calls it). This concern is among the reasons, he asserted, that organics grew nearly 40 percent in Tesco stores and why changes the company made in nutritional labeling have led to improved performance.
Globalization, Sir Terry’s fourth trend, is having a dramatic impact as China and now India seemed destined to transform not only the manufacture of goods for sale at retail but other aspects of the business, as well. “At Tesco, virtually all of our IT is now being written in India, and I think that this is just the beginning,” he said.
According to Sir Terry, the access to information will forever alter the consumer/merchant relationship. “It helps retailers know much more about what their customers want and think. But it also gives customers a very powerful tool,” he said. “They can compare prices and buy online at the click of a mouse. They can look at a retailer’s ethical or environmental policies and find out what is being said about them anywhere in the world.”
Number six on the list is trust. Consumers will have a variety of measures to gauge the degree to which they can trust a specific retailer. Maintain that trust and opportunities will grow with it.
On the other hand, he said, “it (trust) can be destroyed overnight. Here is something of a paradox – the bigger a company becomes, the more vulnerable it is to loss of reputation, so its very size is the best guarantor of customer interests. I know this may seem counterintuitive, but the bigger you become, the harder you have to work to look after the public interest and to safeguard your reputation.”
Of all the trends, “green consumerism” is the one with the greatest opportunity to transform society and retailing, according to the Tesco CEO. “All our research shows that consumers are more and more aware of their carbon footprint, and that they want us to help them tackle climate change.”
They also want companies to make a concerted effort to deal with environmental issues. “I know conventional wisdom says that small is beautiful so far as the environment is concerned. But I don’t think it follows. By harnessing the actions of 20 million customers in the U.K. for example, by pledging to halve the price of energy-efficient light-bulbs, by switching our transport fleet to bio-fuels, we will be able to make an impact that a corner shop can never make.”
Discussion Question: What was your reaction to Sir Terry Leahy’s statement that, “Globalization and the growing power of consumers act like some kind of giant particle accelerator and everything happens much faster than it used to… Just as the opportunities for businesses, which get it right, are greater than ever before, so the penalties for those who get it wrong are equally dramatic. There is no gentle decline, no hiding place for retailers or suppliers who fail to spot consumer trends or adapt to changing markets.”?
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22 Comments on "Part I: Tesco’s Leahy ID’s Global Opportunities"
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To Mark’s comment above, integrity in pricing and the value proposition cannot be underestimated as the consumer grows more information-literate. Just this morning, a coworker was sharing how he and his wife have moved purchases from Lord & Taylor and Best Buy over what is essentially value. One would expect the prices to be better at L&T and Best Buy, but in L&T’s case it was false promotional “sale” prices (I am holding good thoughts for the new owners) versus the same item at Nordstrom; at Best Buy identical prices but with virtually no service that shifted the sale to Williams-Sonoma, both of which they had thought were too expensive for their pocketbook. It will take a lot to un-do their new perceptions that they can shop at more upscale retailers without paying more.
Hear, Hear! Companies that don’t believe what Sir Terry Leahy said should remember back to hearing or reading these remarks when they are bought out or filing for bankruptcy! Currently about half the traffic on the Internet is in Chinese. Anyone who thinks the Western view of the world will dominate much longer is wearing blinders. Not only do we have to open borders, we have to learn new business models! I hope Sir Leahy’s remarks get reprinted and rebroadcast over and over so they have the impact they deserve.
Speaking of simplicity, let me simplify what Sir Leahy may be speaking around: consumer expectations. Maybe I am wrong, but it seems that consumer expectations are behind everything he is talking about. Ironically, despite all the apparent sophistication in retail, our data shows that 96% of retail organizations meet 70% or fewer of customer expectations. This is not a high number. The trouble with this topic is that looked at in the light in which it is presented, it may seem complicated and even unrealistic. On the other hand, consumer expectations are measurable, trackable, “easy” to meet, and the basis of profitability. They are the key to everything, in my view.
Trust and saving time are made significant by the explosion of information. I chose them for their philosophical root…simple. The others, especially green, immortality and globalization are mostly spin. To make one of those choices accurately, one would have to know the time frame. Ideas held up by money drain as soon as the plug is pulled.
He has some very good points here, but he has forgotten some very valuable lessons that retailers learn everyday. Two of them being customer service, and the Internet. The presence of the Internet is changing not only how we do things, but how we communicate and how we make our choices for products and services around the world. It is truly the globalization of ideas, concepts, implementations and an equalizer in the retail world. The internet represents the cutting edge of retailing and where it will be tomorrow, not so much where retailing is today. Customer service is one of the best definers of how a retailer will fare in a competitive environment. It is the great separator between good retailers and great ones. Customer service defines companies who succeed despite all of the other factors. Companies who recognize this, can compete globally, in any environment, under all conditions. It has been and will continue to be the key to every retailers success.
He’s spot on! As the game accelerates, so do the stakes. Customer expectations are now the product of the Internet; 24 X 7 media; and the evolution of personal consumption ecologies. We keep talking about the impact of globalization on business but we keep missing the fact that that impact is best measured one consumer at a time.
It would be reasonably impossible to dispute Tesco’s Sir Terry Leahy’s statement that, “Globalization and the growing power of consumers act like some kind of giant particle accelerator and everything happens much faster than it used to.” One factor that makes that statement more true today than anytime in the past is that more people than ever are away from home eight to twelve hours or more and therefore, most people crave a shopping experience based on simplicity, reliability, integrity and consistency. Those four words mean different things to different target markets of consumers and each retail chain needs to be sure that its business models, and the method it chooses for marketing and merchandising, are the right fit. In today’s faster paced world, doing things right will create more consumer loyalty than ever before, and doing things wrong will cause immediate and almost irreversible self-destruction. This is true not only for the retailer but also for the manufacturer, the supplier, and all points and people between.
I’m not sure it is globalization so much as it is the realization that national boundaries should not be a business barrier. When Tesco figured out that (a) the UK population was not booming, (b) there was a limited amount of business to be gained from chain-switching, and (c) their business model appeals to people in countries outside the UK, they made what appears to be a sensible decision–open stores outside the UK. This is not globalization–it’s opening new markets in order to expand your product sales.
Sir Terry Leahy’s points all sound great, but he left out #1: for most shoppers: price/value is #1. Most retailers are the public’s price/value negotiators. If they get the negotiation wrong, they lose customers and profits. If Tesco did all seven things mentioned in the article, but got its price/value wrong, there’d be no Tesco in any country.
He certainly left a few key trends out. Perhaps the biggest omission is the desire that all of us have for “affordable indulgence.” This is what made Target take off and has Wal-Mart scratching their heads. This is why Coach is one of the hottest retailers on the planet. The voyage of discovery you get at Trader Joe’s alleviates the boring and the repetitive aspects of daily existence. Even with the omissions regarding this trend and the one that a prior person noted regarding price/value, I think this is a thought-provoking piece.
These 7 trends cover the key areas that retailers need to focus on, regardless of whether they are global or local markets. The important trend that he sites, which allows for flexibility and differences within a particular country or region is trust. “Consumers will have a variety of measures to gauge the degree to which they can trust a specific retailer.” Retailers need to understand the needs that drive trust through consumer purchase decision analysis (e.g. price/value, segments, brands, flavours, formats). The danger when focusing on global is trying to standardize consumer needs across all countries–this isn’t going to work. Retailers (and suppliers) need to respond to changes within a country or region, and not try to satisfy “global consumers” with a “one size fits all” approach.
I had the pleasure of seeing this presentation in Barcelona. Sir Terry was warmly received. I agree with his assessment that companies that are approaching emerging markets (globalization…and to him the US is an emerging market…) are doing so with a fast approach and seeing quick results. At no other time in retail history do you have existing chains in many countries entering emerging markets opening 100 stores within short periods of time. Those retailers that can adapt and move quickly–and keep focus on respecting local cultures and needs may reap great profits. Those that don’t get it right may also lose great profits…so the market will prove the winner once again, by share of wallet. The customer is the ultimate vote–whether in the US or in China.
The one concept that Sir Terry missed was a value equation. Everyone, regardless of country of origin, is respectful of price and value. This may differ from country to country but retailers must respect this as a core tenant.
These are all really quite obvious, and because many are aware of these trends, the addition of specific details would be more valuable. From a globalization standpoint, what is the most important trend within each country or region and what is Tesco’s response? Good point raised on price/value, but while price/value is critical, it’s a constant and not a trend.
The response to the poll at the time I checked in showed “exploding information access” as the leading candidate for “greatest impact.” The irony is that the same explosion in information that impacts consumers impacts business as well. We tend to call the result “convergence.”
We do an industry study every three years on the “sales force of the future.” We ask U.S. retailers and senior sales executives what is most important to them now, and what will be in the future. Three years ago manufacturers rated “Globalization” as a more important issue than retailers. This year retailers flipped that result. In fact, the single biggest discrepancy in importance between the two groups was with retailers rating Globalization as significantly more important than the sales executive group.
When asked for a hypothesis of explanation, we mused that going global was very important to U.S. manufacturers when Wal-Mart was doing it–and that it has become very important to U.S. retailers now that Tesco is doing it.
As information becomes more and more ubiquitous, markets will become more and more efficient. One of the properties of market efficiency that has already proven itself in capital markets and seems now to be making its way into consumer markets is that nothing a business does, be it a success or a failure, is hidden from the consumers eyes, and the consumer judges the business accordingly. So reward or punishment is swift, as Sir Terry put it. Interestingly, trend #7 is something that not too many retailers are leveraging enough. Consumers will have a greater loyalty for retail brands that are more than just a business out to make a profit. If a business is actively taking a role in changing the environment they operate in, it will not fail to be noticed by the consumer, however small that role be. So it is quite impressive that Sir Terry is setting an example in this area.