Whilst Tesco’s competitors would be unwise to take any comfort from a ‘hiccup’ in UK growth, it is perhaps useful to explore the extent to which Tesco can be used as an overall indicator or bellwether for the UK retail market.
Essentially, over the years Tesco has managed to convert leading-edge retail performance into stockmarket appreciation in terms of positive impact upon the share price. In the process it has established benchmarks in ROCE, Net Margin, Stockturn, Sales per sq ft, GMROII and private-label optimisation that have collectively delivered acceptable returns for most of the stakeholders involved.
Indeed, many suppliers appear to be developing their trade strategies to meet Tesco needs, on the assumption that whatever is good for Tesco, is good for the rest of the trade. Thus Tesco has pushed leading-edge performance back up the supply chain, and caused other retailers to follow suit, in the search for lower on-shelf prices. As a result, Tesco has achieved a UK grocery market share of over 30% thereby attracting the ‘normal’ criticism arising from positions of market dominance, and sheer operational scale.
In fact, taking a more practical view of ‘dominance’, it is better to measure Tesco in terms of ACV*, where it represents approximately 12% of the market, given their increasing share of non-food categories. Either way, Tesco are now playing a long and global game, and ideally need to maintain their UK market position in order to fund their overseas ambitions. Whilst in some categories, its UK investment may be producing diminishing returns, the company would be unwise not to enter and develop any category of interest to consumers… Their initial entry into new categories via ‘cherry-picking’ key items will inevitably cause problems for retailers who need to carry a full category offering. In a largely zero-sum game, the resulting growth for Tesco will obviously be at the expense of less efficient traditional channels, and direct competitors.
However, this consequential impact upon other retailers’ business should not be treated as Tesco’s problem. In fact, the solution should include the raising of retailing standards to the level established by Tesco, through a combination of the retailers own efforts, government help and supplier support, in deserving cases. Legislating to impose restraints on trade will help no one in the long term.
Thus, in a very general sense, Tesco can be regarded as an overall bellwether for the UK market, and if at any time Tesco appear to be ‘struggling’, it would be unwise not to check out all of the implications. However, Tesco is patently better than most of its peers, actively driving the market, and not merely leading it forward. They are also providing a retail roadmap, and their results are hard evidence of the successful application of basic retailing principles, doing simple things very well. As they grow their overall share, so their performance will increasingly come to represent the market as a whole.
Instead of complaining about the normal fall-out of market ‘dominance’, a more fruitful approach for other players would be to adopt Tesco performance standards and compete store-by-store, with the support of suppliers willing to invest in good performance, trade partnership and willing compliance.
Incidentally, for those who feel sufficiently confident to discuss the bellwether concept with Tesco face-to-face, it is perhaps worth bearing in mind the dictionary explanation that the bellwether gets its name from the wether, or castrated ram, that walks at the head of a shepherd’s flock. The distinctive tone of the bell around the wether’s neck signals the flock’s position.
For this reason, a careless application of the concept by a Tesco KAM in Cheshunt could result in the KAM himself becoming a fully qualified bellwether for NAMs and KAMs everywhere…..
*All Commodity Value
