Why Tesco will rebound

News in Europe lately is full of doom for Tesco. Investors and the media are piling on the pressure as an accounting scandal around the booking of revenue from suppliers continues to rock the legendary British grocer. Bloomberg has pointed out that the company’s market capitalisation is now lower than its debt burden. So is the end at hand?

I don’t think so. And if what I heard from Steve Strachota, Tesco’s Development Director, this week at our SCM World Live event in Barcelona is any indication, the future could be very bright indeed.

Two decades of omnichannel experience

Strachota opened the second day of our “Future of Supply Chain” themed event with an explanation of how Tesco is aligning the in-store and online shopping experience. In what ended up being the highest-rated presentation of the entire show, Strachota shared practical lessons learned over almost 20 years of Tesco’s pioneering work with digital demand and omnichannel retailing.

Tesco started dotcom operations way back in 1996 with the help of a fax machine, just two years after Amazon was founded and long before anyone took e-commerce seriously in grocery. It looked smart in 2001 when e-commerce pure play Webvan failed under the massive weight of a dedicated and overbuilt direct-to-home supply chain infrastructure.

Other start-ups like Streamline in the United States met a similar fate, leading some cynical Luddites at the time to dismiss e-commerce as sideshow suitable for books and electronics, but little more. Our latest research data on direct-to-customer fulfilment shows just how wrong these doubters were.

Since those early days, Tesco has delivered 170 million online orders and seen demand grow 10-15% annually over the period. Amazon, meanwhile, has aggressively entered grocery along with every major retailer in the fast-moving consumer goods world.

Shoppers who are today equipped with tablets, smartphones and personal shopping services like Instacart are no longer limited to Procter & Gamble’s legendary “first moment of truth” at the store shelf. Omnichannel is here and Tesco is a true veteran.

SCM World data on the impact of digital demand and omnichannel on supply chain strategy has pointed to more automation in distribution centres. Many retailers are still just getting their heads around this. In contrast, Tesco has already worked through several iterations and been able to increase pick-rate productivity by 80% using intelligent combinations of people and machinery. Its logistics network mapping for the UK market is clearly not the work of amateurs.

Applied learning

Recent serious mistakes in strategy, governance and, above all, customer focus have crowded out the positive effects this accumulated wisdom might have had on Tesco’s performance. Leaving aside questions of blame for past failures and focusing instead on the future, there is some agreement between seasoned observers like Graham Ruddick, retail editor of The Telegraph newspaper, and new Tesco CEO Dave Lewis on priorities.

High on the list is better pricing to compete with discounters like Aldi and Lidl. This starts in supply chain and depends on leveraging Tesco’s massive scale to help FMCG manufacturers better synchronise operations between plants upstream and distribution to customers downstream.

Among those represented at our Barcelona event, P&G is ready to do this now, as we learnt during a presentation from Fares Sayegh, Vice President of Product Supply for EMEA, who followed Strachota on to the stage.

Another issue flagged by Ruddick is the need for Tesco to overhaul its much imitated Clubcard loyalty programme. Once a valuable tool for understanding customer demand, Clubcard now seems to have fallen behind the times.

Digital consumers today share dramatically more information about their preferences than is possible to glean from loyalty cards. Tesco’s long experience with omnichannel retailing should give it a sound base to refresh this capability.

Lastly, to quote CEO Lewis, Tesco needs to get back to its roots as a “customer-centric business”. My first shopping experience in Britain was a Tesco on St Clements Road in Oxford back in 1985. I loved it then and still do.

Customer focus and mastering digital demand are now one and the same. I believe Lewis and Tesco will come back strong.