Tuesday 17 March 2015

Tescopalypse Now - Every Little Shouldn’t Hurt

The once all-conquering retailer Tesco has recently lurched from crisis to disaster*.  Stories of stores closing, share price diving, accounting scandals, criminal investigations, junk-rated credit and shrinking turnover and market share have been seen almost daily in the media. 
As if this wasn’t enough it’s been accompanied by the unedifying sight of a long-time CEO, having timed his exit perfectly, handing his successor a well-poisoned chalice whist knifing him in the front for good measure.  His successor, then, in turn, clearing out the boardroom like a table full of trays at a fast food restaurant.
Overpromise, overstate 
And now there's a reminder that the fallout over the supermarket’s £263m profit overstatement is far from over as Tesco faces a lawsuit filed on behalf of shareholders in the UK and Europe for the impact the overstatement had on its share price.
Tesco Shareholder Claims (TSC), a group funded by the US law firm Scott and Scott , will bring the claim, after the firm launched a similar case on behalf of investors in the US last year. TSC says it expects to claim for between 50p and 70p per share, which would mean a potential cost to Tesco running into billions if it was successful.
The Tesco tale has been not unlike that of some recently exposed celebrities.  It managed to combine both an apparently incredible success story, doing business `good` with some very nasty habits hidden from general view or ignored by those that stood to gain financially from or by association with its success – customers, employees, investors, media  and government alike.
Nineties to noughties
Of course, it’s fundamental that supermarketing is highly-competitive.  However things seemed to change in the mid Nineties, once Tesco had re-invented itself and overtook Sainsbury’s to become the UK’s market leader.
It achieved this for the right reasons; because it was motivated to succeed. It was the challenger.  It was more agile and more innovative than the once fast rising and, by then, complacent incumbent.  Its big breakthrough was actually knowing, through its pioneering Clubcard loyalty scheme, who its customers were and what they were buying
It got into an apparantly virtuous circle. By the mid noughties, Tesco had almost a third of the UK market and was expanding overseas, disastrously in the US it later emerged.  
From virtuous to vicious
But, by then, a heart of darkness existed in its Cheshunt trading estate headquarters, manifesting  itself in the horrible readiness with which Tesco was prepared to abuse its increasing power in order to sustain its profitable growth. Of course, big companies do this and as grown-ups we accept, negotiate or walk away.  But Tesco exerted a vice-like monopolistic grip and turned it into a vicious art form.  And the one group that certainly didn’t benefit from its rise were its suppliers
Bullying appeared to be front and centre of its business model and culture.  It treated its suppliers not as partners in the quest to satisfy or delight customers but like disposable items, squeezing them dry and then paying them as late as possible. I know, I was one of them for a short while. 
Luckily, being a supplier of marketing communications services at the time, that was where the pain stopped. It was also something we were prepared to trade for the associated prestige at the time of having them on the client base even though the work was mind-numbingly prescriptive and based on a tactical we-know-best-just-execute approach.
Of course, the work was always project-based so more procurement pressure could be applied at regular intervals - every little hurt rather than helped, to paraphrase Tesco's slogan. In the end, convinced we were never going to build satisfying business with them and seeing the way the team were being treated, we walked away.
It’s interesting to note too at time, if you were representing a client that had maybe supplied technology or services that had helped drive the Tesco miracle, any win-win cooperation story request was flatly refused, if you ever got a response at all.  The irony is that this is exactly how M&S had behaved a decade earlier.  And look what happened to them, clearly an early warning signal. Anyway, at least you can get a case study out of them these days.  As you probably now can out of Tesco  
But I digress. For most of the company’s suppliers, the misery didn’t stop with Tesco screwing up their cashflow and upsetting a few executives. For those wedded to the behemoth, margins became continually eroded and slimmer than the `waffer thin mint` proffered by John Cleese’s oleaginous faux French waiter to the morbidly obese diner Mr Creosote.
Non-stop bad behaviour
As something like one pound in every eight spent in the UK was spent with Tesco it started asking for seemingly endless series of extra payments from suppliers for the privilege of having them as an outlet.  It was Tesco’s way or the highway for those poor unfortunates who had bet their business on their Tesco contracts.  For some, as the recession bit, it was the road to ruin.
The bad behaviour didn’t stop with the suppliers. There was the unsavoury steam rollering of local opposition to high-street-destroying out-of-town superstores, the land banking and maximising every square inch of their ever-expanding, countryside gobbling, brutal sheds or their squalid `convenience` stores. Tesco came to ape the very worst aspects of Walmart’s legendary mid-Western blitzkrieg - all whist rolling out a series of CSR initiatives and charitable works, naturally.
Goodbye goodwill

But the Tesco story reminds us that even the greatest empires contain the seeds of their own destruction. The feisty agile challenger is always in danger of becoming the bloated, sloppy and, ultimately, doomed incumbent. And, like the glutton Mr Creosote, ready to explode the moment that the tiniest little hint that financial market expectations might not be met.

That happened and now it’s now got a big job on its hands. Tesco behaved so badly to so many people over such a long time that there’s no goodwill left for it to draw on. In fact, a lot of people who hope that the company’s current troubles represent the first few steps on its road to a righteous oblivion of which consumer flight to Aldi, Lidl and Waitrose is just a small symptom. 
 Ego and hubris

Look closely and the cultural signals of impending doom are easy to spot. Companies start to think they are unassailable. Ego and hubris stalks the corridors.  Executives surround themselves with status-obsessed careerist company drones. The suits care more about corporate in-fighting or hanging around with politicians in search of perceived influence and gongs than they do about the stakeholders.
I’d argue that, as business cycles quicken inexorably, many of the disruptors of the early days of the internet are already ripe themselves for disruption. Perhaps the most obvious examples are Amazon and Google who are clearly not now averse to throwing their weight around despite any pretence, in the case of the latter, to not be evil. 

  But there still are many from the `old` economy who remain supposedly `regulated` - protected by law - and are still getting away with it - high street banks, investment firms, big six utilities, train operating companies, London’s black cabs, the BBC and the big political parties to name but a few.  And some, like estate agents, that appear to live a charmed life when by all that is rational their business model should have disappeared years ago.

For entrepreneurs and even for those where reality is slow to bite the message is always the same. Be reasonable with people on the way up as you’ll meet them on the way down.  It’s not a `nice to have` – it should be at the centre of not only every successful , but every sustainable, business strategy.
  * Subsequent to the writing of this blog on 22.4.2015 Tesco posted a pre-tax loss of £6.38bn, believed to be the biggest loss ever recorded by a UK retailer.
 
 


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