When sorrows come, they come not single spies but in battalions,” according to Shakespeare. It must certainly seem so if you work for Tesco these days. The rat pack in the City and the press who once fawned over the company are now baying for blood. The governance failings that have emerged are, of course, serious, but they will no doubt be resolved over the next few weeks. The underlying performance problems will be much harder to resolve - but not impossible.
Tesco isn’t the first successful business to lose its way and it certainly won’t be the last. The causes of its decline are familiar. Success bred corporate hubris and a belief that everything it touched would turn to gold. The original dynamic was gradually eroded by more exciting overseas forays and other diversifying acquisitions, which drained talent and cash from the core business. Discarding the more obvious loss-makers, however, has failed to rejuvenate the old core as the market itself has now changed and yesterday’s formula no longer seems to work.
“Tesco still has a massive advantage of scale over its rivals”
Tesco is not, however, a ‘basket case.’ First, a new, non-Tesco CEO with an excellent and relevant track record now has a golden opportunity, not for the first time in Tesco’s history, to reinvent the business and its culture from scratch. Second, it still has around 29% of the UK market, which gives it a massive advantage of scale over its nearest rivals, neither of which has any hope of closing the gap. This could form the basis of a much more competitive price-led offer that would challenge the discounters.
Yes, the reinvention process will take time to yield results, but as it gains momentum, its rivals will feel the effects. Sainsbury’s performance is already faltering and looks likely to deteriorate further. Its recovery story was never particularly convincing and even after its vaunted 36 quarters of growth it failed to displace Asda as the number two player. Despite the recent launch of a ‘mid-low’ pricing strategy it has neither the scale to sustain a fight with a resurgent Tesco nor the quality offer to match M&S. Morrisons will also be in the firing line and for the same reasons.
In this market, those who are not already sorrowing sooner or later will be.
Kevin Hawkins is an independent retail consultant