Dave Lewis leads a Tesco turnaround

CEO Dave Lewis has led quite a turnaround at Tesco since arriving as CEO back in 2014. He announced positive half-year results last week, with underlying earnings up 60% to £596m driven by a third consecutive quarter of UK store sales growth and the shares up 10%. You can see below how the company's sales performance has improved since Lewis took over from Phil Clarke.
 
Below we re-visit the 4 recommendations from the blog post from July 2014 when Lewis took over when I said: "Perhaps hiring the first non-Tesco CEO in 30 years is needed to lead the brand rejuvenation. Hopefully, he helps the company remember and refresh what made it famous." 
 
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1.Re-focus on the core: 
Dave Lewis certainly followed this recommendation, as regular blog readers will know. He has sold off a raft of peripheral businesses to re-focus on the core, including Harris+Hoole coffee shops, Giraffe restaurants and Euphorium bakeries.
 

2. Re-connect with core customer needs

Tesco certainly seems to have been investing in understanding core customer needs. Lewis reported in his half year update that over the last two yeas the company has gathered feedback from just under 3 million customers through their proprietary Customer Viewpoint survey. As Dave Lewis said, "We talk about serving Britain’s shoppers a little better every day and that level of feedback is gold dust."
 
And Tesco is also acting on this feedback with positive results. The company understands that growth comes not from increasing loyalty but from driving penetration, with 200,000 more shoppers visiting Tesco over the last two years. And the overall measure of customer trust has also improved significantly, following a period of decline prior to Dave Lewis arriving.
 
 
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Tesco has also worked on re-building trust and engagement with employees (up from 61% in October 2014 to 74%) and suppliers (up from 51% to 78%). And net promoter score is also up, by 13 points.
 
3. Renovate the core
There are no whizz-bang innovations in Tesco's turnaround. The company has not, in sexy start-up parlance, "pivoted" and changed business model. Rather, this is a textbook example of core brand renovation, remembering and refreshing what made the brand famous in a number of fundamental areas:
 
Price/value: a comparable shopping basket is 6% cheaper than two years ago, with operational efficiencies lowering costs which then goes into price. Promotions have also been simplified, with "indirect pricing" put it into lower base prices. And new shelf labels make these lower prices clearer.
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Service: 12,000 more customer-facing colleagues in the business, with a cut in non-customer facing staff. Extra training for 57,000 cashiers and customer service experience specialists
 
– Availability: improved to 96% with a corresponding improvement in customer attributes in this area, from seventh to equal first
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Range simplification: a "range reset" has moved Tesco to "a simpler, more relevant range", with a 23% reduction in size. At the same time, this sharper core range has been renovated, with over 3,000 new products introduced.

 
Screen Shot 2016-10-10 at 09.30.074. Refresh "Every Little Helps": including a distinctive comms campaign
Tesco's success during the glory days was built on delivering a series of service propositions that brought to life the ides "Every Little Helps". This was more than just a slogan, it was a way of doing business. And its one that Dave Lewis still clearly believes in: 

"The purpose is huge for us. Every Little Helps serves Britain shoppers a little better every day. Everything we do has to ladder up to that. That element of helpfulness is a key differentiator in the Tesco brand"

It is good to see that beyond fixing the fundamentals, as outlined in point 3 above, Tesco is again innovating on this core purpose. For example, Brand guarantee: gives people have peace of mind that they never pay more for branded shop versus the big four supermarkets.

 
And another example I love is "Free Fruit for Kids", which offers a free piece of fruit for kids to eat as they walk round the store. This helps address a customer concern about getting kids to eat more healthily and keeps kids entertained in store. Interestingly, it was based on a an idea from a store employee that everybody liked it and was made available across all stores. 
 
The one area where Tesco is yet to show real progress in my book is creating a distinctive communication campaign to tell a series of chapters about the Tesco brand story. This could help amplify the positive changes being made in the business. Perhaps Dave Lewis has been waiting to get the product and service "sausage" fixed before adding some emotional "sizzle" with a great communication campaign?
 
In conclusion, after several years of decline, Tesco has re-focused on the core and refreshed what made it famous. It is early days in the brand's turnaround but signs are encouraging. I'm hanging on to my Tesco shares that I bought to put money where my mouth is: up from £1.92 when I bought them to £2.00 now. A modest 4% gain (+10% vs. the FT100 index) but hopefully with more growth to come!
 
 
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