Tesco CEO sees green, local and convenience as long-term grocery trends

Posted by Daniel Palmer on 15th June 2009

The Chief Executive of the UK’s largest supermarket operator, Tesco, has given a message of hope for the future of retailers provided they adhere to the simple philosophy of reacting to the desires of customers rather than telling them what they want.

“Now, more than ever, we must be the consumer’s champion. Deliver for the customer, and you will survive,” Sir Terry Leahy said in a speech at the British Retail Consortium’s Annual Conference last week. “Yes – that is the same answer I would give in the good times, but it’s even more important that we retailers abide by it in a recession. And yes, I readily admit that it is a simple message – but in its simplicity lies its power.”

“Consumers drive businesses and economies forward. In a free market, consumers reward initiative and provide incentives for people to innovate, create, produce. Each transaction, each bleep at the checkout, is a message to a business to produce more of that product – and helps to shape a trend,” he continued. “Find a business that responds to those signals, and you have found a successful company. Find a business that has plans created on the basis of abstract theories and assumptions, not on what consumers say and think, and you have found a bankruptcy waiting to happen.”

Mr Leahy said his company learnt a valuable lesson out of the 1990s recession that has guided their success in the last 15 years. Having failed to understand the consumer and unable to grasp their own identity, Tesco was struggling. However, after implementing a few simple organisation-wide alterations they have proven one of the world’s most successful businesses since the early 90s.

“There was no magic silver bullet, no new fangled business theory – just a series of improvements that we rolled out to deliver for the consumer, and earn loyalty: one in front cut-the-queues initiatives, new formats, Clubcard, a move into new markets like non-food,” Mr Leahy said. “We actually scrapped the strategy department, as I believe the customer is the most reliable guide for the future.””We used change as an opportunity to introduce a new culture of simplicity – simple processes that are easy to learn, quick to complete and cost less money.”

The consumer approach

Mr Leahy came up with four cornerstones of the consumer approach that would serve businesses well.

“First, stick to the strategy of listening to customers. Never deviate from it, but accept that it means constantly changing tactics – in other words, how and what you deliver for consumers,” he advised. “Second, … nothing is sacred. Question everything – especially things which people tell you “can’t be changed”.”

“Third, loyalty has a price. It may demand short term pain – such as investing in lower prices – but it delivers medium and long term gain,” he added. “Finally, hold your nerve. Following the consumer means spotting trends and taking risks, not waiting for your competitors to move first.”

Consumer behaviour changes

Tesco has spotted a number of consumer behaviour shifts in the past year, which have primarily revolved around value.

“(Consumers) are bargain hunting more; shopping locally so as to save money on fuel or transport; planning to avoid waste. People still want convenience, but it is trumped by value,” he contended. “For example, more people are willing to cook from scratch, and less willing to pay for goods – such as grated or sliced cheese – when they feel they can do the job themselves. And consumers are still treating themselves so long as the treat delivers value – which these days might mean cooking a great meal at home, not going out.”

The future

Mr Leahy compelled businesses to remain acutely aware of the long term challenges and trends which may have been given less coverage due to the economic situation.

The challenges are well known – climate change, a rising population, the pressure on natural resources, ageing population,” he noted. “Each of these will have an impact on our lives and businesses. We will need to be green to grow. We will need to use resources more carefully and efficiently. Technologies that once were unfashionable and politically unacceptable – be they nuclear power or GM crops – may come back into vogue. As countries grow and become richer, what they buy and eat will change – meat consumption, for example, is expected to rise. And as the number of old people grows – the number of people aged over 60 will quadruple to 2 billion by 2050 – new markets and services will grow.”

“Change must be sustainable, not a “here today, gone tomorrow” offer. And that means you must improve your productivity, do more for less, and cut out unnecessary costs.”

The push for sustainability is not merely a fashionable short-term trend and will gain strength in the years ahead.

“Consumers’ desire to go green – which has not disappeared – will re-emerge with even greater prominence. Even during the recession, consumers have remained concerned about the environment, but need more help in doing something about it,” he explained. “Related to the green agenda is another trend: local. People want fresh, local produce: they see it as a hallmark of quality, a greener option.”

The convenience and health and wellbeing trends, which were widely discussed earlier last year were listed by the Tesco boss as other long-term trends that will not fade.

“Companies that prepare for these trends, while delivering for consumers today, will prosper as the economy strengthens. But they will have achieved something else: they will have won customers’ loyalty,” Mr Leahy concluded.