The Tesco bookkeeping announcement on 22 September 2014 is a useful reminder of what can happen when a retailer becomes so big that the cost of keeping up appearances might lead to all manner of shenanigans.
Much has been and continues to be written about supermarkets, so I’m rather hoping that I won’t touch upon too many points that may be read elsewhere. Instead, I’d like to expand upon a theme that I first wrote about in 1998 in my newsletter for clients and contacts.
In popular parlance, a supermarket is normally associated with food and drink but, as discussed in Calabar (Woolwich) Ltd v Tesco Stores Ltd  “the word ‘supermarket’ describes a system of selling within premises. In short, it is principle… A supermarket shop is one based on the principle of self-service.”
For efficiency and choice, self-service makes sense from a customer’s perspective because personal speed and freedom to decide whether to buy without any conversation with a member of staff is under one’s control. (The only delay is at the check-out!) For convenience, it makes sense from a shopper’s perspective to be able to buy whatever one wants under the same roof. It makes sense from the supermarket operator’s perspective to capitalise on economy of scale. A win-win situation for all concerned? If only it were as simple as that.
Most shops specialise in a category of product: the butcher, the baker, the candlestick maker, for example. Some shops combine specialisms within a product category, for example, the ‘confectioner, tobacconist, newsagent’ (“CTN”). Food and drink are our daily diet (by which I mean what we eat on a habitual continual basis, as distinct from a regime defined by the slimming industry), and comes under the marketing heading of fast-moving consumer goods (“FMCG”) which provides the fodder for supermarkets.
The leading supermarkets run on a combination of rapid turnover of FMCG and creative accounting. Creative accounting is the art of selling before paying suppliers and juggling the other figures and asset values to give an impression of upward-only growth. Upward-only growth isn’t just about keeping shareholders happy, it’s also about firing warning shots across the bows of competitors. The rate of stock turn is a reflection of pricing to demand. In the UK, the average consumer is price-sensitive, more so since austerity became a big issue, and prone to shopping around. On-line price comparison sites have mushroomed. Competitive forces, from both other retailers and shoppers themselves, mean there’s a limit to how much any retailer can get away with charging, commensurate with quality. There is also a trend towards ethical sourcing and conduct expected of all types of business, not just retailers – the moral compass and social responsibility – but despite a vociferous minority, the majority of shoppers continue to load the weekly trolley with the sort of products that, wearing my organic vegetarian wholefood smile, I label ‘junk’ food. Regardless of my personal taste, the reason despite generic products at around the same price in any of the supermarkets people nevertheless have their favourite supermarket operator is not merely symptomatic of tangible pointers, but also the atmosphere that greets customers whenever they enter a store, how they’re treated while they’re there and after-sale service.
It is unrealistic to aim for upward-only growth. The pressure is too much to bear. There comes a point when things snap. For realism, one must be flexible, to accept that downturns provide momentum for the upward path. People do business with people. When we go shopping, our decision where to shop is premeditated, subconsciously maybe but predisposed nonetheless. Often, buying is impulsive but the guiding light is how we feel about the experience, or with impulse how we think we’ll feel about the experience. How we think we’ll feel is based on what we’re being led to believe and taught to think by vested interests. The power of influence should never be underestimated.
The John Lewis Partnership (which also owns Waitrose) is renowned for customer-service. The secret is not in what its staff, known as partners, are trained to do but that JLP is adept at picking the right people to begin with. Where the foundations are innate and the ‘right’ attitude present already, it’s a darn sight easier to build on solid foundations than to have to explain the difference and hope that the subtly will sink in.
Picking the right people means by implication that the rejects are not up to scratch. Of course, the John Lewis Partnership does not employ that many people to deplete the entire UK workforce but suitable people are in short-supply. Apart from competition from other businesses, retailing suffers the stigma of working in a shop, and above all quality people are intolerant of outmoded attitudes in supervisors and employers.
Since front-line retailing is all about dealing with customers, you might think retailers would be people-persons. Often they’re not. The sort of people emotionally equipped to deal with the general public does not usually frequent the corridors of power. Staff training tends to be delivered by managers whose ability to get on with people of all walks of life is somewhat limited. Staff training manuals can make fascinating reading: on staff room noticeboards in shops can be read all manner of encouraging adages for maximising the customer relationship, most of which are automatic if you’re the right sort of person to begin with.
UK Supermarkets are not particularly imaginative: mostly compete by copying. In 1956 when a client with a chain of CTNs started selling groceries a business adviser at the time told him he’d ruin his shops: nowadays most CTN’s sell a small number of groceries and supermarket-owned convenience stores are commonplace.
Generally, people are better at practicalities than atmosphere. In a hierarchical organisation, the lines upon which most businesses are managed, it’s not that people on lower pay-grades aren’t able say how they feel, so much as being silenced or told to keep quiet. A reflection of adverse influence in social conditioning, we give the benefit of doubt to those in charge. Even though keeping feelings to oneself, going along with what is done, leads to psychological difficulty, we are led to believe. Being more inclined toward pragmatic than etherial a predilection for following is endemic in society: without followers, what price Twitter?
Practicalities are tangible which is why the ‘Green’ movement has achieved more in the mainstream of property and retailing by focussing on sustainability and passive building construction (‘toys for the boys”) than in curtailing the smoking and drinking habits amongst those that design, build, own, finance, and work in the properties.
Atmosphere is intangible.We are told ‘first impressions count’ but they may not. First impressions can be manipulated using the power of hype and influence, to make us think that what’s on offer is to our liking.
For balance and harmony, we think and feel. We are naturally wild but tamed we go with the flow (of energy) within the boundaries of social support structures, resourcefulness and capabilities. Thinking is a steering mechanism, feeling propels motivation. How we communicate and express ourselves is about personality, in the business world the corporate image. Unless there is a synchronicity between thinking and feeling, doubt will arise. A thought can be put out of your mind, but the feeling will linger regardless. Doubt is a product of lingering feelings. When we assess something then no matter the tangible evidence, any sense that something isn’t quite right will create a psychological block.
In the business to consumer market (B2C) the consumer tends to be treated far more mass-market than in the business-to-business market (B2B). The mass-market assumes conformity, management by say-so, others knowing what’s best for us, people doing as they’re told, buy what they’re given and be grateful.
In the B2B market, most people prefer to do business with people they like, but that can be a mistake. When we exclude from our lives people whom we don’t like, we deny ourselves an opportunity for self-development. It’s rare, possibly impossible, to find nothing about a person that one cannot like. We can identify behaviour, attitude, qualities that we don’t share or find distasteful but intrinsically how those attributes are packaged, the form they are presented in through the personality of each individual are just as helpful to us as those whose personalities we feel comfortable with.
Psychological blocks cloud judgement, our ability to identify trends and predict the future with a degree of certainty. Anyone can make money by selling what is wanted now, but the big profits come from anticipating what people will want in future and being there to provide it. Invariably, a successful business starts by creating a world of its own. Tesco didn’t start in a world of its own: all it did was to pile it high and sell it cheap. In other words, it cashed in, and so successfully that it shot from start to finish, its first store in 1929, along the way knocking the competition off their perches.
Supermarkets consume substantial capital. A long-term business plan is rarely straightforward. Anticipated events can be avoided, difficulties can reflect specific situations, but often the cause of problems is failure to empathise with the purpose of change. At psychological level, the purpose of change is to be oneself and function true to form. Business is about helping people, through products and services, in exchange for money. Helping people and contributing requires a shift from the dominance of mass-market ideology.
Essentially, problems arise when an expectation is out of sync with reality. A disconnected state is symptomatic of thought and feeling out of sync with each other. Reality is tangible experience. To keep up appearances, a gap appears in a level of understanding and is filled with hot air. There is nothing wrong with hot air in itself, but when retailers get carried away and form the wrong impression of reality, the knock-on effect of disconnection is destabilisation.
In business, problems increase costs, reduce efficiency, generate stress, demoralise people, damage health, deter shoppers and can lead to failure. Therefore, problems of any kind should not be regarded as normal. The point is most people do think problems are normal until the problem becomes so irritating that people have to stop and do something about it. Most people are so used to living in a disconnected state that thinking ‘mind over matter’ is second-nature. We override moods and force ourselves to keep going to meet performance targets and goals, using perseverance and determination regardless of how we’re feeling.
Flat demand, as I wrote in June 2009, is caused by addiction to competition. Blips can be seasonal but a slowdown generally advocates urgent improvement in corporate self-development.
The big 4 supermarkets have a problem because having focussed on the mass-market they are finding that’s not the best place to be. Instead what they want is in short-supply: profitable customers. A profitable customer is someone who will only ever buy from their preferred shop(s), regardless of the competition.
Some retailers may have a job to keep up but, in reality, customers know where they are going. To be oneself and, ideally, achieve one’s purpose in life are benchmarks to which people naturally aspire. Demand is for reliable, well-designed, tasty food, long-lasting goods and services provided by trustworthy businesses. Bargains attract but mass-market techniques are not enticing. People want to ‘feel good’ about everything, to get more than they bargained for. Respect for each customer is exacting, but profitable. As retailers reduce suppliers, so customers use fewer retailers and towns. Loyalty? Free of charge to all who understand.
Is it finished? Has Tesco passed its shelf-life? Tesco’s market share has slipped by about 2% which means that 72% of the population don’t shop there. Even though Tesco gets tons of media coverage, the vast majority of people do not shop there. I think that’s telling in itself. Whether it’s important to be concerned about what Tesco will do under the leadership of its new CEO, Dave Lewis, depends upon whether you care. I do, I’m not a Tesco customer but even so it fascinates me that the hostile brush I experienced with one of its property advisers confirms my warning sign that a retailer in trouble can be gauged by how the ‘ambassadors’ of a retailer treat anyone they come into contact with. Time and tide waits for no one. Aldi and Lidl are busy stealing a march on the big 4. Personally, i don’t think Tesco would win a price war. It may have the financial muscle and fire-power but I don’t think people are as easily attracted now that the mass-market is in decline. I don’t think that price sensitivity is only about cost; I think it’s the price that people put on being respected. For that Tesco would need to equip its stores with the calibre of staff that Waitrose offers.
I’m not inclined to help supermarkets that war with each other: I think it a waste of human capital to compete on price alone when there are more important issues at stake. I prefer to help retailers that stand up for what I believe in and through association with shared values show by example what can be done for the health of society simply by putting their corporate mind to it.