What Tesco can teach us

Unfortunately, “tall poppy” syndrome is a fact of business life in the UK. The more successful or prominent a business or other enterprise becomes, the greater the amount of criticism it attracts. It isn’t the most endearing of our national traits, and I believe that it underlines much of Tesco’s savaging.

After all, Tesco is one of the UK’s most impressive business stories of recent times. It’s frequently singled out by detractors, who complain that the business has become “too big for its boots”. Pops have been taken at Tesco’s treatment of suppliers, its levels of customer service and -somewhat surprisingly- the quality of its processes.

I am not an uncritical admirer of Tesco’s, and I believe that some of the negative comments are worth hearing. A recent BBC Whistleblower investigation, which appeared to show a branch of Tesco flouting strict food safety procedures, is one such example.

All the same, it’s worth bearing in mind that a successful business doesn’t happen by luck or by accident. In a crowded, fiercely competitive market, Tesco increased its group sales by 8.1 per cent to £43.1 billion last year, with profits of £2.2 billion. Tesco has also become the country’s biggest private sector employer, with more than 270,000 employees – plus a further 140,000 employees overseas.

A business as high-achieving as this sets an example from which MDs and business owners around the country can learn. Below, I have listed what, in my opinion, are some of the key pointers to Tesco’s success:

1. The strongest leaders build the best teams and get the best results. Sir Terry Leahy, Tesco’s CEO, is an exceptional British businessman. He has transformed a mediocre supermarket company into an outstanding, world-class, multi-faceted organisation. With any company, the two most significant factors for progress are strategy and people. Tesco’s success has resulted, in part, from Leahy’s strategic vision: as soon as he became CEO in 1997, he looked to the future and spearheaded the supermarket chain’s entries into other, allied markets such as consumer financial services.

Even former competitors are unstinting in their praise. Allan Leighton, the former ASDA supremo, recently described him as “incredibly effective – the measure of that effectiveness is the performance of the company…He’s incredibly focused”.

Good people are drawn to good leaders, and another outcome of Leahy’s exemplary leadership has been his successful recruitment of an extremely talented and confident team. His board is an expertly-constructed mix of insiders and outsiders. There are “homegrown” executives, who have been with the company for many years and know it inside-out. One example is David Potts, the 50-year-old Retail and Logistics Director, who joined Tesco aged 16 and has fine-tuned its supply chain strategy. There are also those who have been brought in from outside, who add fresher perspectives.

By winning over the choicest candidates, and surrounding himself with people who are fully bought into his views and vision, he has placed Tesco in pole position. Crucially, he has been able to delegate many of his key strategic objectives because he trusts his team to implement his plans.

This has enabled him to work “on” the business, rather than “in” it: he has given himself the time and space to work upon his company’s future, rather than becoming bogged down in the day-to-day dealings of its present.

2. The courage to innovate. Many are surprised to learn that these days Tesco generates non-food sales of £10.4 billion a year – nearly a quarter of its revenue. These sales include consumer financial services, DVD sales and rentals, music downloads, internet services and budget software. Tesco has even expanded into the housing with Tesco Property Market: “A one-stop online property shop”. Sales of Tesco’s non-food products and services are currently growing at twice the rate of its food products.

Of course, full-throttle diversification is not suitable for all businesses. Tesco’s decisions to do so have been carefully calibrated. However, Tesco’s decisions have also been creative, innovative and brave. Who would have thought, just ten years ago, that a supermarket chain would be showcasing homes for sale?

3. Get to know your customers. Market research is an essential tool to any start-up or company considering expansion or diversification. I never cease to be amazed by the numbers of businesspeople – including experienced MDs or CEOs – who think that their enterprises are somehow immune to its benefits. If you avoid doing the work and spending the money, you are going on gut knowledge and prior assumptions, neither of which provide a foundation on which decisions should be made.

Tesco’s ability to empathise with its customers is the result of in-depth research, and has been key to its resoundingly successful entries into so many new markets. In my opinion, Tesco does more research work than anyone else in the sector – and other retail chains are now following suit. Their market research doesn’t stop at new customers, but covers existing customers’ buying habits too.

Take the Tesco loyalty card: it wasn’t their idea, but it is something they do so well that it has become the largest loyalty scheme in the UK, with an estimated 13 million members. The cards provide comprehensive analyses of what Tesco customers spend, what they spend it on, and when they spend it. As a result, Tesco has been able to hone its logistics, product ranges and launches to perfection.

4. Careful positioning. Anyone can do well, even in the most competitive of markets, with the right approach. Allan Leighton calls Sir Terry Leahy one of retail’s “first professional marketers”. Tesco has, correctly, placed a premium on brand recognition. The branding has retained Tesco’s signature red and blue colours, and its logo has been updated, but not dramatically altered.

In recent years, Tesco has expanded its customer base by its increased efforts to embrace customers from all levels of society, and all income brackets. For example, two popular food product ranges – the luxury range called “Tesco Finest” and the budget version, “Tesco Value” – are both carried within all of its stores.

5. Mopping up the spills. When something does go wrong, Tesco doesn’t shirk responsibility, and speed of reaction is admirable. Take the BBC’s Whistleblower documentary, viewed by 4.5 million people. An undercover reporter worked behind a fresh food counter at a Tesco branch, and subsequently claimed that serious breaches of hygiene and food safety procedures had occurred.

The claims could have seriously harmed Tesco’s reputation, which is founded upon good customer service, but the company’s response was swift and limited damage. Tesco’s trading director appeared on a video-link on Tesco’s website, responding to the claims, within 48 hours of the programme’s broadcast. An internal investigation was immediately launched, and fresh food counter employees were retrained. The matter was ushered towards its end, with retail analysts subsequently concluding that the documentary’s impact upon Tesco would be “minimal”.

Rocket science? Absolutely not – but that is my point. Sir Terry Leahy has transformed his company into a superpower with a £43 billion turnover, but no “magic spell” has been sprinkled upon his road to success. Instead, he has used principles that are so simple and straightforward that any fast-growing company can adopt them and use them to boost turnover and profit margins.

Ken Jacobson is the CEO of Vistage International (UK) Ltd, the world’s largest chief executive membership organisation.

See also: How Tesco is Winning Customer Loyalty

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.