The sudden departure of Philip Clarke, Chief Executive of Britain’s largest supermarket, Tesco, after three years in charge and 40 with the business, is a reminder of how deep the company’s troubles go. Although observers point to the decline in market share under his leadership, in truth the company’s problems go back to the financial crisis and beyond.

While it’s true that Tesco’s energetic pursuit of some of its foreign projects, such as Fresh ‘n’ Easy in the US, meant that its UK stores suffered a lack of investment and of board attention, the roots of its problems are more subtle than that. Its position and its branding worked fine until the financial crisis, when consumer values about food and shopping changed quite sharply. This is usually told as a story about being outflanked by discounters, but it’s more complex. For this reason the analysts who want the company to get into a price war with the likes of Aldi should be careful what they wish for.

The Tesco proposition was built on ruthless price competition, on promoting ‘choice’, and also serving both ends of the market. One of the things that consumers learnt from the financial crisis was that choice costs money, and that some of Tesco’s deals were less straightforward – and less straight – than they looked. Clarke tried to address some of these issues, but this takes more time than he was given. And the Aldi and Lidl proposition isn’t just about price; it’s also about simplicity and a bit of bargain-hunting (listen to its customers talking about their wine selection if you doubt this).

But the other part of the post-recession story was the way in which food became an important part of social nurturing. Sainsbury’s and Waitrose – and also Marks & Spencer – all understood this, and created new stories, and new deals, to build this up. In short, food regained its emotional aspect, while Tesco was still stuck firmly in transactional mode. The steady drip of stories about its treatment of suppliers, or of bullying local councils through the planning system, hasn’t helped. And it still is in transaction mode: every time the company tries to address its decline in the UK, its default position is price-based promotion. Its competitors are playing a different game, but Tesco seems unable to escape from the strategy and tactics that helped it grow during the boom years. The category rules have changed, and Tesco hasn’t. Even its logo looks hard-edged.

There’s one final point here. In the early ’00s it was commonplace to hear people say that Tesco’s loyalty card, Clubcard, was so successful – 19 million cards in circulation – that its competitors would never be able to outflank it. The argument was that Tesco simply knew too much about consumer preferences. But when values change, and behaviour shifts, loyalty cards can become a weight, not an asset. They tell you about your existing customers but not about people who are not shopping with you. And here, too, Tesco’s transaction focus locks it into the past. As we argue in our recent Proofpoint on loyalty, consumers respond to transactional schemes in a transactional way. The brands the succeed put some emotion back into the equation. One news report said that the incoming Chief Executive, Dave Lewis from Unilever, would have to decide whether to scrap the Clubcard: from critical corporate asset to company millstone in around a decade.

The image at the top of the post is from Wikipedia, and is used with thanks.




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