Tesco

Points of Difference, Points of Parity

Maybe the Tesco strategic review will spark a little sanity back into food and drink retail in general. The implications are already filtering through with many suppliers, selling products and brands close to the retailers’ specified ‘hurdle rate’, renegotiating furiously. Truth is, it feels like a cycle of normalisation and making things simpler for shopper and retailer alike will most likely turn out to be a good thing.

But brands have got to survive in the short term, and it feels like a good time to be really looking hard at how your brand is positioned. True, it may feel like a ‘Unique Selling Proposition 101’ but the reality of shopping the supermarkets is that most (shall we settle on 90%? 95%?) products sold are ‘me-toos’, forced to differentiate on price alone, copying the livery of the leader and hoping that shoppers make rational, price based decisions alone. For those retailers where price is their positioning, that’s fine: Asda, Aldi, Lidl – let them fight it out and may the best retailer win. But for the others, price is a reassurance, an important part of the mix but not the most important. It is a point of parity not difference.

And this seems to be where the confusion lies, particularly in food retail. Morrisons, in what has been deemed to be a disastrous Christmas trading period, bin their CEO and, in the short term at least, resort to price cuts. Sainsbury’s after a better, but still soft, Christmas trading period do the same*. Tesco hit the nuclear button and do the same**, and in the parlance of an American friend of mine, ‘execute the hell out of it’, with national TV and in-your-face point of sale in store. Even Asda, who had a better time over Christmas, have decided that it will only get worse, and bin*** the senior bods in their marketing team.

But, for all but Asda, this isn’t the winning strategy. At least, not without a fundamental restructuring of what they do, how they do it and who they are – and then, what’s the end result? You become Aldi.

Points of parity can be winning strategies but they require unwavering focus and unrelenting discipline to stay on track. Asda have this. They understand that price is a point of parity and they own it with every ounce of their being. All their activity underlines the point that they are cheaper, even if this is just pricing their diesel at £106.7 vs £106.9 elsewhere. (One day I shall buy one litre and see if they force me to round up or down). They lead on price too – being the first retailer to make a Price Promise, to roll back, to launch a price guarantee (in recent times at least). They’ll be ‘Doubling Down’ on price too – you just watch this space.

Currently, it seems that price is the only promise that matters. But other points of parity can be owned and can be used to win. Take service: Tesco proved that you can win with it, to wit, Every Little Helps. The trouble was, they confused it over time with choice and suddenly their business became riddled with ferocious complexity. Sainsbury’s for many years owned quality, another point of parity, but slowly it has been denuded by time, confused focus and competition.

Now is the time to hunt for genuine, ownable points of difference in retail: ownable by the brand, not just the category. John Lewis is a case in point. If you took their signoff line, the beautiful ‘Never knowingly undersold’ you could conclude that their positioning is price: they offer a guarantee after all. But of course, John Lewis is so much more than this as the line subtly implies. Ultimately, they offer reassurance – of quality, value, service and taste. B&Q is fascinating too: their website was clever domain buying and clever attitudinally too: diy.com / do it yourself. So whilst Wickes own a grittier, trade feel, B&Q own both the point of parity and the liberating attitude of DIY.

Perhaps food and drink retailing is tougher. But Waitrose seem to do it. In the parlance of the common man, they own posh nosh. And then they reassure that you won’t get stitched up through initiatives like their Essentials range, just in case you were wavering. And northern retailer Booths, which many refer to as ‘the northern Waitrose’ are developing a much more specific positioning around regional quality. Defensible? Well they can both be copied, but they can be owned too, and that is where the effort is focused.

Ironically, Tesco, Sainsbury’s and Morrisons have an enormous opportunity. They are in the middle of the market, and whilst that is giving them some short term pain, it also offers them the opportunity to build a differentiating position for most people most of the time. Time will tell if they have the foresight to find it and the bravery to grasp it.

* Without binning their CEO
**Nor them
**Technical term: keep up

David Preston is founder of The Crow Flies, a research, strategy and innovation company that helps brands find a direct route to long lasting success. david@thecrowflies.co.uk; +44 (0) 7885 408367; www.thecrowflies.co.uk; @crowflieshigh.

Decomplexification

With more start headlines from Tesco this week, it would be easy to jump on the bandwagon and say ‘I told you all along. Those supermarkets are rubbish. They’re getting their comeuppance’. Of course, they’re neither rubbish, nor are they due a comeuppance. They have transformed most of our lives for the better. My mum and I were reminiscing recently and the topic of the food shopping came up: we had to drive 8 miles to go to a little shopping centre that simply wouldn’t pass muster today: a dour retail experience, not that cheap and certainly not that ‘super’. A few years’ later at University, studying in a biggish city down south, I encountered my first proper, out-of-town, Sainsbury’s. It was a revelation, staggering. And for fear that I paint a picture like it was Victorian times here; this was the late ‘80s. (1980’s, thank you, before you say)

But here’s another staggering fact. The average discounter stocks 3,000 product lines. The average supermarket? 40,000 to 55,000.

The rise of ‘every little helps’ – and by this I don’t just mean Tesco, but a grocery retail platform built on offering even more products, even more categories, from ever bigger stores, whilst beguiling at first, has brought with it the brand killer: complexity.

Killer? Too strong? No.

Consider product lines in a mid sized supermarket. 40,000 stock keeping units. Break this down: the supermarkets rarely stock a brand’s full range. They rarely stock the full availability of product formats, or packaging types. Consider: seasonal lines; limited edition runs; When It’s Gone It’s Gone lines. Consider: gondola end buy-ins, secondary siting units. Consider: in store activity; trial mechanics. Consider: the supply chain alone to get all these products, so that they are in store all the time to a perhaps over 2000 stores. Consider the impact of promotional pricing: the associated paperwork to get it set up on systems; the stock build up; the management of stock post event and the clearing up all the price mismatches months after.

No, there is little doubt, complexity is killing the retailers.

But, there’s also the change in shopping behaviour. My gran used to get my granddad to drive her, at least 4 times a week, often daily (Sunday’s excepted of course) into town. She’d work her way round the shops. Wakefield’s the butcher; eggs from the stall under the arches of the town hall; maybe some oatcakes from Browns inside the town hall; fish from ice-banked counter of the fishmongers which you could smell from the top of the street, Chatwins for a cream cake. And so it went on. How, years later, we would scoff at such antiquated and inefficient nonsense. Shop every day? Pah! Shop in more than one store? Madness!

The circle is coming round though. Inter-linking agendas, from supporting local, to food waste, to the pressure on time, to food trust, to the vanquishing of our high streets are seeing a return to some of the ‘old’ ways. Nowadays our family does a main shop with little top-ups or embellishments. Meat from the butchers, not the supermarket counter. Fish from the Monday van from Grimsby. The Co-op for fresh bread. Blimey, even the milkman has re-entered the mix.

It’s not just grocery: McDonalds’ are cutting back their range to ‘…let customers…quickly understand their order’ and because, ‘80% of our sales come from a small subset of the menu’.

And there’s the growth of the specialist, especially on-line. ASOS, Wiggle, Beer Hawk. If you want complexity, there has to be simplicity elsewhere. Want a crazy range of bike tyres? Go to Wiggle (or Chain Reaction) and get them. But want to buy books from there? Shop elsewhere young man.

The reality is that one major reason for the current stellar growth of Aldi, Lidl and even, say Poundland, is simplicity. Exploiting a niche and operating a simple business model. 3,000 lines. No up and down pricing. Less range. With a price that makes up for the (relative) lack of choice.

Whilst Tesco, Sainsbury and the likes are learning the lesson the hard way, the truth is, there’s a lesson in this for all brands. Simplicity and focus is the way to scale. Decomplexification we call around round here, in an ironically un-simple way.

Stand for Something

The shock UK business news of this week happened first thing on Monday morning, with the announcement of the resignation of Phillip Clarke from his role as Tesco CEO. Perhaps for those in the know, this wasn’t a shock, but for those on the outside, the resignation of Clarke, with over 40 years service (this week) at the retailer feels like a bell of change tolling.

The announcement comes on the back of another period of falling like for like sales and a further profit warning. Reasons for the decline are being postulated broadly, from the destabilising international strategy, to lack of investment in UK stores, to a resurgent Sainsbury’s or the rise (at last, you may say) of the discounters. All of the these factors, and more, will be playing a role, although it would be a foolish person who writes Tesco off – they still make in the order of £3bn of pre tax profit.

But go around a Tesco store nowadays with a sharp eye and the problem becomes self-evident.

Near to the Crow offices, we have a large Tesco Extra (who doesn’t, it seems?). It’s a first floor store where you park underneath then take the escalator up: at this time of year, you are greeted with pallet displays of barbecue coals, weed killer, leggy lavender* and plastic outdoor furniture. In Winter, it will be cardboard display stands full of driveway salt and windscreen de-icer. All advertised with price points printed off from Powerpoint. Walk inside, and apart from the normal stacks of foyer special offers, the aisles that greet you are an odd hodge podge of categories. Photo printing machines, aisles of toys, DVDs, lighting fittings, home brew kits and paint. No enticing fresh vegetables; no roasty smell of coffee or rotisserie chicken. No yeasty, doughy bread smell. No one tempting me with cream cakes or a new flavour of pizza. Turn left towards where you believe the food will be, and first up it’s a huge clothes section and opposite, cosmetics, toothpastes and sun creams.

Tesco has lost its meaning: “If you don’t stand for something you’ll fall for anything”**

Tesco is falling for anything. Worse perhaps, it is stuck in the middle ground between more distinctive competitors. The clear high-end retailers at one end, Waitrose, Booths; and the discounters at the other end. As both groups find new sites and innovate how they reach their shoppers, the vice will tighten yet more. Indeed, Sainsbury’s too are beginning to feel its pinch.

As a retailer, it needs to think about what made it famous and find a way to re purpose this meaning and communicate it again. Very little about their offer today says fresh, inspiring food: an issue against Waitrose, against Sainsbury or increasingly M&S. Very little about them today says ‘stack it high, sell it cheap’: an issue against Aldi, against Lidl and even ASDA. Very little about their broad array of services says ‘every little helps’, at least no better than the others. In fact, it may be a cruel irony that a campaign that helped fuel Tesco’s move from a pre tax profit of £750m to over £3bn may be proving to be their undoing. Put simply, Tesco seems to be offering everything to everybody; and its core business has suffered.

Perhaps this search for meaning is why Tesco have trusted their CEO reins to a man with little direct retail experience but lots of brand experience. My bet is on them to succeed, but they will need every little bit of help to get there.

* Of the horticultural kind.

**There is some debate about who originated this: a US medical doctor, Gordon A Eadie, or even Malcolm X.

David Preston is founder of The Crow Flies, a strategy, research and innovation company that discovers and maps the direct route to success for brands. david@thecrowflies.co.uk; +44 (0) 7885 408367. Follow The Crow Flies on Linked In (http://www.linkedin.com/company/the-crow-flies-ltd?trk=company_name), on Facebook (https://www.facebook.com/thecrowfliesltd) or on Twitter (@crowflieshigh).