April 4, 2007
Part II: Tesco’s Leahy ID’s Global Opportunities
The former Speaker of the House of Representatives Thomas “Tip” O’Neill is widely remembered for his observation that “all politics is local.”
As it turns out, the CEO of Tesco, Sir Terry Leahy, has similar views when it comes to building a global retail brand. Speaking at the first World Retail Congress (www.worldretailcongress.com) in Barcelona last week, Sir Terry listed a number of important lessons learned that have enabled Tesco to achieve success in countries where it has opened stores.
Lesson number one, he said, is “recognize that customers and cultures are different. I don’t try to run my business according to some blueprint drawn up at HQ. I trust local managers to manage and to know what their customers want.”
To that point, he said, “Our aim is to be the best local business in each market in which we operate. Best local trumps second-rate international every time.”
Tesco’s adaptability to local needs extends to store formats, as well, he said. By operating stores of different formats, Tesco is able to more quickly build a presence than if it were to stick with a cookie cutter approach.
“Be prepared to spend a long time building up the brand,” he said. “We, for example, don’t use the Tesco brand in every country. In Thailand, we are Lotus. In Korea, Homeplus. And in the U.S., it will be Fresh n’ Easy. We do what is right for each market and what our customers tell us they want.”
Ultimately, he said, it always comes back to the consumer. “If you follow customers – by which I mean if you really find out what they want and work very hard day and night to give it to them – then you will automatically find your way to the new opportunities that are out there,” said Sir Terry.
The move to a global economy is a positive development on the whole, according to Sir Terry. Throwing up barriers through protectionist policies ultimately wind up hurting the very people they are intended to help, he said.
“The new anti-globalization we hear about is often just very old anti-business sentiment spruced up with a lick of paint for the twenty-first century. The fact is that without profit, we cannot pay for any of the things that citizens want – hospitals, schools, welfare. All my experience is that rather than limiting the choices consumers have by deciding on their behalf what is good for them, if you give them proper information they have a pretty unerring instinct for arriving at the right decisions on their own,” he said.
Discussion Questions: What is your take on Sir Terry Leahy’s observations as to what it takes to build a successful global retail brand? What do you think it means for Tesco’s plans for the U.S.?
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Few can persuasively debate the proposition that providing what customers want in each market is more powerful than attempting a one-size-fits-all assortment stretching around the world. What scares many retail companies, however, is the thought of trying to operate many different businesses rather than one business in many locations. The retailer must have sufficient resources to make the tailored approach work. To take this to the next level, as Tesco does by tailoring its back-end operations, requires more resources–or at least more capable resources in each position. Doing this on Tesco’s scale actually is a bit easier given the power the company holds through its enormous sales and profits. Doing this on a smaller scale becomes quite daunting. However, country customization will become increasingly necessary to differentiate local retailers who sell globally from global retailers who perform locally.
It’s hard to argue with Sir Terry Leahy’s platitudes. Five years ago the stock was around 260 pence and today Tesco is 455. That’s not bad for a company in a mature competitive industry.
I’m interested that the question is about building a “global brand” when Sir Terry makes it clear he’s not building a single global brand but he’s doing what’s best for each market. The key to success is ultimately how well is Tesco able to understand and service each market. They have been phenomenal at using data to understand their customers and then acting on it to change their store format. If they can use data to communicate local assortments, local initiatives and market based sensitivities, they should be poised to do very well. From what I understand of their US based approach they’re coming in with an alternative to the C-store format–I think carving out an underserved niche and meeting its needs in a different way will mean success for them. I will be very intrigued to see the actual stores, though. You can’t really judge a retail strategy until you see its execution.
Terry Leahy’s perspective reflects what most successful food retailers do all over the world, i.e., they listen to shoppers and then respond to what the shoppers need.
What’s different is that he isn’t pushing a particular format or approach to satisfying needs as do, say, Aldi and Carrefour. If this approach is successful, he’ll build a global retail business but not necessarily a global retail brand. And, the difference is worth careful consideration.
Tesco’s strategy doesn’t just apply to the front end. They take the same tailored approach to back-end operations in each country as well, developing supply chain and distribution techniques to match the capabilities of the markets they operate in.
This is the most distinct difference to me between Tesco and Wal-Mart. Wal-Mart has a formula, and they want to take that formula and replicate it across the world. Tesco adapts their strengths to address needs that they identify in each market. It’s clear, as Wal-Mart has stumbled in both Europe and Asia, that Tesco’s strategy is working better.
Sir Terry Leahy’s comments certainly explain why Tesco has been willing to spend money and time for at least a year in the US market before actually deciding to build stores. If that time has been spent observing consumers, competitors, and market conditions, then the company has followed the philosophy presented. Wal-Mart and Disney have both learned that opening the same kind of operation in another country does not guarantee success. Retail business is local. I do like the comment by an early respondent that Tesco is building a global business rather than a global brand. Opening different store formats under different names does not create a global brand.
Tesco’s Sir Terry Leahy is again right on the money recognizing that customers and cultures are different. This is a truism not only nation to nation, but also domestically within most nations. My view is that the most successful retail business models are those that approach the markets from one of two ways:
1. Develop your model to trust local managers to manage and to know what their customers want.
2. Develop a certain discipline such as EDLP with a reliable and consistent assortment that consumers will believe in and recognize no matter where they find that store, be it along a highway, an inner-city, or in the middle of the desert.
3. Develop your points of difference and build on your model for your select markets and have the discipline to resist the temptation to go too far outside your best consumer markets.
Sir Terry Leahy favors strategy number #1, above, and I believe there are other retails that appear to use similar strategies, for example, in my opinion, Walgreens, H.E.B., and Kroger. I view Wal-Mart as being the best example of strategy number #2, above, and Target as the example of number #3, above. With that said, I do think we will see some similarities between Tesco and Wal-Mart, but also Tesco and Target, and probably also Tesco and McDonald’s! I mean that in a “good way,” of course.
It is pretty obvious that, all things being equal, it is better to provide consumers with products tailored to their local market. Questions that remain to be answered are:
1) Is Tesco capable of building the infrastructure and training for managers to analyze POS data and take into account other subjective factors to create the appropriate merchandise mix in each store?
2) Will operations be able to deliver tailored assortments efficiently, with lean inventories, stocked shelves and competitive prices?
3) Will they succeed at developing unique, regionally-targeted products that the customer actually wants to buy?
4) Will the store provide an easy and fun shopping experience that motivates customers to change buying behavior?
5) Will store-to-store inconsistency enhance or hurt their brand?
Leahy concisely encapsulates what we see looking at Tesco’s global businesses. They will work hard to realize success in the US. It is incumbent on other retailers and CPG manufacturers to take Tesco seriously, and develop plans that capitalize on the change their entry heralds.
For retailers, this means focusing on leveraging assets by reappraising and reinventing the nature and delivery of your customer proposition. It means driving down costs and enhancing operational efficiencies and effectiveness. It means engaging with and enrolling your workforce and suppliers. It means competing at store level.
For CPG manufacturers, Tesco’s entry means embracing and engaging with new emerging trade customer management paradigms. It means understanding their mindsets as well as their operations. It means being able to rigorously evaluate trade investments. It means proactively collaborating to drive down value chain costs, and enhance efficiency and effectiveness.
It’s a great opportunity for an industry shake up.
There’s no doubt that Tesco has the right approach to expanding into overseas markets from the point of view of tailoring the offer to local shopper and cultural needs. In an interview in Retail Week (UK publication) a couple of weeks ago, Sir Terry reiterated the emphasis that they place as an organisation on researching local markets as part of their planning process for such ventures. However the proof of the pudding will be in the eating on this one. I personally doubt how viable a small “Fresh & Easy” format catering to local communities will be on the West Coast of the States, especially if the stores do not provide ample parking. In the UK it is commonplace for shoppers to walk short distances to C-stores but in the states my understanding is that this is far less commonplace and particularly in CA.
What is certain is that by appointing Tim Mason (for many years one of Leahy’s right hand men and instrumental in their UK success) Tesco takes the move into the US market extremely seriously (Leahy has already said this is a roll out, not a trial) and have at the helm someone who has a great chance to make this work.
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Few can persuasively debate the proposition that providing what customers want in each market is more powerful than attempting a one-size-fits-all assortment stretching around the world. What scares many retail companies, however, is the thought of trying to operate many different businesses rather than one business in many locations. The retailer must have sufficient resources to make the tailored approach work. To take this to the next level, as Tesco does by tailoring its back-end operations, requires more resources–or at least more capable resources in each position. Doing this on Tesco’s scale actually is a bit easier given the power the company holds through its enormous sales and profits. Doing this on a smaller scale becomes quite daunting. However, country customization will become increasingly necessary to differentiate local retailers who sell globally from global retailers who perform locally.
It’s hard to argue with Sir Terry Leahy’s platitudes. Five years ago the stock was around 260 pence and today Tesco is 455. That’s not bad for a company in a mature competitive industry.
I’m interested that the question is about building a “global brand” when Sir Terry makes it clear he’s not building a single global brand but he’s doing what’s best for each market. The key to success is ultimately how well is Tesco able to understand and service each market. They have been phenomenal at using data to understand their customers and then acting on it to change their store format. If they can use data to communicate local assortments, local initiatives and market based sensitivities, they should be poised to do very well. From what I understand of their US based approach they’re coming in with an alternative to the C-store format–I think carving out an underserved niche and meeting its needs in a different way will mean success for them. I will be very intrigued to see the actual stores, though. You can’t really judge a retail strategy until you see its execution.
Terry Leahy’s perspective reflects what most successful food retailers do all over the world, i.e., they listen to shoppers and then respond to what the shoppers need.
What’s different is that he isn’t pushing a particular format or approach to satisfying needs as do, say, Aldi and Carrefour. If this approach is successful, he’ll build a global retail business but not necessarily a global retail brand. And, the difference is worth careful consideration.
Tesco’s strategy doesn’t just apply to the front end. They take the same tailored approach to back-end operations in each country as well, developing supply chain and distribution techniques to match the capabilities of the markets they operate in.
This is the most distinct difference to me between Tesco and Wal-Mart. Wal-Mart has a formula, and they want to take that formula and replicate it across the world. Tesco adapts their strengths to address needs that they identify in each market. It’s clear, as Wal-Mart has stumbled in both Europe and Asia, that Tesco’s strategy is working better.
Sir Terry Leahy’s comments certainly explain why Tesco has been willing to spend money and time for at least a year in the US market before actually deciding to build stores. If that time has been spent observing consumers, competitors, and market conditions, then the company has followed the philosophy presented. Wal-Mart and Disney have both learned that opening the same kind of operation in another country does not guarantee success. Retail business is local. I do like the comment by an early respondent that Tesco is building a global business rather than a global brand. Opening different store formats under different names does not create a global brand.
Tesco’s Sir Terry Leahy is again right on the money recognizing that customers and cultures are different. This is a truism not only nation to nation, but also domestically within most nations. My view is that the most successful retail business models are those that approach the markets from one of two ways:
1. Develop your model to trust local managers to manage and to know what their customers want.
2. Develop a certain discipline such as EDLP with a reliable and consistent assortment that consumers will believe in and recognize no matter where they find that store, be it along a highway, an inner-city, or in the middle of the desert.
3. Develop your points of difference and build on your model for your select markets and have the discipline to resist the temptation to go too far outside your best consumer markets.
Sir Terry Leahy favors strategy number #1, above, and I believe there are other retails that appear to use similar strategies, for example, in my opinion, Walgreens, H.E.B., and Kroger. I view Wal-Mart as being the best example of strategy number #2, above, and Target as the example of number #3, above. With that said, I do think we will see some similarities between Tesco and Wal-Mart, but also Tesco and Target, and probably also Tesco and McDonald’s! I mean that in a “good way,” of course.
It is pretty obvious that, all things being equal, it is better to provide consumers with products tailored to their local market. Questions that remain to be answered are:
1) Is Tesco capable of building the infrastructure and training for managers to analyze POS data and take into account other subjective factors to create the appropriate merchandise mix in each store?
2) Will operations be able to deliver tailored assortments efficiently, with lean inventories, stocked shelves and competitive prices?
3) Will they succeed at developing unique, regionally-targeted products that the customer actually wants to buy?
4) Will the store provide an easy and fun shopping experience that motivates customers to change buying behavior?
5) Will store-to-store inconsistency enhance or hurt their brand?
Leahy concisely encapsulates what we see looking at Tesco’s global businesses. They will work hard to realize success in the US. It is incumbent on other retailers and CPG manufacturers to take Tesco seriously, and develop plans that capitalize on the change their entry heralds.
For retailers, this means focusing on leveraging assets by reappraising and reinventing the nature and delivery of your customer proposition. It means driving down costs and enhancing operational efficiencies and effectiveness. It means engaging with and enrolling your workforce and suppliers. It means competing at store level.
For CPG manufacturers, Tesco’s entry means embracing and engaging with new emerging trade customer management paradigms. It means understanding their mindsets as well as their operations. It means being able to rigorously evaluate trade investments. It means proactively collaborating to drive down value chain costs, and enhance efficiency and effectiveness.
It’s a great opportunity for an industry shake up.
There’s no doubt that Tesco has the right approach to expanding into overseas markets from the point of view of tailoring the offer to local shopper and cultural needs. In an interview in Retail Week (UK publication) a couple of weeks ago, Sir Terry reiterated the emphasis that they place as an organisation on researching local markets as part of their planning process for such ventures. However the proof of the pudding will be in the eating on this one. I personally doubt how viable a small “Fresh & Easy” format catering to local communities will be on the West Coast of the States, especially if the stores do not provide ample parking. In the UK it is commonplace for shoppers to walk short distances to C-stores but in the states my understanding is that this is far less commonplace and particularly in CA.
What is certain is that by appointing Tim Mason (for many years one of Leahy’s right hand men and instrumental in their UK success) Tesco takes the move into the US market extremely seriously (Leahy has already said this is a roll out, not a trial) and have at the helm someone who has a great chance to make this work.