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IGD CONFERENCE 2009 - LEADING AND INNOVATING IN A RECESSION

Tesco

13 October 2009

13 October 2009
Introduction
1.     Thank you for inviting me to speak
today, and congratulations to the IGD on its centenary. You have
made – and continue to make – a fantastic contribution
to our industry. You have set yourself a tough challenge to make
the next 100 years as successful as the last.
2.     In the last century we have been through
not one but two World Wars, a Cold War, several booms, and several
busts. We’ve seen rationing, price control mechanisms, the
Common Agricultural Policy.
3.     When you think of those challenges, it
seems amazing that we, as an industry, have survived. But we have
– and what’s more, we have thrived.
4.     So my message today is one of hope: we
have weathered tough times before – we have got through them,
and prospered once again.
5.     Although recessions differ, they all
share some things in common. I would like to talk briefly about the
lessons I have learnt from the recession of the 1990s here and in
Asia, and how they are shaping our approach to recession.
Follow the
consumer
6.     Lesson one is follow the customer.
7.     Yes, that sounds obvious – some
truths sound so obvious that you would be forgiven for asking
“Why is he even bothering to say that?”
8.     But think what it means. Your entire
focus is on understanding what customers want, and reacting to
deliver. No week, month or year is ever quite the same. To deliver
for the customer, you must be constantly changing your tactics
– how and what you deliver for consumers – but never
changing that core strategy: customers first.
9.     To do that you need a flexible
workforce, motivated to implement new plans quickly and
efficiently. You need to communicate fast and effectively. You must
not have sacred plans, but be able, and willing, to question
everything – and take risks.
10. Risk taking means you will make mistakes: but learning from
mistakes is the sign of a successful company – and not taking
risks is the sign of a moribund one. If customers change, you must
change – whatever the risks. If not, your competitors will
change first, and take customers from you.
11. At Tesco, our clear strategy, our Steering Wheel, our flat
management structure, our focus on what customers are saying
– these things have been forged over years, in good times and
bad, and enable us to change fast. In recessions, more than ever,
there is no time for complacency, no margin for inefficiency, no
excuse for delay.
Innovation is
critical
12. That brings me to the second lesson that recessions have taught
me: change demands innovation. As the saying goes, “necessity
is the mother of invention”.
13. Recessions tend to make companies more open to new ideas. One
reason is that it costs less to create new businesses or enter new
markets in a recession – as entry costs are, on the whole,
lower. Another reason is that after recessions, life does not
return to normal: there is a “new” normal. Last but not
least, in recessions innovation is mission critical if you are to
create value for customers.
14. At Tesco, we have tried to remain true to our origins of market
traders.  When he set up his first Tesco, Jack Cohen
didn’t let bureaucracy or form-filling get in the way of
innovation. He simply saw what customers liked, and changed what he
did in response.
15. And so, in the last recession, we changed dramatically –
our strategy was forged, we launched initiatives like “One In
Front”, started new formats like Express and Metro, created
Clubcard and began our move into new markets.
16. This recession is no different. Just look at some of things
we’ve done. A new Clubcard loyalty drive, the biggest change
to the scheme since its launch in 1995;  more tiers of goods,
with our new Discount brands.
17. We could only have achieved many of these things by working
closely with suppliers and farmers. Our buyers share customer
research with them, so that they understand what customers want;
and our agricultural teams present ideas on new products or
production techniques, explaining our reasons for change and how
suppliers might benefit – such as through the health of their
animals, feeding regimes and so on.  This is particularly
important in developing markets such as India, China and
Thailand.
18. And all along, we keep our eye on not just how customers are
changing today, but how they might change in the future.
Long term trends
remain
19. Which brings me to my third observation on recessions:
don’t lose sight of long term trends. Climate change, the
world’s growing and ageing population, the rise of China and
India – just because we are in a recession does not mean
these changes will not happen and will not affect business. They
will – along with other changes in consumer behaviour.
Consumers are more interested in local sourcing and the fabric of
their local communities.  They want  convenience and
choice. They still want to look good, be healthy and help the
environment. Their hopes and values have not changed just because
of the recession.
20. Let me touch briefly on three trends.
21. First, climate change. I believe that consumers are the great
untapped resource as we struggle to cut emissions. Imagine the
impact if the tens of millions of people who shop at Tesco globally
each week decided to buy more green products. Supply chains would
turn green as consumer sent a message to manufacturers, suppliers
and farmers “we want green products”.
22. That is not a pipe-dream. Consumers want to go green, but they
need our help in doing so. We need to cut the cost of green
products; give people more information about products’ carbon
footprints; and make it easier to cut carbon.   As Arnold
Schwarzenegger has said, we need to make low carbon living
“cool”.
23. The next trend is the wish to look good, and live forever. The
search for eternal youth is as old as the hills, but is now more
widely shared as people become more health and image conscious.
Consumers want more information about healthy eating – which
is why we have put nutrition labels on the front of 7,000 products,
for example. And in a recession they also need more help on price
– which is why we introduced a new range of Discount health
and beauty products; and why we have 100 offers on fresh produce
every week.  Once we are through the recession, expect to see
this trend fall into sharper relief once more.
24. The third trend is the growing demand for convenience. Across
the world, not just in developed countries, people’s lives
are becoming more hectic: time is a commodity they treasure, and
they are willing to spend money to protect. In a recession, that
means being able to buy everything they want, at prices that offer
real value, under one roof, as it is a pain to shop around:
that’s why we have done so much to introduce new Discount
ranges and launched our Clubcard initiative.
25. But the demand for convenience goes well beyond shopping:
consumers want all transactions – like buying a mobile phone,
taking out insurance, getting a prescription – to be simple,
quick and easy. There are real opportunities here, as well as
dangers: failure to recognise this trend, failure to innovate and
to change means you risk becoming seen as an inconvenient,
unattractive place to do business.
Keep things
simple
26. It is another reason why innovation is so critical – but
innovation must not be an excuse for complexity.
27. This brings me to my fourth observation. If your company is
striving to keep costs down, rather than just ask “How can we
make our processes cheaper?”, ask  instead “How
can we make this process better?” The answer normally lies in
making them simpler – simpler for your team, for the
customer, for the supplier, or all three.  Complicated
processes cost money, time and energy. Simplicity costs less of all
them.
28. Some changes might be dramatic and demand new technology
– such as the introduction of barcodes or internet shopping.
But others might be exceptionally small.
29. At Tesco, looking for ways to become more efficient is part of
our DNA. We call it our Step Change programme. In 2004-5, we saved
£270 million here in the UK. In the last financial year,
2008-9, we brought forward a number of projects, and stepped up our
efforts. For example, in the last year we have saved 52,000
deliveries to our stores by using larger-fill double-decked
vehicles, which in turn have also saved 12 million road miles.
30. All in all, our measures saved us £540 million in the UK
last year – which means a saving, on average, of almost
£1.5 million a day – more than double what we saved
five years ago.  That’s £1.5 million we can invest
in to the customer offer, which is exactly what they need to get
through the recession.
The role of
Government
31. Doing more for less, and leading and innovating in a recession,
is something that applies not just to business, but to governments
too. There is a right way and a wrong way to handle recessions in
government, just as in business.
32. The right way, in my mind, is to help businesses create more
jobs, to innovate and invest more. Today’s recession can best
be tackled if businesses – of all sizes, from the street
stall to Tesco – are not burdened with more tax and more
regulation. Both spell higher costs, less investment and fewer new
jobs.  And that, in turn, spells less revenue to help the
Treasury pay back its debt.
33. Governments can best help us by not distracting us from our
core task: to deliver for the customer. Instead, I would argue that
government, like business, needs to be focused on innovation and
making things more simple in the way public services are
delivered.
34. One area that Tesco is particularly concerned about is
education. As the largest private employer in the country, we
depend on high standards in our schools, as today’s school
children are tomorrow’s team: they will be the ones we need
to help build our business in our stores, depots and offices.
35. Sadly, despite all the money that has been spent, standards are
still woefully low in too many schools. Employers like us, and I
suspect many of you, are often left to pick up the pieces. One
thing that government could do is to simplify the structure of our
education system. From my point of view there are too many
agencies and bodies, often issuing reams of instructions to
teachers, who then get distracted from the most important task at
hand: teaching children well in the classroom.
36. At Tesco we try to keep paperwork to a minimum; instructions
simple; structures flat; and – above all – we trust the
people on the ground. I am not saying that retail is like
education, merely that my experience tells me that when it comes to
the number of people you have in the back office, “less is
more”.
Conclusion
37. So those are the lessons I have learnt from past recessions,
and are helping guide me in this one. Looking around the world, I
think we have passed the low point of the recession. Stability has
returned. A long slog lies ahead, but if we remain focused on those
simple truths, our industry will get through.
38. We have all been through recessions before, and battled on to
deliver for our customers.
39. And just think how much our world has changed. Think what a
typical shopping trip was like 50 or so years ago.
40. Shopping in the rain in markets, where stall holders, their
hands wrapped in pairs of mittens, sold nothing exotic, no
pineapples, avocados or melons – many people had not even
seen such fruits – just huge mounds of cabbages,
cauliflowers, carrots, leeks, onions and, of course, mountains of
potatoes.
41. Next stop was the grocers, where you had to queue twice, and
pay twice, in order to buy a little tea and a few slices of
ham.
42. After that, a walk through a department store – not to
buy anything, but just to look at what you might buy if you could
afford it – en route to a store to buy essentials. Poorly
lit, bad displays, shoddy goods: this was the dismal lot, not
perhaps the one people like to remember but the reality of the
typical shopping trip for many millions of people.
43. Shopping was not just inconvenient, it was frustrating: goods
we look upon today as basics were luxuries, unaffordable for most
people.
44. I am not suggesting that life today is perfect. Of course it
isn’t. We will never live in a world where everyone can
afford everything they want. But for millions of families, we in
this industry have helped raise their standard of living.
45. Things like exotic fruits, good quality clothes, electrical
items, are now within most families’ budgets. Shopping is
geared to the needs of shoppers. We take all this for granted, but
the reality is that retailers and suppliers have led a revolution
in consumption, breaking down barriers of choice and price,
democratising our way of life.   I have recently been
privileged to see this revolution, this democratisation, happening
in Eastern Europe, where only ten years ago their shopping
experience was like ours here in the UK 50 years ago.
46. And in our wake we have created jobs, opportunities to get up
and get on in life. We have generated profits – more tax
revenue to help fund public services. And, together, we have placed
orders with companies overseas, often in developing countries,
spreading prosperity further and wider.
47. I would not describe all this merely as “change”: I
call it progress. And I say this not just because we have something
of which to be proud, but because, in days of recession and
uncertainty, we need to remember the benefits that retail brings to
people’s lives.
48. Deliver for customers and we shall prosper. Above all, follow
the customer: be true to that principle and – like the IGD
– you will be built to last.
49.  Thank you for listening.