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.
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.
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 hubrisLook 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.
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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