Taking Over the UK
Tesco is the biggest retailer in the UK and fourth biggest retailer in the world. How did Tesco come from a single market stall to surpass Sainsbury’s, Marks & Spencer or John Lewis to become the biggest retailer in the UK?
Sainsbury’s had twenty-four thousand (24,000) stores when Jack Cohen Tesco’s founder had only three. A few decades later Tesco surpassed Sainsbury’s. How did Jack Cohen three stores surpass Sainsbury’s twenty-four thousand? What can other retailers learn from Tesco’s spectacular rise to glory and unspectacular fall from grace? The aim of this article is to answer these questions. Here is a perspective from a former Tesco chairman:
‘We are a company that looks forward so it is interesting to stop and look back, to remember why things worked, why things happened and when. Your daily life is looking forwards and hitting targets so we tend not to look back too much: probably not enough, because the past can be a good guide to the future. Learning from what you did well and what you didn’t do well and why.’ Sir David Reid, Tesco non-executive chairman 2004 – 2011.
This article aims to reveal Tesco’s path to greatness and outline ways other retailers could follow similar path to achieve their own greatness.
BHS: An Example of Retail Metabolic Syndrome?
Tesco is giving away free fruits while its shelves are empty.
I recently visited the Tesco store in Hatfield. In the fresh produce isles, I noticed the supermarket chain had come up with an ingenious strategy of providing free fruits to children.
A stand containing fruit that children could take free of charge.
However, on the very day I noticed the brilliant marketing strategy, I noticed the fruit and veg shelves were empty.
To be fair, there were cages with fruit and veg stationed in the middle of the department ready to be displayed.
Whether the fruit and veg were supposed to be in the cages instead of shelves, is for Dave Lewis to say.
Far be it from me to tell Tesco how to run its stores.
I also noticed people queuing at the fruit and veg department.
Curious, I asked one of the staff the reason for the queue.
I was told they were awaiting reductions to the fruits and vegetables.
At the same time every evening, Tesco reduce fruits and vegetables to a few pennies.
Some customers being aware of this, queue up to have the first pick.
Meanwhile, next to the checkout counter, there were cages full of merchandise Tesco was intending on donating to charity.
The signs above the cages read:
“There is too much food going to waste”.
I have described four different events in the day in the life of the fresh fruit and veg isles in Tesco:
- Tesco attempting to do some good by providing free fruit and veg to kids. (By the way I saw no evidence of kids queuing up to receive the free gift)…
- The fruit and veg shelves being empty….
- Tesco selling fruit and veg for pennies….
- In Tesco’s own words: ‘Too much food going to waste’.
This is a single department.
Imagine what’s happening in the rest of the store!
This article is focused on Tesco’s path to greatness.
It also aims at answering the question:
what took Tesco from a phenomenon to a basket case?
And how can Tesco return to its former glory.
Just as a side note.
If anyone reading this articles thinks that Tesco can never get into serious trouble, they need to think Woolworths and BHS.
Not even the Wizard of Oz could have predicted the demise of those two great British institutions.
Tesco Path to Greatness
Jack Cohen did not invent retailing, neither was he the first to establish the supermarket concept in the UK.
In fact at the time he had only three stores, Sainsbury’s had twenty-four thousand (24,000) stores.
A few decades later, Tesco surpassed Sainsbury’s to become the biggest retailer in the country.
So what was so remarkable about what he did that it seems like I am eulogizing him in my article?
What was remarkable was how his three stores eclipsed Sainsbury’s, Marks & Spencer or John Lewis to become the biggest retailer in the UK.
When Mr. Cohen was building Tesco, he looked up to those retailers for inspiration and quite frankly direction.
So how was he able to eclipse his own mentors to become the biggest dog in the kennel?
Tesco success derived from the fact that he focused on the three retail success fundamentals I continue to outline in talks and writings:
- Your market: Who you are selling to?
- Your message: What you are selling to them?
Your Media: How you are going to sell to them?
Your Market: Who you are selling to?
Granted, at the start, Jack Cohen’s focus was on mere survival.
When he returned to civilian life from the army, all he wanted was to earn a living.
In the words of his daughter:
“He had a reason for getting out of what he was doing. Life was tough. It was hard in those days. If you didn’t work, you didn’t get paid. There was nobody sitting there with a welfare cheque. Who would want to live badly? He’d seen another world in the Air Corps, apart from the overcrowded world of the East End tenement. I think he succeeded at first from sheer hard work, enormous energy and dedication”.
When he collected his ‘demob’ payout, which amounted to a grand total of £30, he bought cheap consignments from NAAFI, hired a wheelbarrow and headed for Well Street market.
At that time the idea of target market selection was the last thing on his mind.
His strategy was find stock that were cheap because they were difficult to sell.
However, as his business developed into several stores, Jack instinctively realized in order to remain solvent, he needed to carve out a niche in the retail market for himself.
The niche he chose were housewives.
Even though at the time, most of the household shopping was done by the males of the house, he knew that the females were the ones who ultimately used the merchandise.
Author Sarah Ryle brilliantly articulated this point in her book ‘The Making of Tesco’:
“Jack, being working class like his customers, knew well what basic goods they wanted and he sold them at prices most established grocers would not entertain. The result was that, as the 1940s continued, Tesco consolidated its position as a profitable purveyor of basic products to ordinary English housewives”.
Jack Cohen Knew Tesco Customers Well
Knowing his customers and serving them was one of the key to elevating Jack Cohen from hiring a wheelbarrow to distribute merchandise to the creator of the biggest retailers in the UK.
Along the way, Tesco took several actions that demonstrated to his target audience that he was indeed in their corner.
For example, Tesco introduced a points system that required customers to be registered for goods a year before rationing was officially introduced.
This action made Tesco one of the biggest beneficiaries of the Ministry’s Food Trade Emergency goods rationing system, which was responsible for Tesco rapid growth.
Most importantly, it gave customers the feeling that they were being fairly treated by the retailer, which in turn increased their loyalty to Tesco.
Tesco also scored points with customers when it took on manufactures to fight against ‘Resale Price Maintenance’ – a law by which manufacturers set a minimum price at which retailers could sell their product.
The law prevented retailers from offering discount if they wanted to.
The law was in direct conflict with Tesco major strategy, which was ‘pile it high, sell it cheap’.
Even though those actions were strategic business decisions that were in no way altruistic, in the eyes of Tesco’s customers, Jack Cohen and Tesco understood them.
The result, many working class people felt affinity to Tesco.
Understanding your target market and taking actions that demonstrates to them that you do understand them is one of the core ingredients to retail success.
As we move along on this ‘Lessons from Retail Masters’ series, you will notice that target market identification was key to moving retail masters from single stores to global brands.
Your Message: What you are selling to them?
This was the step that Jack Cohen excelled at more than the others.
As I said from the start, Jack Cohen started buying cheap stock that were difficult to sell.
As a result of that, he had to develop strategies for selling them.
His mean strategy was his ‘pile it high, sell it cheap’ policy.
In fact, this was the founding principle upon which Tesco was built.
This is a difficult concept for many retailers to grasp because they are of the opinion that shoppers visit their store to buy their crappy made in China products.
Shoppers do not visit a retail store to buy the merchandise.
They visit stores to buy the experience of buying the merchandise.
They buy the promise the retailer makes to them.
What was Jack Cohen’s promise to shopper from the beginning?
Price. Marks & Spencer and John Lewis had already occupied the quality promise.
Sainsbury’s had the convenient promise.
Tesco was now faced with a choice.
Go head-to-head with already established players in the market or carve out niche for itself.
Mr. Cohen wisely chose the latter.
This is how Lord MacLaurin, Tesco chairman between 1985 and 1997 described Tesco’s operations in the early days:
‘Retailing has changed so much: what we used to get up to in those days was mind blowing by today’s standards. Horrific. But then we went through it. It was our experience and know-how that has created the great Tesco today … There was no quality control. There were no refrigeration deadlines. It was a very basic industry in those days. We’re talking the early sixties and things have changed dramatically over the years. We were at the bottom end of the market.’
This is a store managers’ account of Tesco’s operations then:
We didn’t have any refrigeration at the back of the store, but there was a small lavatory for the boys and the girls. We used to stock the cream, butter, margarine and perishable things in the lavatory. In the summer, what refrigeration we did have would break down and the customer would say, “Manager, can you get me some butter from the back, please?” and you used to go into the lavatory and cut the butter from the packs and give it to the customer. It’s mind-blowing now just to think that that happened.’
Tesco did not focus on quality or convenience.
It focused exclusively on price.
Tesco’s tagline was “The best for less”.
But in order to ensure the viability of the promise, Jack Cohen did what the current Tesco leadership is struggling to do, he built the price promise into his infrastructure.
Firstly, he bought at low price.
This is how author Sarah Ryle described his buying strategies:
“Jack had nearly 100 shops. His approach to buying products remained exactly as it had been when he ran market stalls: whether it was tinned milk or red salmon – another great seller for Jack, who re-branded it with some ‘Red Glow’ labels he had bought cheap from a printer who had no other home for them – the point was to get a great price and buy lots of it”.
Secondly, he built the pricing promise into the entire operations.
Building your pricing structure into your price promise is an essential component of the process.
What I mean is this:
Even though Jack Cohen’s strategies worked brilliantly to get Tesco of to a good start, by the 1970s, his strategies were no longer as effective as they used to be.
What Tesco Sold
The following quotation eloquently captured the shopping public attitude to Tesco in the 70s:
“Ordinary people’s aspirations were running high by the end of the fifties. They felt that opportunities were there for the taking and sensed they could have what ‘their betters’ enjoyed: sound schooling, decent healthcare and good jobs. These people were exactly the kind of shoppers Jack’s team could serve best. Tesco’s image, though, had barely changed since he was trading off a market barrow”.
With the increase in disposable income, consumer buying behaviour changed.
Tesco senior management seeing the writing on the wall decided to take action to prevent the retailer from slipping further behind other retailers.
This was how Lord MacLaurin described the atmosphere at Tesco HQ at the time:
‘Towards the end of the 1970s, the appeal of Green Shield was going and the amber lights were flashing about the future of the company and we really had to have a good, good think about what we were going to do…Jack created a fantastic business but it started to fail in the 1970s; we had to do something dramatic to revive it. We launched Operation Checkout”.
‘Operation Checkout’ did not only rescue Tesco, Tesco was in better shape than it had ever been.
Tesco sales surpassed that of Sainsbury’s for the first time.
Shoppers visits to Tesco increased by two million a week.
For the first time in Tesco’s history, Tesco competitors actually took notice of the retailer.
Tesco credibility both in the eye of consumers and ‘The City’ went up.
Understand Your Target Market
But the success came at a cost.
The retailer became a victim of its own success.
Because it did not anticipate the level of success, it did not build the requisite infrastructure.
There was not enough merchandise to meet demand and there were not enough staff in the stores to serve customers.
This is how staff members who lived through the experience described the scene in the stores:
“Products were shooting out of the shops at rates increased by between 50– 90 per cent. Lorries were running twice as many deliveries from the depots as they were pre-Checkout, but even so Tesco was facing a retailer’s basic nightmare: empty shelves. ‘Operation Checkout was an overwhelming success, but it was overwhelming for distribution… we couldn’t cope with the success. ‘It was a surge for distribution and for the company in all areas. We were not in total control of our own area. The buyers were having to redirect a lot of goods to the shops, bypassing the Tesco warehouses because they were saturated. Our productivity rose tremendously but it still couldn’t cope. It was traumatic”.
At the beginning of the article, I described going into Tesco and the fruit and veg shelves were empty.
It seems to me after all these years, Tesco has still not figured out a way of building it pricing promise into its operations.
Small wonder the retailer is struggling despite being the biggest retailer in the country.
Knowing what you are selling and clearly articulating it is essential for building a great retail brand.
However, ensuring your marketing message is built into your operations is the most critical aspect of the process.
Your Media: How you are going to sell to them
In the book ‘Inside the Mind of the Shopper’, author Herb Sorensen described three types of customers:
“Quick: short time, small area, slow walk, high-spending speed, very efficient.
Fill-in: medium time, medium area, slow walk, average spending speed, modest efficiency.
Stock-up: long time, large area, fast walk, low-spending speed, low efficiency”.
The quick shopper is someone who buys fewer than five items.
The fill-in shopper buys five to ten items. And the ‘stock-up shopper’ is the person who carries on bulk purchase.
Even though on average, the ‘stock-up shopper’ spend more per head, the ‘quick shopper’ contribute more profit per visit.
However, because supermarkets are designed to cater to the ‘stock-up shopper’, retailers miss a huge opportunity to maximize the visit of the ‘quick shopper’.
This is the third element in the process of building an enduring retail organization.
Jack Cohen’s understanding of this fundamental principle was critical to the establishment of Tesco.
Tesco founding tagline read: ‘Pile it high, sell it cheap’
This was because Mr. Cohen understood that in order to sell it cheap, he first needed to have a sales process.
His sales process was to display merchandise in ways that attracted shoppers as they walked pass.
Multichannel Retailing is Key to Success
Modern retail sales process is more sophisticated than that, but the principles is what I would like you to pay attention to.
As I said, many retailers are failing to maximize the visit of the ‘quick shopper’ because they do not realize they need to design a sales process into their overall strategy.
Me & my partner only eat only organic fruits and veg.
Because we eat only organic, food shopping is a mission for us.
Firstly, we shop in three different supermarkets because we cannot find all of the organic products we need in a single supermarket.
Secondly, we spend an average of 30-40 minutes each time we go to shopping for food because organic products are scattered around the fruit and veg department.
Every time we go food shopping we experience the same frustration.
I constantly think to myself, supermarket executives are not retarded morons.
So why can’t any of them think of placing organic fruit and veg in a single section to make it easy for shoppers?
As crude as Jack Cohen’s sales process was, he understood the need for a sales process.
This is one of the reasons he was able to turn his single store into the biggest retailer in the UK, and the forth biggest retailer in the world.
Key Lessons from Jack Cohen Tesco Establishment and Growth Strategies
We learned in the article that Jack Cohen succeeded in turning his hired wheelbarrow shop into the biggest retailer in the UK and the fourth biggest retailer in the world because he adhered to the three retail success fundamentals:
- Your market: Who you are selling to?
- Your message: What you are selling to them?
- Your Media: How you are going to sell to them?
Mr. Cohen concentrated his marketing efforts on the British housewives earning Tesco the nickname: “Housewives’ Friend”.
Tesco’s founding tagline was ‘Pile it high, sell it cheap’, which was because Mr. Cohen realized Tesco stood little chance of going head-to-head with already established retailers at the time.
Therefore, he decided to focus on price.
He also ensured he had a sales process to enable shoppers to easily find and buy what they wanted.
Present day Tesco top executives will do well to take a leaf or two from Mr. Cohen’s play book.
Because the strategies and frameworks he used to build Tesco into the biggest retailer in the UK and the fourth biggest retailer in the world are timeless principles applicable to today’s retail environment.
Free fruits for kids is not a sustainable strategy.
It’s a gimmick that will provide temporary buzz.
Adapting timeless strategies and principles is the key to replicating Jack Cohen’s accomplishments.
I hope for their own sake, the current Tesco executives go into the Tesco vault to learn the lessons of their master.
Take Action Now
The majority of retailers will read this article and return to doing the same things they have always done, whilst hoping for things to change.
Don’t let that be you.
Remember inscription on Jack Cohen’s favourite business pin he used to give as a gift to dignitaries:
‘YCDBSOYA: meaning you can’t do business sitting on your arse.
Don’t act like the majority of retailers, take a different path today.
Jack Cohen did not build the fourth biggest retailer in the world by acting like the other 95% of retailers.
He took fast actions.
I have a step by step checklist for smart retailers like you who want to boost their store sales,enhance in-store conversion and increase profit.
If you are a smart retailer who would like to boost your store sales, increase in-store conversion and profit, click on the‘Next Action Steps’ button below to gain instant access to a COMPLIMENTARY step by step checklist for boosting your store sales and profit
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About the author
Romeo Richards is an experienced retail trainer and consultant with knowledge of retail marketing, store performance and retail loss prevention.
He has the ability to choreograph the customer journey, boost store conversion and enhance in-store experience using store design and visual merchandising.
Specialises in increasing retail profit through shrinkage reduction.
He is the author of 23 retail and marketing books including:
• How to Increase Retail Sales
• How to Make Profit In Retail
• Store Design Blueprint
• Visual Merchandising Display
He is the creator of five retail home study courses.
Frequently presents webinars on shoplifting prevention and boosting retail sales.
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