Tesco is not the first retail giant to lose its crown, but the grocer is still in denial

Midweek View: None of it mattered until sales dropped. Then, Tesco lashed out, blaming everybody but itself for its fading performance

Click to follow
The Independent Online

That sound the residents of leafy Hertfordshire can hear, the one that is keeping them awake at night, is of birds. It’s of chickens coming home to roost at Tesco’s Cheshunt headquarters.

Businesses rise and they fall. They’re staffed by human beings who have all the frailties and weaknesses of Homo Sapiens. That can be envy, gluttony, lust, hubris… it can be one, it can be all of them. And no amount of business school theorising, Davos ruminating, and smart number crunching will make up for that.

There will be those, on reading this, who believe their organisation is infallible, that somehow they will defy the rule of gravity and never fall. To which I say: utter nonsense.

It’s easily forgotten now that in the late 1980s and early 1990s, Marks & Spencer was king. It was the first British retailer to break through the £1bn profits barrier in 1997-1998.

That was the year that Terry Leahy became chief executive of Tesco. Leahy, a determined Liverpudlian, told anyone who would listen that his aim was not only to overhaul J Sainsbury, as the UK’s most profitable food retailer, but M&S, the country’s most profitable retailer, as well. People listening to him would nod, and privately chortle: he did not have a chance. While Tesco’s rise under his predecessor Lord MacLaurin, had been creditable, it was a poor third compared to the other two.

History shows that as Leahy’s Tesco climbed, M&S and J Sainsbury both fell. While Tesco had a resolute boss who developed the Clubcard loyalty scheme and presided over an aggressive stores expansion programme, they struggled to replace their leaders and slipped.

The parallels with other areas of life are obvious: when M&S and J Sainsbury were kings, Liverpool was dominating football. Then Sir Alex Ferguson built Manchester United into an all-conquering force. Ferguson goes and look where Manchester United languish in the table.

Business is no different. For a football manager and 11 men on the pitch, read a chief executive and his management team. Presiding over all of them, in football and in business, are boards and chairmen. If the leading man cannot groom a successor, it’s their job to do so. It’s no coincidence that at Manchester United and Tesco, the bosses reigns were long, and when it came to them retiring, the sets of directors were found wanting.

Humans, all of them. Tesco went from cheeky, pile ‘em high discounter to all-conquering, all things to everyone supplier, world dominator.

It was brittle and at times paranoid in its dealings with the outside world, with the press, politicians and communities. Questions would be met by a volley of statistics, all designed to ram home Tesco’s hegemony.

The firm lost sight of what it was: a supermarket operator. Instead, it spoke in terms of wanting to benefit society, of being a prop to farmers and producers – despite churning out billions in profits, and putting corner shops out of existence, and being the subject of countless complaints from suppliers, who said they were being treated shabbily.

In its isolated head office, Tesco started to believe its own publicity, operating in a different, parallel universe from the rest of us. They were right and everyone else was wrong. Its representatives would look genuinely bemused as they confronted yet another protest at a plan to build a new Tesco on the outskirts of a country town.

As well as lack of succession planning, Tesco made other mistakes. It gave manufacturers a hard time, calling them in to Cheshunt for a ritual pummelling. They were told to agree to new terms or else – or else they would no longer be selling to the number one supermarket group.

Management became stretched as the company went overseas, most notably to the US. The stores lost their warmth and became cold, forbidding places, hammering customers with messages about how much cheaper they were than Asda or Sainsbury.

Coming up on the rails were Aldi and Lidl, the European budget interlopers, and Waitrose, the upmarket grocer. For too long, Tesco was dismissive of both challenges, claiming they lacked scale. It failed as well, though, to see the threat of J Sainsbury, reborn under its touchy-feely head, Justin King. It can’t be any coincidence that Waitrose and Sainsbury signed up comfy, friendly, warm chefs as its brand ambassadors: Heston and Delia at Waitrose, Jamie at J Sainsbury.

This could have been nipped in the bud, if the board was on its game. But Tesco felt it did not need retailers on its board. It could do without them, preferring to put its faith in a collection of financiers, led by Sir Richard Broadbent, ex of HM Customs & Excise and formerly the Barclays deputy chairman.

In truth, none of it mattered until the tide began to turn, until, God forbid, sales dipped. Then, Tesco lashed out, blaming everybody but itself for its own fading performance. It was the fault of Aldi and Lidl, the Government’s austerity measures, Americans not giving them a chance, depression in the eurozone.

All of which would have had credibility but for the fact that other retailers were climbing while Tesco was dropping. Whatever was affecting Tesco was not hurting them.

In the City, analysts began to ask questions – how in particular Tesco could maintain a consistent UK profit margin when it was suffering from decreasing sales and increasing costs. The answers were at best unspecific, at worst downright dismissive but accompanied, as if for good measure, by the threat of legal action.

Finally, it took a brave whistleblower to go against Goliath, to defy the corporate cult, to alert the new chief executive, himself an outsider, to what would appear to be the desperate attempts by some of the senior staff to defy the law of physics, and keep the giant from toppling.

Tesco will dismiss this analysis – the other noise that the good burghers of Hertfordshire have become used to recently is that of wagons forming a circle. But what goes up, must come down. Just ask Sir Richard Greenbury, executive chairman of M&S back in 1997.

Comments