RetailWire Discussion: Tesco's CEO Identifies Growth Drivers

By Tom Ryan

With global economies appearing to be on the mend, Sir Terry Leahy, chief executive, Tesco PLC, on Tuesday identified six drivers for growth coming out of the recession. They ranged from 'trust' to 'convenience' to 'climate change.'

"The world hasn't changed in my view," said Sir Terry. "Customers still want a better life. They still want the material benefits of a better life and that's the business opportunity for us. If we can help those people to a better life, we've got a business and that's just as true now as it was coming out of the last recession in 1992."

Speaking at a session at the NRF convention entitled "How Leadership, Loyalty and Transparency Fuel Growth," Sir Leahy then listed six drivers for growth:

Trust: With life becoming ever more complex, consumers will navigate towards organizations they trust. Said Sir Leahy, "That trust comes from the consumer judging the organization. 'What has that organization done for me in my life? Is it more concerned about me than itself?' And if you can demonstrate you're doing things for the customer, they'll respond with trust and they'll respond with long term loyalty."

Information: Just as businesses know much more about consumers, consumers know a lot more about businesses. As such, businesses must be transparent. "You can't hold different faces to different stakeholders. What you are is what are. But make that a strength because when people feel they know you, it starts to build trust. And use this rich information to develop and engage consumers, involve them in your business planning, involve them in your product development, listen to what they have to say about your business ... The more you do that - the richer, the deeper the relationship - the more actually it builds loyalty. They actually can become advocates for your business."

Health: Said Sir Leahy, "It's a basic anthropological drive that everyone wants to live forever and look good and businesses that help consumers do that are going to see growth." He noted that products across fitness, fashion, cosmetics and foods fill this need.

Convenience: With people facing time constraints, convenience stores such as Tesco Express and 7-Eleven; ready-made meals and snack foods; and self-scanning terminals are all answering the call for convenience, according to Sir Leahy. The expected growth in mobile shopping also feeds this need.

Simplicity: While consumers have a wealth of information and abundant choices, Sir Leahy believes "it's harder and harder to make satisfying decisions. People don't just want more and more products. They want problems in their lives solved. So those businesses, services and processes that actually solve a problem, they're the ones that are going to be rapidly adopted." As examples, he mentioned the iPhone, the Sky Plus personal video recorder in the U.K., ATM machines and self-scanning in supermarkets.

Climate change: Sir Leahy noted that it "seems incontrovertible" that the developed world is going to have to live on 80 percent less carbon. He said, "It won't mean less consumption; people want a better life. But it will be very different consumption and that's the opportunity. There's a huge need for a different form of consumption and from that need comes business opportunities and those retail businesses that respond first and best to the consumers' needs for low-carbon products and low-carbon living in an affordable way, they'll do the best."

Discussion Questions: What do you think of Sir Terry Leahy's growth drivers? Which ones will likely have the biggest impact? Are there others you would add to the list?

Comments:

We were lucky enough to be at the NRF and hear Terry's presentation. All of the drivers are right on, but his most compelling comment was something along the lines of "the best customer loyalty program is to get your staff to treat your customers well." Nothing truer could be said.

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Kevin Graff, President, Graff Retail

I heard Terry as well and I'm very glad NRF featured his no-nonsense approach. Simplicity was great for establishing processes, from explaining things to employees to customer programs. Which of course sounds simple but takes a lot of pre-thought.

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Bob Phibbs, President/CEO, The Retail Doctor & Associates

I question the idea that trust is a "new" consumer driver. It seems to me that as consumers, we've always sought to trust the companies and organizations they associate with. The problem is simply that we've too often been let down or lied to.

Building the consumers trust comes down to answering one very fundamental question. "Are we prepared to lose money in the short-term if it means doing the right thing for our customers in the long-term?" If the answer is no, you'll never truly gain consumers' trust. It's just that simple.

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Doug Stephens, President, Retail Prophet

All of these are accurate and relevant. What I see as the missing link is courageous, vigorous execution. Retailers make about 1/8 the profit and have about 1/13 the market value per dollar revenue of their CPG suppliers. Retailers provide their suppliers and manufacturers two huge benefits:
1. The place to sell their products, and
2. The shoppers to buy their products.

They have the perfect underused media--it's what we call the retailers Direct Selling Media (DSM) which acts precisely where and when shoppers make their buying decisions. When retailers use this media, their sales and profit margin will, as tests have proven, dramatically increase. Retailers can achieve the benefit of DSM when they determine what the most strategic, profitable product mix is and then use great creative to delight their shoppers.

One more amazing issue: When retailers work with partners who provide the strategies, creative production, and 95% guaranteed installation. This last item doubles sales lift when compared with 40-60% installation.

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Sandy Miller, President, Miller Zell

I see information as a sub-set of trust and health. I rank trust as a barrier to play in the game. Without trust you will not last long in retail. Climate change is an issue most consumers are going along with but few believe in, so I don't see it as a growth driver. Convenience and simplicity may be interrelated and health varies in importance to different consumer groups.

In food retailing, convenience and simplicity will make a difference in the future, assuming you have the trust. Going forward, the Wi-Fi, 3G and internet world will have an even greater impact than we have seen today. Consumers will not reach data overload, they will simply reduce the bandwidth of informational requirements. For the food retailer, the importance will be to make it easy in a complicated world. For non-food retailers, the challenge is even greater. The possibilities are endless and segments are getting smaller. This will require operating in multiple modes.

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W. Frank Dell II, CMC, President, Dellmart & Company

The list is worthy, though execution on all counts is a challenge. To be the information provider, but to deliver the information with simplicity is one challenge. Building trust is another unto itself. Coming out of this recession, corporate America has its best opportunity ever to make good on this one.

The quote apparently made in the NRF speech rings true. We need to heed Fred Reichheld's original advice of striving to build loyalty across all stakeholders, including shareholders, employees, suppliers, and clients.

Customers "feel" the loyalty culture in a company through the behavior of front-line associates. Invest more in training and provide incentives, and results will improve.

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Bill Hanifin, Managing Director, Hanifin Loyalty LLC

Excellent list; not at all surprising that trust comes first. Terry knows business and he knows his business as twelve stellar years as leader prove. No brand survives without trust--retailers included--and they get tested more frequently across a wider range than most brands. So I am unsurprised that in your poll, trust is so highly rated--well ahead of the other criteria.

I was somewhat surprised to see information listed at less than half the trust rating number--Tesco with their clubcard consumer information vehicles know how key to competitive advantage consumer information is--and even more surprised to see climate change given such a low (derisory indeed) response rating. I suppose, as a Britisher so also European, I attribute this to most of your respondents being US citizens. You might not get this response elsewhere I suggest. Don't worry, I love America and Americans deeply and have worked with you there several times, but on climate change you are simply out of step with the world even with your fine new, open minded leader !

Finally I noted the good comment about what was missing from the Leahy list viz. dedicated and vigorous execution. I liked this addition, and of course it's an everlasting truth in retailing that execution is critical, retail is detail etc. Of all the companies I know, probably Tesco possesses this characteristic in spades; they are an exemplary business in making sure that what needs to happen, happens.

Sam Walton of course also knew about this, didn't he?

Andrew Seth, Director and Co-Author of the Grocers, Several

I'm surprised that with the obvious current global cooling going on, and the fraudulence driving the global warming hysteria, that Sir Terry included "climate change" in his list. However, from a marketing point of view, he may very well be right about this.

For example, back in the '40s and '50s, yogurt was a fringe product much in vogue amongst the small radical "healthful living" community. It obviously got main-streamed very successfully. In fact, it was so successful that it transcended what came to be known first as the organic food craze, moderated into the natural food movement and now the eating healthy marketing motif is probably worth billions.

It is just possible that "climate" will further morph--as a marketing issue--into the "yogurt" of environmentalism.

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute

I was happy to see the growth drives reinforced by Sir Terry Leahy, CEO at Tesco. One thing for certain is that the consumer is confused. There's just too much information out there. Future consumers will gravitate to the brands that they can trust. The problem is that no one really knows what that is any more. That's why its critical to integrate the core messages thoughout the brand and most importantly in product packaging. I agree, convenience is paramount even though you see many studies that say consumers will forgo convenience for environmental concerns.

It's simply not true. Convenience is a way of life, so marry that with more eco-friendly concerns about "excess" in a way that makes sense to the consumer. So many marketing messages are simply misunderstood, not true, or the consumer simply doesn't care. One of my 2010 packaging trends discussed making informed purchasing decisions for consumers, not just the trendy phraseology such as "climate change."

Packaging will take a strong role in consumer loyalty and in my opinion, should really be a 2010 retail growth driver!

JoAnn Hines, Packaging Diva, PackagingDiva.com

I am sorry I missed this talk at NRF. I think Simplicity is a key factor. In a world that has gone to the extreme of complexity with choice, new technology, new smartphones, e-comm, m-comm, having to get to airports 2-3 hours ahead of time, it is difficult to see how any of this has made our life simpler. There are certain many examples of things getting simpler in today's retail world, but I think there is a long way to go. These things really have to be easy! Search, selection, checkout, returns, etc, have got to be brain-dead easy at every step.

Rick Boretsky, Retail Data Integration Specialist, RIBA Retail (www.ribaretail.com)

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