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The decline of the Tesco empire The decline of the Tesco empire
(5 months later)
'I'd rather not talk about it," said Tesco's chief executive Philip Clarke, when asked to explain the company's failure in the US on the radio today. Clarke was obviously feeling the £1.2bn pain of quitting the store's once bold venture that grew to 199 American outlets.'I'd rather not talk about it," said Tesco's chief executive Philip Clarke, when asked to explain the company's failure in the US on the radio today. Clarke was obviously feeling the £1.2bn pain of quitting the store's once bold venture that grew to 199 American outlets.
Yet if he doesn't want to talk about the difficult issues facing Britain's biggest retailer he may end up in a vow of monkish silence, because they are backing up. Look at a map with countries coloured where Tesco is present. Its spread is reminiscent of the British empire. Covering Ireland in the west and reaching out to China in the east, the store's expansion has for a long time looked unstoppable. But now the empire is troubled. Having already withdrawn from Japan and shifted to a more cautious gear in China, admitting defeat over North America is reminiscent of another empire – Rome. Once it had passed its peak it suddenly looked vulnerable.Yet if he doesn't want to talk about the difficult issues facing Britain's biggest retailer he may end up in a vow of monkish silence, because they are backing up. Look at a map with countries coloured where Tesco is present. Its spread is reminiscent of the British empire. Covering Ireland in the west and reaching out to China in the east, the store's expansion has for a long time looked unstoppable. But now the empire is troubled. Having already withdrawn from Japan and shifted to a more cautious gear in China, admitting defeat over North America is reminiscent of another empire – Rome. Once it had passed its peak it suddenly looked vulnerable.
Tesco's big overseas push came in part in response to the saturation of the British market. Already twice the size of its nearest rival and taking £1 in every £3 spent on groceries, there were only so many more stores the country could take. Although Tesco had a bank of land that meant it could have doubled its floor space, much of this was strategic, to frustrate the chances of its competitors. So not too much can be attached to its decision to sell off more than 100 sites.Tesco's big overseas push came in part in response to the saturation of the British market. Already twice the size of its nearest rival and taking £1 in every £3 spent on groceries, there were only so many more stores the country could take. Although Tesco had a bank of land that meant it could have doubled its floor space, much of this was strategic, to frustrate the chances of its competitors. So not too much can be attached to its decision to sell off more than 100 sites.
More significant is the growing sense of a once bulletproof self-confidence wavering, both in its own business decisions and its reading of the consumer. During the horsemeat scandal it passed the buck down its supply chain, with a "plausible deniability" excuse. It was disingenuous given Tesco's pride in its exacting management of suppliers: the relentless cost-cutting of suppliers was always going to lead to corner cutting. It then sought to change the story with those clever, but frankly odd,, half-poetic public apologies. Tesco's 51% fall in pre-tax profits can't be unrelated. A recent decision to allow poultry providing the supermarket with eggs to be fed with GM grain was also a wrong move, seen as making it harder for shoppers to exercise choice in a way that feels uncomfortable.More significant is the growing sense of a once bulletproof self-confidence wavering, both in its own business decisions and its reading of the consumer. During the horsemeat scandal it passed the buck down its supply chain, with a "plausible deniability" excuse. It was disingenuous given Tesco's pride in its exacting management of suppliers: the relentless cost-cutting of suppliers was always going to lead to corner cutting. It then sought to change the story with those clever, but frankly odd,, half-poetic public apologies. Tesco's 51% fall in pre-tax profits can't be unrelated. A recent decision to allow poultry providing the supermarket with eggs to be fed with GM grain was also a wrong move, seen as making it harder for shoppers to exercise choice in a way that feels uncomfortable.
The real danger for Tesco is that once you're seen to have lost your touch, everything you do gets interpreted differently. In the past, reaction to the store was often that you might not like them (industry polling revealed customers found Tesco one of the most miserable supermarkets to shop in), but that they were good at what they did. When that lustre goes, however, we're just left with a large, unpleasant shop.The real danger for Tesco is that once you're seen to have lost your touch, everything you do gets interpreted differently. In the past, reaction to the store was often that you might not like them (industry polling revealed customers found Tesco one of the most miserable supermarkets to shop in), but that they were good at what they did. When that lustre goes, however, we're just left with a large, unpleasant shop.
No doubt, given its sheer size, incumbency and the unchanging weakness of regulators, Tesco will be able to occupy any emerging retail formats and fashions. But if there is a sense that they've lost a deeper plot, this may be just decoration on a longer slide. In turn, that shifts the balance of power in the numerous, continuing local battles against the big stores.No doubt, given its sheer size, incumbency and the unchanging weakness of regulators, Tesco will be able to occupy any emerging retail formats and fashions. But if there is a sense that they've lost a deeper plot, this may be just decoration on a longer slide. In turn, that shifts the balance of power in the numerous, continuing local battles against the big stores.
While Tesco provides a sort of constrained convenience, in reality it has a business model that leaves us all poorer and the economy less resilient, by sucking spending and social contact out of communities, by hollowing out supply chains and leaving clone towns and ghost towns in their wake.While Tesco provides a sort of constrained convenience, in reality it has a business model that leaves us all poorer and the economy less resilient, by sucking spending and social contact out of communities, by hollowing out supply chains and leaving clone towns and ghost towns in their wake.
There may be a deeper reaction still that increasingly works against them. We have entered a period of great economic questioning. Yet supermarkets offer a distorted map of a flat, unchanging world without seasons or reasons to question how we do business, where an already over-consuming population is encouraged to purchase ever more, in such a way that we end up wasting one third of the precious food we buy.There may be a deeper reaction still that increasingly works against them. We have entered a period of great economic questioning. Yet supermarkets offer a distorted map of a flat, unchanging world without seasons or reasons to question how we do business, where an already over-consuming population is encouraged to purchase ever more, in such a way that we end up wasting one third of the precious food we buy.
Pictures of smiling people and happily grazing animals on packaging bear as much relation to reality as did the joyous workers and natural abundance in Stalin-era paintings of Soviet realism. It's a world of consumption largely detached from consequences, and the processes of production that fill the regimented aisles. That also maybe something that Philip Clarke would rather not talk about, but I think a lot of other people are ready to.Pictures of smiling people and happily grazing animals on packaging bear as much relation to reality as did the joyous workers and natural abundance in Stalin-era paintings of Soviet realism. It's a world of consumption largely detached from consequences, and the processes of production that fill the regimented aisles. That also maybe something that Philip Clarke would rather not talk about, but I think a lot of other people are ready to.
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