Sir Terry tells Tesco to re-focus on the core
I nodded vigorously as I read Sir Terry Leahy's take on Tesco's traumatic troubles in The Times (subscription needed). Leahy left Tesco in 2011, after which the company's fortunes started to nose-dive. The share price has dropped by 2/3, sales have fallen quarter after quarter and there have been two profit warnings. The report suggests that "his comments will be seen as a veiled swipe at Philip Clarke, his successor". Whilst I agree with Sir Terry's comments, I suggest he should share the blame with his successor for Tesco's problems, based on the brand vision work we did for his senior team back in 2008.
1. Loss of focus on the core
I agree with Sir Terry's suggestion that Tesco's has forgot its sense of purpose, focusing "too much on what it isn’t, rather than remembering what it is and working with that”. Back in 2008 we defined the purpose simply as "making every shopping easier and more affordable". Doing this well, via service innovation such as the "one-in-front" queue promise, helped Tesco grow during the glory days.
However, six years ago we could already see that Tesco was no longer fully delivering on this purpose. First, we flagged up cracks that had appeared in the basic "shopping trip", in terms of customer service, value and quality, all issues that new CEO Dave Lewis says need fixing.
Second, we recommended a need to return to innovating on the core.
However, neither of these recommendations seems to have been followed. Instead, Tesco has innovated by diversifying, including the purchase of Blinkbox video streaming, Giraffe restaurants and Harris & Hoole coffee shops.
2. Being in the middle can be a strength
Sir Terry rightly observes that Tesco is “a very big brand in the centre of the market", as we did back in 2008. He goes on to say that "if you are weak in the centre you can get attacked from all sides." This is indeed what seems to have been happening, with Waitrose winning at the premium end, Aldi, Liddl and Asda sniping from below, and Sainsbury's, until recently, winning in the middle.
However, as Sir Terry then says, "If you’re strong in the centre and doing what you do well, you can attract customers from all parts of the market.” This is the way we saw things back in 2008. Tesco's strength was its broad appeal to all sorts of people, playing the role of a true leader that can meet all your needs, whether they be posh ready meals, or good basics.
3. Re-focus on insight for action
When it was winning, Tesco was awesome at getting insight and then acting on it, as Sir Terry points out: "the business was at its best when responding to customer trends." Back in 2008, teams were set up to solve the 4-5 key problems identified in the annual "customer plan", with real resource and budget to make things happen.
My guess is that this process has not been as effective in recent years, as shown by the lack of core service innovation. But I share Sir Terry's impression that the company's new CEO plans to fix this: "Listening to Dave Lewis, he’s emphasised the need to focus on customers.”
4. Things could change fast
I also share Sir Terry's optimism that Tesco's fortunes could turn around sooner rather than later. As he comments, “It’s very responsive to the right leadership and the right marketing strategy.” Tesco does have tons of talent and big budgets. If it can re-focus these resources back on the core, then sales and profits could start to pick up again.
What went wrong?
Unfortunately, many of our recommendations from the 2008 project were not implemented, and still need fixing. This is why I suggest that the responsibility for Tesco's woes lies partly with Leahy. The brand and business model was already broken when he passed the leadership reins to Philip Clarke.
But if these issues were flagged up six years ago, why weren't they addressed then? One possible reason is that Sir Terry's leadership was so strong that it was hard to challenge the "machine", as Tesco insiders called it. The Tesco model had worked for so long that there was a lack of willingness to fundamentally challenge things in the way we suggested. I tried to raise one of the issues in a meeting with Leahy, and was told in no uncertain terms to be quiet, with the retort "What the hell do you know about my business?"
You can see the difficulty to openly challenge senior leaders in the cover-up that happened this year. A "whistle-blower" tried to expose mis-reporting of profits from commercial deals, only to be silenced. It took the arrival of Dave to reveal the truth, leading to a quarter of a billion pounds reduction in Tesco's reported profits, and a criminal investigation by the SFO.
In conclusion, the Tesco story shows that every leader brand, no matter how strong, needs to constantly renovate the core if it is to stay ahead of the chasing pack.