Sunday 9 March 2014

Robert Peston goes Shopping

Transcribed from part 2/3, originally broadcast on 9 September 2013.

Tesco had steadily been making progress through the '80s but it wasn't until after the recession of the early 1990s that it really surged ahead.

The company's marketing boss Terry Leahy understood what his customers wanted:

[Interview with Terry Leahy]: "It turned out that our customers were the most reliable guide. They said, 'Look, we've been in recession, we need you to offer us good value, erm, we need you to be more aware of the pressures we're having today'"

Tesco responded by going back to its low-price roots. First it launched its Value range and then came the marketing slogan 'Every Little Helps'.

Tesco was cutting prices to boost sales while in contrast Sainsbury's was protecting it profits. This was a return to the glory days of Slasher Jack [Tesco's founder Jack Cohen]. Perhaps value was in Tesco's DNA.

Tesco always had a keen eye for price when dealing with suppliers:

[Excerpt from a much earlier programme about Tesco]: "Because one thing a price-cutting company needs is sheer size. The power to place orders large enough to force bargains with even the biggest suppliers."

Now it could offer even lower prices because it was operating on a bigger scale, enabling it to buy in bulk and sell cheap.

This was due to another canny move by Tesco. It bought vast amounts of [cheap] property during the recession of the early 90s, acquiring sites for a new generation of out-of-town superstores:*

[Interview with former Tesco boss Lord Ian McLaurin]: "We were able to accelerate it through sort of '93, '94, '95 and that gave us the opportunity to leave the others cold. And I mean they… they didn't catch up then and they haven't caught up to this day."

The other huge contributor to Tesco's rise came from Terry Leahy. He'd been pondering how to revive Slasher jack's retailing trick the loyalty scheme [Green Shield stamps]. What his team came up with was ClubCard…

By their own words etc.

So now we know why Tesco was racing ahead of the competition for ten years or so, muscling in on the land monopoly which it can use as a stick to beat suppliers and competition with, and also, despite what McLaurin says, why Tesco has been falling back again over the last five years or so. Land is incredibly expensive again, so it cannot repeat this "canny move".

* In my experience it wasn't just out-of-town, Tesco were actively in the market for any decent sized site, five acres and upwards, and if that was in a town centre, then so much the better, they'd happily open up there as well.


A K Haart said...

"* In my experience it wasn't just out-of-town"

Same here. None of our three local Tesco stores are out-of-town. All are near the centre of small towns which allows them to dominate local shopping habits.

DBC Reed said...

I have found Tescos to be amazingly popular amongst the middle classes on certain sights who become very angry with any criticism .

DBC Reed said...

Obviously sites above

Mark Wadsworth said...

AKH, thanks for back up. Being fair to Tesco, they usually have a decent car park which benefits surrounding shops as well.

DBC, as a shopper, I think Tesco is brilliant. It is their "property" division which is evil, not so much the retail division (unless you are a supplier, in which case you are f-ed).

DBC Reed said...

What is so good about having to go by car to buy branded goods in Tescos when, in the good old days (before EU kiboshed the system), the voluntary arrangement of Resale Price Maintenance meant you could walk to your nearest shops and buy the same branded goods at exactly the same price? What is so good about buying food ONCE A WEEK ?( I used to prepare cheese ,butter ,eggs etc at an old style Sainsbury's with counters : they came straight off the morning lorry and with a minimal rough cut and preparation went straight up to the counters.It was a lot fresher [understatement].)
Then there are the queues in Tescos which in Northampton ,Weston Favell are out of control.
In old style shops ,you were served.When self service first came to Kensington, the ladies rioted and menaced the manager for
making them serve themselves.This is still an issue.You can walk round for a long time in Tescos,given the distances, looking for things.(In Fork Handles, Barker gives his insane orders while Corbett stumps angrily about trying to serve him-as it should be.)
Then, as you acknowledge, there is their relationship with suppliers ,once, with RPM, equitable now subservient. As I have said before the expert on the subject, Helen Mercer who wrote a paper for the LSE on the Abolition of Resale Price Maintenance (on the Net) reckons (see Conclusions)that abolishing RPM finished off manufacture in this country as surely as agriculture was finished off by the abolition of the Corn Laws. There's an academic with some soul!
Of course Tescoisation destroys town centres, or to be honest, towns as such, which you debate endlessly .But you cannot have big supermarkets and traditional town centres simultaneously.
The Work> Tescos > TV life (or the Bermuda Triangle as a very middle-class lady once described her life to me) is barely worth living.Whether politics should make life worth living is a moot point nowadays: where every question is answered by "Market forces must decide!(No human intervention.)

Lola said...

DBCR - feel better now?

Bayard said...

"What is so good about buying food ONCE A WEEK"

Er, it saves time? If you have to drive 15 mins to the nearest shops of any kind, then half an hour a week shopping beats one and a half or two hours a week, if you hate shopping.
The reason why I shop in supermarkets is not because they are cheaper, but because they are open in the evening, when all the "traditional" shops have closed. Everyone else who works and doesn't have a full-time parent as a spouse/girlfriend/boyfriend will also shop at supermarkets for that reason and would continue to do so, even if RPM meant that the goods in the supermarkets were no cheaper. That and parking.
I am no supporter of supermarkets, but how can I shop in the "traditional shops" if either I am at work or they are closed?

Shiney said...

Don't single out Tesco for gouging suppliers... they all do it. Especially the cute-and-cuddly employee-friendly partnership so beloved of the middle class champagne socialists.

Are you being ironic or what? I own a small BRITISH manufacturing company who specialise in making for the big 5 - so I think you, and your cited academic, are talking bollox.

DBC Reed said...

You say (to MW) all the supermarkets gouge suppliers, then say (to me) you are not affected.Hmn.If you have a problem with Mercer try reading her paper first.
Lola: No!

Mark Wadsworth said...

Shiney, I'm sure they are all pretty much the same, it's a cartel. But that part of the TV programme was mainly about Tesco's land grabbing in the 1990s, that's what interested me.

benj said...

So how much extra would Tesco's be paying under LVT, and how would that compared to the competition?

The competition now being online retailers like Amazon too.

benj said...
This comment has been removed by the author.
Mark Wadsworth said...

Bj, I don't know and I'm not even sure they would be paying more, if you take into account all the taxes which Tesco and their employees pay - VAT, NIC, income and corporation tax, Business Rates and so on.

LVT would reduce the tax bill for 99% of businesses by about three-quarters, so LVT would almost certainly reduce Tesco's tax bill as well, what it would do is erode their competitive advantage. They'd have to work harder for more money.

Shiney said...

Of course they gouge suppliers - we do the same to ours - its why inflation only happens in the public sector! I was pointing out to @MW it ain't just Tesco who do it.

Oh and we're still here, growing and doing OK. So the big 5 supermarkets didn't 'finish off' British manufacturing did they.