It was the £12bn pound question at last week’s IGD Tesco Business Update. All eyes were on Dave Lewis as we waited with bated breath to hear him talk candidly about the proposed ASDA / JS merger.
But Tesco’s Group CEO was conspicuous in his silence.
‘3 years ago’, he offered after a few awkward moments of contemplation, ‘we decided that being reactive to the moves of competitors weren’t the actions of a leader’.
It was hard to tell whether Lewis’ cop-out was inspired by ingenuity or ignorance.
With a dominant 31.4% share of the market, the proposed merger will create a supermarket superpower like no other, dwarfing Tesco’s meagre 27.6%.
Moreover, it’ll create a buying power with the ability to negotiate trading efficiencies through the supply chain and pass those efficiencies onto shoppers, driving prices that are up to 10% cheaper than competitors.
Maybe Lewis’ reserve was pretext for a much bigger agenda that he was not yet ready to reveal. But for the benefit of the thousands of us that were left disappointed by his resounding reticence, we’ve tried to conceive what his answer could have been.
‘Merger, schmerger!’ he should have said. ‘Tesco have nothing to be afraid of, because…’
‘…we are closer to shoppers than ever before’
Tesco owns one of the largest & smartest intelligence models of the UK’s shopper base. There are 18m Clubcard users in the UK, which is reportedly just 1m shy of their rivals at Nectar, the UK’s largest loyalty initiative.
With consumer-centric, data-driven strategies very much at the heart of the future of shopper marketing, Tesco will be able to get closer to their shoppers and serve their needs better than ever.
‘…we are conquering new channels like never before’
Last year’s strategic alliance with Booker has opened up new channels to market and strengthened Tesco’s retail estate immeasurably.
In 2005, Booker were on the brink of collapse, but instead they have become one of retail’s most remarkable turnaround stories, with nearly 1.2m active customers and sales of £5bn (up 6.7%).
The total UK food market is a £195bn opportunity for Tesco. Alone, they have the capacity to operate within 56% of this (the in home sector).
Booker open up a further £85bn in out of home (a sector which saw 3.8% growth between 2015-18 ahead of in home’s 2.4%), helping Tesco to break into the worlds of convenience and wholesale; increasing scale, reducing waste and delivering more efficiently on logistics.
‘…we are future-proofing our position like never before’
Many reported last week’s closure of Tesco Direct as a sign of impending trouble for the business. Far from it.
Tesco Direct could not run profitably as an independent model, and is an example of Tesco carefully picking their battles in the fight for the top spot.
They will be in a much stronger position by consolidating their food / non-food offerings under one platform, strengthening their proposition in a way that rivals the potential GM powerhouse that a Sainsbury’s / ASDA / Argos merger would create.
And both grocers well know, there is simply no time for investing in costly distractions with Amazon hot on their heels.
‘Max the Mix’
Tesco’s own mantra is to ‘max the mix’. By streamlining its online operation, they are evolving in line with the retail landscape and freeing their efforts to invest in making closer advances towards the grocers’ common enemy – the discounters.
If rumours are to be believed, Tesco is already readying to launch a low-cost store to rival Aldi and Lidl, an idea which failed under Leahy, and which Sainsbury’s didn’t have the capability to successfully pull off in their joint venture with Netto in 2016.
But with sales and pre-tax profits on the up, and shoppers returning in their droves, they are getting to the point of having the energy and stamina to take on the challenge with renewed vigour.
Like David proved with Goliath, size doesn’t always matter. Far from being on the defensive, perhaps our modern-day Dave should recognise that ‘every little helps’ towards securing a bright future for Tesco.
But there are two sides to every story (and we love a good trash talk!). So tune in soon as we’ve got ringside seats at the IGD Sainsbury’s Business Update and we’ll be bringing you the latest from the Orange (and Green) corner.
This piece was written by Kimberley Upton, Head of Planning at Blue Chip. If you’re interested in hearing more about the IGD Tesco / Business updates , or what happened at the Sainsbury’s one, call us on 0161 833 4300 and we’ll connect you up!