TESCO: Leadership and Teamwork

Background

In business for over 90 years now, the Cheshunt-based TESCO plc is the largest grocery and mass-merchandise retailer in the nation. From humble beginnings as an East End market stall, the company opened its first walk-in outlet in 1929 and never looked back. In the ensuing decades, that first store in Burnt Oak, Middlesex grew to an international chain with a total of 4,331 stores staffed by 470,000 employees as of the 2008-2009 financial year. Both internally-generated growth and acquisitions – e.g. 70 Williamsons locations, 200 Harrow Stores, 212 Irwins stores, the 97-site Charles Phillips chain, and the Victor Value chain — propelled the chain to the top of the industry in the UK (TESCO plc, 2009a). At last count, the TNS Worldpanel retail audit credited the chain with a 31% share of the UK market, nearly twice what second-ranked Asda (16.8%) and Sainsbury’s (16%) could show (Taylor Nelson Sofres, 2008).

Internationally, TESCO now ranks third in the world behind the U.S.A. ‘s Wal-Mart (the largest privately-held company by revenue and staff size) and France’s Carrefour. Starting in 1977 with an odd foray to Indonesia (with which the UK shares no colonial, religious, linguistic or ethnic common ground), TESCO waited 15 years before resuming its globalization drive with a token outlet in Carrefour’s home market, dozens in Ireland, the rest of Europe and (via the joint venture route) South Korea and Thailand. After the turn of the century, TESCO expanded its Asian footprint (China, Japan, Malaysia), entered Turkey vigorously and will begin testing a Croatian presence this year. A California venture in 2001, leveraging the emerging propensity of Americans for online shopping (wine, in this case), soon enough diversified into 115 bricks-and-mortar stores by end-2007 (Tesco plc, 2009b).

With more than half (53%) of all TESCO stores located outside the UK, the 2,400-odd stores in the nation still account for nearly three-fourths of total staff (260,000 versus 106,000 abroad) owing to the diversity of store types bearing the TESCO name in-country, a continuously-expanded product line and the many ancillary businesses the chain has gone into. Just under half (46%) are unionised, substantially higher than the average of 29% for the UK labour force as a whole. The lion’s share of union members are affiliated with the USDAW shop workers federation while a comparative handful in distribution and warehousing are represented by the Transport and General Workers Union (Eurofound, 2009).

Relevant Operational Parameters

At least four facets of the TESCO operation impinge on any analysis of management styles and organizational behaviour. These are the shopper service priorities of any retail business, the corporate strategy in place, the multicultural workforce, and half-hearted corporate social responsibility programmes contrasting with the defensiveness with which TESCO protects its reputation.

Since about 1997, TESCO has pursued a five-pronged corporate strategy of consistent revenue/turnover growth via: a) seeking organic growth for the core food and mass merchandise business; b) emphasise food and non-food business equally; c) expanding into high-opportunity business lines as consumer buying trends dictate; and, d) penetrating new foreign markets. Along the way, the company bows to the new ethic of corporate social responsibility: community service and environmentally sustainable operations but is by no means a trendsetter in this respect.

The store mix in the UK best typifies the strategy of organic growth and equal attention to food and non-food businesses. At the start and during most of the first half of the last century, TESCO sold only food and drink. In the post-war years, the product mix steadily diversified into the now-familiar non-food range: home care and furnishings, garments, electric appliances, consumer electronics, personal care and cosmetics, and health care.

Two of the large store formats – Tesco Superstores and Tesco Extra – are located mainly in the suburbs and definitely out of town. The former stock mainly groceries and only a relative handful of non-food goods, while Tesco Extra gives about equal space to grocery and the rest of the chain’s product range: clothing, electronics and entertainment.

It is also evident, however, that the company is determined to be an all-pervasive presence all across the nation. The two most numerous store formats – TESCO Express convenience stores carrying food, beverage and everyday essentials and the even smaller One Stop – together make up more than half the 2,800 TESCO locations in the UK. Since turnover per foot is inferior to what the bigger superstores can achieve, these smaller formats trade off higher margins for locational convenience.

Positioned about midway in floor space between the superstores and Express outlets are the Tesco Metro stores. Size is partly a function of available property sizes in city downtown or inner city areas and small town high streets. As well, there is the natural fear of cannibalising business away from the superstores on the outskirts of metropolitan areas.

In terms of product range, Tesco has effectively branched out into non-grocery items meant to leverage “share of wallet” from its dominant shopper base. Thus, many hypermarkets and even the downtown Metro stores now offer medical and dental insurance, petrol from forecourt pumping stations, technical support and warranty consultation for appliances and consumer electronics. As well, the company has already diversified into garden centres when it acquired Dobbies Garden Centres and continued to operate the chain under that name; retail banking (a joint venture with the Royal Bank of Scotland that does consumer banking: savings accounts, credit cards, loans, mortgages, and ‘bancassurance’ or insurance sold through bank branches); and being an Internet service provider, mobile phone service and voice-over-Internet-protocol (VoIP) calling service by partnering with such majors as O2 and Cable & Wireless.

Given such a scope of service, Tesco has not been reticent about capturing synergies. The partnerships with cellular service carriers encourages sales clerks in the consumer electronics sections of its larger store formats to push unit and subscription packages. Not having to worry about paying for bandwidth, the store Web site complements in-store sales of music CD’s with affordably-priced downloads of single titles or tracks. For shoppers not inclined to purchase game or movie DVD’s in-store knowing that they might play these just once, the chain offers unlimited DVD rentals transacted on the Web site and delivered by post for no more than £17.97 in monthly membership fees (TESCO Entertainment, 2009).

This concededly brief review of relevant operational parameters has not touched on price as either a competitive or strategic factor. It stands to reason that consumers ought to be interested in chains with a reputation for affordable prices. And this reflects the fact that supermarkets traditionally price aggressively on some items, called “loss leaders”, which are usually featured in “food day” or sale adverts. But such price offerings conceal others that are either parity- or premium-priced and these are the sources for maintaining a record of unbroken growth in net profits. Without reasonably healthy margins, clearly, there would be no surplus to drive continued investment in new domestic locations or joint ventures abroad.

Case in point: Rebutting a claim by industry publication The Grocer that a 33-item shopping list had revealed ASDA was cheaper than Tesco (Trinity Mirror, 2006), the chain released the results of a business intelligence tracking tool showing that they were parity-priced on 60% of items covered and cheaper on 26%. Price monitoring is done constantly, the manner of presentation merely shifting to the cost of equivalent market baskets. In the latest survey of January 30, 2010, Tesco claims that the chain is cheaper for 1,150,000 representative baskets across the UK versus slightly fewer, 950,000, for Asda (TESCO, 2010a).

Recommendations to Enhance Leadership Quality and Teamwork

The Core Business Proposition

The retail business being what it is, essentially procuring the same goods from established manufacturers and displaying these to advantage in conveniently-located stores, the quality of leadership at the director level in Tesco rests on a keen sense for keeping a comprehensive product range, being able to identify high-traffic store locations, and maintaining price competitiveness.

Tesco leaders must have well-developed market insight to continue expanding product range against new consumer needs while remaining consistent with the core competence of the firm. So far, diversification into plants and gardening supplies, petrol, mobile phones, subscription plans, prepaid mobile credits, and credit cards has made sense because these are high-frequency, moderate-cost purchases of the type that the chain’s systems are already set up for. As well, it made sense for the Extra and Superstore formats to offer shoppers the convenience of one-stop shopping.

Equipping store managers and chain directors with the vision to spot new product opportunities is a matter of keeping them current with developing consumer interests. Information comes from many sources: trade and consumer publications, trade shows, competitive store checks, formal survey research and academic consultants. But since Tesco is already very large and geographically dispersed, the Organisational Development (OD) nerve centre of the company cannot afford to let individual directors learn and succeed on their own. Moreover, market developments and competitive counter thrusts come too rapidly to allow the luxury of annual ‘executive retreats’ and strategic planning conferences to keep directors current. Rather, OD must take charge of executive information systems, reshape these to permit daily updates by those at the leading edge of business intelligence and store operations, and ensure these are properly categorised before being disseminated all across the organisation that same day.

Secondly, directors must be ever-alert to store opening opportunities in response to demographic and socio-economic trends. As the population drifts away from London and high-unemployment urban centres, it remains vital as ever to spot locations where a new Extra or Superstore might be self-sustaining. Fortunately, online mapping tools, pedestrian traffic counting, and quarterly updates from the Census office help with this key skill. In the International Division, the selection of new countries to penetrate seems characterised by hesitance about going up against entrenched competition despite favourable attitudes towards things British (e.g. Australia, Singapore, the Philippines, the former Caribbean colonies) and failing to penetrate most of the EU despite the evident currency-conversion and logistical efficiencies afforded by geography and customs integration. While it is prudent for Tesco to say they would rather open more branches in markets where they already have “strong market positions”, it seems most unwise to stay away from the economic powerhouses that are Germany, France, Italy and Spain, for example. At the strategic level, clearly, Tesco directors need a completely new model for evaluating priority markets for international expansion (see e.g. Brewer, 2001).

Price checks and all other accoutrements of competitor/business intelligence represent merely one aspect of managerial priorities for directors in a retail chain. Competitive pricing is necessary to maintain shopper loyalty but sending out hundreds of mystery shoppers every week is an expensive exercise. Since there is a point where the cost of generating business intelligence information is greater than the benefit for managerial decision-making, it seems best to re-orient directors toward: a) the statistical efficiency of collecting smaller sample sizes; or, b) switching to monitoring each other’s online prices on the assumption that these are valid indicators of in-store selling price.

Since there will always be penny-pinching shoppers in the stores, given the perilous times and a recession with no end in sight, the merchandise directors should be encouraged to practise creative price positioning all across the product spectrum. House brands (also known as ‘no name’ or ‘private label brands’) have been around for decades (Stohs, 1999; Liang, 2009) but other chains have already segmented their offerings into bargain-basement, mid- and premium-price offerings via suitable branding and labelling (as their suppliers, the manufacturers of fast-moving consumer goods, have traditionally done) and adroit placement in store shelves. The creative challenge for managerial planning and brainstorming is to extend this feat across the board: produce, canned food, beverages, consumer electronics, insurance, warranty plans, deposit accounts, loyalty rewards, clothing, detergents, etc. Segmented house brands ought to appeal wherever consumer involvement with a product class is low enough to make bargain-hunting a rational trade-off.

Prices can also be held down by adopting the fleet-footed logistics that Wal-Mart is famous for. For example, the world’s leading chain cuts down on warehousing costs by having suppliers place UCC/bar code or radio frequency identification (RFID) tags before they leave the manufacturer’s premises. When the goods arrive at the several Wal-Mart depots in the United States, barcode or RFID readers in the loading bay itself access the supply chain and distribution servers and these are immediately cross-loaded to the trucks that will carry them to their final store-destinations (Casestudyinc.com, 2010).

Teamwork in the Service Businesses

There are three main levels to shaping teamwork in the retail business. The first has to do with strengthening the competencies and self-insight of team leaders so they can manage their workforce units better (Trainer Active, n.d.).

The prime focus of teamwork, notably on the selling floor and during planning meetings, must be customer service. Service is at the heart of all retail businesses because they do not fabricate what they sell nor are they necessarily responsible for the quality of the goods. Being effectively a middleman, a retailer offers shoppers convenience, value pricing, comfort, and overall, a highly satisfying buying experience.

There are many exercises and experiential techniques for building teamwork. Given the aforementioned core goal of encouraging innovation and cooperation for superior customer service, priority training objectives ought to be: customer orientation, transactional skills, self-awareness, growth via reflection, and identifying with the objective of the chain for maintaining customer loyalty.

Good Corporate Citizenship

Perhaps the greatest sea change that must come in the culture, leadership quality and appeal to the rank-and-file for teamwork is in practising sustainable competition. Tesco makes a token bow to good corporate citizenship in its statement of vision, “…put community at the heart of what we do” (TESCO plc, 2009c). No less than the United Nations Secretary-General has urged business to follow the triple bottom line of ‘People, Planet, Profits’ in that order of priority. This means Tesco has to do much more (and be seen doing so) to take care of its workforce, to give back to the communities in which the chain operates, and to move vigorously towards environmentally sustainable operations. So far, Tesco has limited itself to sponsoring a nationwide football tournament for the youth, an educational assistance scheme that donates computers to schools, and comparatively token (compared to competitors) donations to charities and community organizations from pre-tax profits.

Cross-cultural Management

Since Tesco is now a transnational enterprise, learning to work with multicultural teams in Europe, Asia and the Americas requires intensive management training at home before travelling to foreign posts. The growing diversity in the UK workforce is not even representative of the cultural barriers that must be overcome abroad. To lead foreign affiliates towards the strategic goals of Tesco and work harmoniously with foreign workers set in their own ways means intensive grounding in each country’s culture. What is rude in the UK may only be normal discourse for American subordinates. In many European and Asian markets, Thomas (2008) for one warns of cultural inclinations for a comfortable work-life balance.

Bibliography

Brewer, P. (2001) International market selection: developing a model from Australian case studies. International Business Review.

Casestudyinc.com (2010) Wal-Mart’s supply chain management practices. Web.

Eurofound (2009) Tesco, UK: Make work pay – make work attractive. Web.

Liang, N. (2009) Supermarket chains: house brands are here to stay. Web.

Stohs, N. (1999) A historic walk down the aisles of the supermarket. Milwaukee Journal.

Taylor Nelson Sofres (2008) A snapshot of the U.K. grocery market. Web.

TESCO Entertainment (2009) DVD and games rental. Web.

TESCO plc (2009a) Annual report and review. Web.

TESCO plc (2009b) Preliminary results 2008/09: Additional information. Web.

TESCO plc (2009c) Our values. Web.

TESCO plc (2010a) Welcome to TESCO baskets. Web.

Thomas, D. C. (2008) Cross-cultural management. London, Sage.

Trainer Active (n.d.) Team building training activities. 2010. Web.

(Trinity) Mirror, The (2006) TESCO till ‘slowest’. Web.