Tesco was once the leading data-driven business, but is now confronting harsh times. Are consumers just concerned with getting the product more conveniently at a cheaper price, and not that concerned with what we call “the shopping experience”?
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[Business ★★★]Tesco’s Downfall Is a Warning to Data-Driven Retailers
(P1) Tesco’s chairman has resigned in disgrace. The company’s market value has more than halved to an 11-year low as it acknowledged overstating profits by hundreds of millions of dollars. And a humbled Warren Buffett, after opportunistically raising his stake in the company after a surprise profit warning, confessed to CNBC: “I made a mistake on Tesco. That was a huge mistake by me.”
(P2) Indeed. Britain’s biggest supermarket chain has not only seen its fortunes erode but its reputation for competitiveness, creativity and integrity collapse. Even before its accounting travails, a former chairman had sharply criticized former CEO Sir Terry Leahy, who had led Tesco to market dominance and worldwide admiration, for leaving a shambles of a legacy. Leahy’s immediate successor resigned in July; his successor from Unilever now confronts more of a turnaround than he had ever expected.
What the heck happened to Tesco?
(P3) Many analysts and unhappy investors point to Tesco’s ill-fated Fresh & Easy convenience store foray in America just as the global financial crisis kicked in. The failed expansion effort ultimately led to write-downs topping $3 billion. At the same time, dramatically increased price competition by discounters such as Aldi severely undercut Tesco’s “every little helps” value proposition. The company still declines to say whether its systemic supplier-related accounting misstatements better reflect malpractice or malfeasance. Regardless, Tesco’s collective failures feel operational, organizational and cultural. This isn’t simply bad luck.
(P4) But beyond the business clichés of “big bets gone bad” and “not keeping one’s eye on the ball” is the disconcerting fact that the core competencies that made Tesco a marketing juggernaut and analytics icon appear almost irrelevant to its unhappy narrative of erosion and decay. More than any other retailer of scale, Tesco had committed to customer research, analytics, and loyalty as its marketing and operational edge. For example, the supermarket ingeniously succeeded at Internet-enabled grocery shopping in ways that Webvan—remember them?—could not. Tesco was digital before digital was cool. Tesco’s Clubcard loyalty program was launched under Leahy in 1995 and redefined both the company and the industry. As the Telegraph recently observed, “Tesco was transformed into the market leader in the UK—with more than 30pc market share—by being able to respond to the demands of its customers.”
(P5) American supermarkets—notably Kroger—admired and sought to emulate Tesco’s success. Even Walmart—overwhelmingly focused on optimizing its everyday low-pricing supply chain logistics—took Tesco’s command of customer analytics seriously. Practically every retail Big Data and analytics case study over the past decade explicitly referenced Tesco as “best practice.” With the notable exception of, say, an Amazon, no global store chain was thought to have demonstrably keener data-driven insight into customer loyalty and behavior.
(P6) But the harsh numbers suggest that all this data, all this analytics, all the assiduous segmentation, customization and promotion have done little for Tesco’s domestic competitiveness since Leahy’s celebrated departure. As the Telegraph story further observed, “…judging by correspondence from Telegraph readers and disillusioned shoppers, one of the reasons that consumers are turning to [discounters] Aldi and Lidl is that they feel they are simple and free of gimmicks. Shoppers are questioning whether loyalty cards, such as Clubcard, are more helpful to the supermarket than they are to the shopper.”
(P7) How damning; how daunting; how disturbing for any and every serious data-driven enterprise and marketer. If true, Tesco’s decline present a clear and unambiguous warning that even rich and data-rich loyalty programs and analytics capabilities can’t stave off the competitive advantage of slightly lower prices and a simpler shopping experience. Better insights, loyalty and promotion may not be worthless, but they are demonstrably worth less in this retail environment.
(P8) A harsher alternative interpretation is that, despite its depth of data and experience, today’s Tesco simply lacks the innovation and insight chops to craft promotions, campaigns and offers that allow it to even preserve share, let alone grow it. What an indictment of Tesco’s people, processes and customer programs that would be. In less than a decade, the driver and determinant of Tesco’s success has devolved into an analytic albatross. Knowledge goes from power to impotence.
(P9) There’s nothing new or unusual in a one-time business strength turning into an organizational weakness or an industrial irrelevance. But when we’re talking about customer data, insight, loyalty and all the ingredients that—supposedly—go into giving digital enterprises their information edge, then it’s time to get nervous and ask hard questions.
(P10) Is Tesco’s fall from grace a typical tale of shambolic succession and enterprise lassitude as times turned tougher? Or is it a market signal that Big Data, predictive analytics, and customer insight aren’t the sustainable competitive weaponry they’re cracked up to be? The schadenfreude gang may be counting on the former; but datanauts who referenced Tesco to sell their bosses on analytic investments would be wise to consider the latter possibility. Or is it probability?
TO PRINT: [B022C] TESCO’S DOWNFALL
If you found the passage difficult to read or had problems understanding specific words or idiomatic expressions, please discuss them with your tutor. The following discussion questions should be answered in your own words and with your own arguments.
- Briefly summarize the content of the article in your own words.
- What was Tesco known for (P5)? What aspect of Tesco did American supermarkets try to emulate?
- What is the main cause of Tesco’s lassitude (P3)? What was wrong with Fresh & Easy?
- Explain the author’s conclusion in your own words (P7-9). What is the author suggesting? Do you agree with his argument? Why or why not?
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