Tesco is a salutary reminder that even the mightiest brand can fall from grace and that one of the surest ways to do so is by sacrificing key stakeholders on the altar of short-term shareholder return.
Customers, suppliers, and local communities have been treated in ways which make the 'Every Little Hurts' slogan thrown at the supermarket by campaigners the Tescopoly Alliance look rather too true.
Dave Lewis, Tesco’s new CEO brought in from Unilever, a company that prides itself on its customer focus, is discovering very quickly what it’s like to be leading a brand which used to pride itself on being helpful, but has very much let this ethos slide.
Lewis was recently quoted as saying that Tesco needed to return to basics. “We need to go back and find out what it was, in its DNA, that made the Tesco brand successful in the first place.”
Being a professional marketer, no doubt Lewis will embark on some ‘brand archaelogy’ and it won’t be news to him that the foundations of the Tesco success were laid a long time ago in 1984 when Terry Leahy was made marketing director and Ian MacLaurin was appointed chairman and chief executive a year later.
The key research finding that underpinned the strategy they developed was that shoppers, mainly women in those days, found shopping a repetitive, boring and expensive chore. This may seem obvious now, but then retailers were in thrall to their superstores and believed they’d created a shopping paradise rather than a Groundhog Day purgatory. To their great credit they had the humility to not only accept this truth but in a jujitsu move used it to drive their strategy.
Frank Lowe was their key talking partner at Lowe, Howard-Spink, the agency which used this insight in 1992 to create arguably one of the greatest retail campaigns of all time, encapsulated in the proposition 'Every Little Helps'.
These three words became Tesco’s central organising principle against which all business decisions were evaluated. Nothing was done which didn’t make shopping better for their customers.
A flurry of product and service innovations followed such as wider aisles, more checkouts, baby changing areas, petrol stations, new store formats and more diverse product ranges, to name but a few. Perhaps the most significant of them all was the launch of the Clubcard in 1994. Susie Mesure of the Independent reported Ian MacLaurin’s response to its proposal to the board as: “What scares me about this is that you know more about my customers after three months than I know after 30 years."
Meanwhile Tesco was early into the third wave of branding and recognised that its customers needed ethical as well as rational and emotional values. Launched in 1992, ‘Computers for Schools’ was for many years the UK’s highest profile and most successful cause-related marketing programme. Tim Mason became a leading figure in Business in the Community and used the success of the Tesco scheme to encourage other companies to develop their own corporate social responsibilty programmes.
The extended timeline above shows that things started to go wrong about 10 years ago, and clearly there are many factors which have led to the crisis enveloping Tesco currently. Not all these can be laid at the door of Philip Clarke, for example the decision to launch Fresh & Easy in the United States, which Leahy reportedly now regrets. Indeed in September Izabella Kaminska of FT Alphaville published a telling chart from 2011 produced by Terry Smith, chief executive of Fundsmith LLP, showing the return on capital employed during the Leahy years.
This reveals that while earnings per share (EPS) were appeasing the City’s appetite, the return on capital (ROC) was drifting downwards, especially from 2007 onwards. Tesco was borrowing heavily but investing in less profitable activities, and yet had to keep on delivering the dividends. Is it too fanciful to suggest that the pressure to appease the City also resulted in some less than ethical Tesco behaviours, including over-pressurising its suppliers and manipulating the cash flow?
Taken individually, these activities may have just irritated particular communities intensely, but their cumulative effect drained away sympathy for the brand. And meanwhile brand mascot Dotty had been retired from our screens since 2004 and the Every Little Helps campaign focused subsequently more on price and offers and much less on imbuing the brand with sheer likeability.
In delivering on Tesco’s former promise to be a brand that focuses on its customers, Dave Lewis needs to ensure its internal and external values are realigned around Every Little Helps and behaviours which hurt must be abandoned. In doing so the top management will enable a self-confident culture in which employee morale will recover and staff are re-empowered to be true ambassadors for the brand.
Ultimately, Lewis and his team need to rekindle the spirit, of helping in as many ways as possible, which made the Tesco brand great. And they need to do it before it’s too late to reverse the brand’s fall from grace.
Hamish Pringle is a strategic advisor to 23 Red. Follow him on Twitter @HamishPringle