About the authors
Hamish Pringle is the director of Brand Beliefs Ltd. He has previously held the post of Vice Chairman, Director of Marketing at Saatchi & Saatchi. He is co-author of Brand Spirit: How Cause Related Marketing Builds Brands.

William Gordon is Strategy Partner with Accenture (formerly Andersen Consulting)

This is an abridged extract from “Brand Manners” by Hamish Pringle and William Gordon, published by John Wiley & Sons, Ltd (ISBN 0-471-49606-5). It is available from the eBooks Store section of our website.

For an inspirational speaker to motivate your managers and staff to focus on great service, browse our eSpeakers Store

The Tesco Story

The commodity food retailing business is a highly competitive market. Tesco’s success story is all the more outstanding in that it was, back in the 70’s a brand known as a joke. In the 1970’s, one reporter equated taking a headlong decline with “doing a Tesco”. However, Tesco became the leading food retailer in 1998, was the most admired retailed in the Financial Times annual survey – and has become the most admired company in the UK.

Terry Leahy has been their Chief Executive since 1997, and is undoubtedly the leader of the transformation, but would be the last to claim all the credit. Apparently, his two passions in life are Tesco and Everton Football Club! Earlier Tesco CEO’s (Jack Cohen, Sir Ian MacLaurin and David Malpas) also had this passion for the company. But Terry Leahy’s style is very different from his predecessors. His is ‘a new style for a new era in Tesco’s development’ – although he is very modest in claiming any credit for the turnaround (having overtaken Sainsburys in the mid 1990s).

Tesco’s leadership has succeeded in creating a ‘self-confident’ organisation over the last few years. This has led to the company winning in the marketplace. Once a self-confident organisation emerges within a sector, the more traditional ‘command and control’ companies begin to flounder.

This is clearly illustrated by the relative evolution of Tesco’s market share in comparison to its competitors. A comparison with seven other supermarkets (Sainsbury, Asda, Safeway, Somerfield/Kwiksave, Co-ops, Marks & Spencer and Morrisons) gave the following results –
1992 Tesco’s claimed approximately 9% of the market share
1999 Tesco’s claimed approximately 15% of the market share.

Tesco’s nearest rival, Sainsburys, showed very little change.

Tesco’s rise to leadership in the UK
Tesco’s success in the 1990s can be attributed to the legacies of earlier managements. The portfolio of stores and sites already acquired has, without a doubt, proved to be a great asset. Tesco has 370 superstores (stores of over 20,000 sq. ft.) in the UK - more than any other competitor. Another asset has been good employees who have been with the business a long time, and know it inside out. It is remarkable that not a single executive main board Director left the company for a better offer from elsewhere, during the whole of the 1990s.

Terry Leahy’s understanding of Tesco’s core capabilities are reflected in his comments, “Our people know how to empathise with customers and have terrific optimism”.

One of the assets handed down over the years is the corporate culture. The pursuit of Sainsburys in the 1980s by the executives taught the business never to rest on its laurels. Leahy believes that they are never complacent, and this makes it possible to make step changes in the business.

Mistakes, however, have been made. Tesco’s, along with many other superstores in the early 90s, were slow to respond to changed consumer conditions. Margins were jealously guarded, eliminating costs to protect them – sometimes to the detriment of customer service. Tesco and the other superstores were not listening to their customers. The loss in custom wasn’t great, one-stop shopping was still favoured, but it was sufficient to set alarm bells ringing. Share prices in the food retail sector in the City fell by over 40% in 1993 against the market. Tesco was hit the hardest – in late 1993 Tesco was capitalised at just £3.5 billion.

The 1990s surge
Terry Leahy was given the job of turning around this downfall, to bring back the sales-led growth of the 1980s. Leahy founded this revival by focusing on getting back in touch with customers. Tesco and Leahy together determined a way to create a marketing edge. A five-step plan was introduced to achieve this marketing edge.

Tesco’s current philosophy is to listen to the customer through market research, backed up by their Loyalty card and database. Management and staff strive to work together to deliver what the customers want. This formula ensures that if management and staff deliver to customers (driving out costs to yield profit), and this in turn is communicated to the stock market – then customers, staff, management and shareholders will be happy.

Managing the brand promise
It is relevant that since 1993 Tesco has introduced several market ‘firsts’ – including the first to offer widespread 24-hour shopping, a nationwide home shopping service, and the nationwide introduction of a Loyalty scheme ‘Clubcard’. These initiatives have been backed by “value” and “price cuts” to customers over the years.

Building the self-confident organisation
Tesco set about building the self-confident organisation through ‘better, simpler, cheaper’ work processes, together with their strides in marketing. Systems were made easier to use, and individuals’ core skills were developed – which in turn assisted them in doing their jobs better. Tailored balanced scorecards covering measures and rewards were introduced (known as Steering Wheels in Tesco), in addition to mobilisation events to energise the people behind Tesco’s goals and values. Terry Leahy believes Tesco’s future will revolve around values – the ‘Tesco Way’. Leahy has stated, “I regard Values as one of the most important ways of working in Tesco today.”

By listening to customers and consistently delivering, Tesco has reaped the benefits of “Brand Manners”. Tesco is currently capitalised at almost £20 billion.

Tesco in the 21st century
This transformation of Tesco’s, from the bottom of the UK superstore list to the top transpired over the last six years, with Leahy at the helm. Tesco is fully aware, however, that it cannot rest on its laurels, or stay focused solely on its existing markets. Relatively limited growth opportunities exist in the UK food retail market for businesses this size. Leahy has chosen to create new growth in two areas – both posing new challenges.

Tesco in the UK is striving to break down the traditional boundaries between retail markets. It is aiming to become a general merchandiser as well as a food retailer – again, building on the trust element of its customers.

More than just a UK food retailer
When Leahy first joined the board, in 1993, it was not merely the UK operation that was in need of attention – Tesco was trying the enter the French food retail market through Catteau, a small private supermarket chain. This was acquired mid-1993, but subsequently sold in 1997 – Tesco were not convinced that it added value, and when the consolidation process came (i.e. Authan acquired Docks De France in 1996) Tesco could not justify joining in.

This seemingly negative transaction was in fact the beginning of their international expansion – namely:

Opening stores in underdeveloped retail markets in Hungary, Poland, etc. was virgin territory. Unlike France, there were no established retail chains to build on. Tesco’s previous experience with Catteau had not proved successful in any event, and they had to create a business from scratch in a completely new market. Tesco’s first large store in Budapest in Spring 1996 was described as the single most important move by the company in over a decade.

The overseas markets are still forming, but, according to Leahy, the Tesco formula is working. In essence, the Tesco formula (putting customers first, and not taking them for granted), should work as well in Budapest as Basingstoke!

Tesco goes global
Expanding beyond Central Europe will inevitably bring fresh management challenges. Tesco is no longer trading against the UK supermarkets. It is up against the likes of Carrefour, Wal-Mart, etc. These companies are world leaders – and are far less predictable competitors whose resources and vision present yet more challenges for Tesco. Leahy considers that focusing on world competition sets a new standard and puts them at the bottom again. He reflects that this different competition is good, and competition is the answer.