The British Invasion

Tesco offers a variety of retail formats in the U.K., anywhere from the 90,000-square-foot Tesco Extra superstore to the 2,250-square-foot Tesco Express. It is a huge supplier of beer, wine and champagne. However, Tesco is a lot more than a food retailer. Tesco has diversified into areas such as telecommunications, insurance and utilities. Tesco is the fourth largest bank in the U.K and one of every eight pounds spent in the U.K. is in some way spent at a Tesco.

 

The retailer has a 31 percent market share in the U.K., more than No. 2 and No. 3 combined. The company's home shopping offering, Tesco.com, generates approximately $40 million per year in profit. Here's another stark fact: Wal-Mart and Carrefour both left the Japanese and Korean markets after Tesco's arrival.

 

Tesco's private label brand accounts for half of Tesco's sales. This may prove to be a challenge in the United States. U.S. customers still crave national brand variety. Tim Mason, CEO of the U.S. division of Tesco, has been quite clear on the subject of Tesco as a brand -- Tesco wants to be the best local retailer, marketing in the United States as fresh&easy until it can build that brand.

 

 

 

The one point I can not emphasize enough is that Tesco will be targeting your customers. The retailer is a pioneer in mining customer loyalty data. It has a very good process of piloting, evaluating, deciding what works and quickly implementing the things that work.

 

Tesco already has an understanding of the American shopper. Management built a small store in a warehouse to get a perspective on U.S. shoppers and how they shop. The focus is on customers looking for healthy, affordable food with a quick and pleasant shopping experience. Stores will target these demographics as well as neglected urban locations, often described as food deserts.

 

Tesco has achieved a balance between standardization and localization. Key operational activities, including IT planning, systems developments, system deployment, operations and support, are standardized so that all of the data and infrastructure can flow back to Tesco. Operational excellence at Tesco is achieved through balancing the effectiveness and efficiency of the organization with the tradeoffs of excellent customer service and unbeatable cost.

 

Tesco's scorecarding system is called the "Steering Wheel." Steering Wheel scorecards have very clear metrics and focus on four key areas: customers, operations, people and financial. Scorecards and dashboards are used by executives daily as a part of Tesco's performance management culture. Initiative ideas must pass two of the three framework criteria -- better for customers, simpler for staff or cheaper for Tesco -- or the initiative does not move forward.

 

Let me share some other operational excellence examples. Tesco incorporates shelf-ready packaging -- take the box, cut the top off and put the box on the shelf. They expect to have 90 percent of own brand product utilizing shelf-ready packaging by the end of the year. Since deploying the shelf ready packaging, Tesco has seen a 33 percent reduction in store labor costs.

 

The back rooms of Tesco stores are treated as transit areas. If a store typically gets 140 roll cages of product, they expect most of the merchandise to go right to the sales floor with very little back room stock. Tesco does not build in extra hours in the labor schedule to process excess inventory. Readyto-sell merchandise fixtures roll directly off a truck and go straight onto the sales floor. These units account for 15 percent of Tesco's sales. Such initiatives continue to drive efficiency.

 

The U.K. retailer strictly enforces a onein-front policy at the checkout and uses infrared cameras to do so. The system sends warnings to the cashier stations that they have people queuing up in line, and also measures wait time in the queue.

 

Contrary to many U.S. retailers, Tesco believes that the store is only going to look perfect for a very few customers for a very short period of time. Tesco does not pull items to put on the front of the shelf and has saved significant labor dollars, which was reinvested into customer service activities. One of the best retailers in terms of inventory management, Tesco has done a very good job of taking excess inventory out of the pipeline and replenishing the stores multiple times a day to keep them in stock.

 

 

 

 

To be ready to compete with Tesco you must understand your customer. Leverage your business intelligence data to understand customers and make connections with them. Understand that your key assets are your store managers. Tesco is going to be opening 100 stores in five months and it will need people to run them. Tesco is going to look at your store managers and try to entice them to leave.

 

Now is a good time to look at your merchandise assortment. Most food retailers carry too many SKUs. Get your assortment to a point where it suits your customers. Look at your operating model. Try not to look at it from a functional department point of view but an end-to-end optimized perspective.

 

I want to leave you with one of my favorite quotes from Teddy Roosevelt:

"In any moment of decision the best you can do is the right thing, the next best thing is the wrong thing, and the worst you can do is nothing."

 

I think we are way past the point of doing nothing.