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The tale of Tesco and why not every Lidl helps

By Hamish McRae

Published 16/04/2016

Tesco is our largest retailer
Tesco is our largest retailer

Tesco is our largest retailer by a huge margin, still the fifth largest retailer in the world and once the second largest. So, if it is doing better the country must be doing better, right? Well, not quite.

Both Tesco's failures and its subsequent recovery are more about the group's management performance as they are about the performance of the economy.

But what Tesco is doing, or not doing, tells us a whole lot about the way we live now. It is a business story, an economic story and a social story.

The business story is the classic tale of corporate hubris. A company becomes hugely successful under a charismatic leader. He (nearly always a he) retires and the business falters. Then a new broom is brought in, who uncovers all sorts of problems that had been swept under the carpet.

Massive losses are revealed and massive strategic errors are acknowledged. Then, gradually, things are put back together again.

And so it has been with Tesco: trying to set up an upmarket "healthy" food business in the US, now closed; building a supermarket chain in Korea, now sold; buying a garden centre chain, Dobbies, losing money, and now selling it; and now trying to sell off other non-core businesses.

The economic story is one of our age, too. Businesses used to prices rising have had to cope with prices being either pretty stable, or actually falling. It is a quite different dynamic, because rising prices keep power on the side of the seller, while falling ones transfer power to the buyer.

This leads to the social story. Tesco has been under pressure because it has misread the consumer in a number of different ways. For example, in its supermarkets it thought they wanted choice.

Well, yes, consumers do want choice, but when confronted with excessive choice they freeze. So discounters, notably Lidl, now have 10% of the UK grocery market, but offer high quality at a keen price - offering only a few selected lines to squeeze costs.

One of the hardest things for any retailer to do is to find itself on the wrong side of social change. That happened to Tesco 30 years ago, when the "pile it high and sell it cheap" genius of founder Jack Cohen no longer fitted. What worked in the 1960s no longer worked in the 1990s.

So, Tesco gradually shifted upmarket. Now it has to make another transition; to meet the desires of an exceptionally sophisticated retail market.

Belfast Telegraph

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