Well, it’s been quite a journey back from Kansas City to Edinburgh. A week touring New England with family, followed by a conference and long weekend on Cape Cod, and then a week in Iceland. We’ve been back a few days, still finding our feet. Broadband due to be switched on next Wednesday, at which point my life will be whole again.
I’m glad I’m not forming my first impressions of Britain by flying into Glasgow. A badly signposted airport that pongs of cigarette smoke. Announcements are encrypted in Glaswegian, a dialect to which the public keys have yet to be published. Then a strange labyrinth to negotiate to get out of the rental car park and onto the motorway heading east into the clouds and drizzle. Ouch.
Once back home, the first thing to do is a pilgrimage to Tesco for some choccy biscuits (consumed by the British at “an astounding 52 biscuits per second”) and scrummy juice. Funnily enough, the news on the car radio had been announcing how this supermarket chain had made about GBP800 million in profit (about US$1.4bn) for the first half of the year. That’s a lot of packets of crisps. Our plan: make Tesco richer, as fast as possible.
Now, there are many things that the US does really well. Take gas stations. Low prices. Absolutely everywhere, never queue up. Pay at the pump. Locking clips on the pump handles to stop your hands getting cold. Marvellous. Buying petrol in the UK is a mixture of pain, insult and embarassment. Maximum inconvenience at extortionate prices.
On the other hand, there are some things that are utterly crap in the US, and dazzlingly brilliant over here. And food retailing is one of those things.
Tesco’s success is interesting, because you might have thought that food retailing is the ultimate in profitless low-tech commodity shifting of other people’s goods. Perhaps if there’s money in shifting bananas and beans there’s a few cents to be made in transmitting bits and bytes?
Tesco have famously outmaneuvered two of their key rivals: Sainsbury’s and Marks & Spencer. How did they do it? There seem to be five key ingredients to the food retailing recipe, if you’ll excuse the pun.
First was simply having a superior back office and supply chain management. (If you’re a carrier, this means your handset logistics, provisioning and retailing systems need to be the best.)
The second ingredient was diversification. They were the quickest to offer attractively priced non-food goods in their stores. TVs, clothes, financial services, fuel, and so on. They also introduced their high-margin “Finest” range of top-quality prepared foods. (Ready-made meals in the US are almost always an abomination of filler, fat, and fructose. In the UK they are an art form for the masses. The reverse applies to restaurant eating.) They simply got you to spend more.
So, if you’re a carrier, those stores, partner networks, and customer relationships are your core assets — not the network. The bit shifting is a loss leader. Whilst the applications layer may be de-coupled from the network, that doesn’t mean the retailing of communications services is partitioned.
Thirdly, marketing. Let’s look at how the competition screwed up first, before we see how Tesco did it right.
Sainsbury’s are pushing the tagline “Making life taste better”. So is their strategy one of product differentiation? Do they think people are under-satisfied with the taste of their food? Funnily enough, Sainsbury’s started to seriously lose the plot when they abandoned “Good food costs less at Sainsbury’s”. Still a confused mix of aspiration and value pitching, but better.
So, on to Marks & Spencer and its decline. For those who don’t live in the UK or near an overseas M&S outpost, some explanation is due. M&S isn’t just a clothes and food retailer. It’s a religion for middle-aged British women. Whilst is has over 25% market share for women’s lingerie, I believe (but can’t find the reference) that over 50% of all men’s underwear sold in the UK comes from the hallowed aisles of M&S. Your wife and mother know how you spend your weekends, and it isn’t shopping for undies. M&S provides stability, purpose and pride in the life of millions of otherwise existentially challenged people.
Many of M&S’s woes come from fashion problems in their clothing and home furnishing departments. Traditionally rather fuddy-duddy, they have careened over to the other side and indeed become “too contemporary”. However, public taste is more of an issue for handset vendors than carriers. (While buying a prepaid phone for MrsDr G. yesterday, the assistant was adamant that all Nokia phones were ugly and should not be bought under any circumstances.) What M&S are also famous for are their highly prepared and beautifully presented foods. Not least of which, the humble prawn sandwich. (Go read, it’s a great yarn if you aren’t familiar with it.)
For a long time, M&S’s tagline was “Quality. Value. Convenience.” Examining the discarded carrier bag now lining the kitchen bin, this motto seems to have disappeared. But the taste lingers on. Being the fanciest, the cheapest and the easiest to use was a strategic impossibility. And the customers knew it.
And Tesco? “Every little counts”. Gramatically horrible, great for shareholder value. Pull people in with the anticipation you’re going to make them a great deal. Up-sell them once they’re through the doors to Finest food, cross-sell them a toaster and a car insurance policy. Genius.
At the same time, Tesco pioneered the loyalty card. They attracted a broad base of partner services to rapidly rack up the points with. There was even a defection of the Air Miles travel points scheme from Sainsbury’s to Tesco as a partner. (The UK mobile market seems to have a more developed loyalty structure than the US one, I casually observe.)
Finally, they expanded their distribution network with local “Tesco Metro” stores in locations away from the big supermarkets where you do your weekly shop.
So Tesco get you to pay more for the stuff you buy. They sell you more than you thought you were going to the supermarket for. They get you to go to the supermarket more often. They get you to select Tesco as the destination more often. And they spend less serving you when you get there.
Isn’t it nice to know that business success is so simple?
UPDATE: Thinking more about M&S, their elaborate prepared food products are dependent on a few cunning manufacturers like Northern Foods. Perhaps the profit pool is being assigned to other parts of the value chain? You can’t send sandwich preparation to Bangladesh, even if you can move clothes production around. M&S don’t have much choice. Maybe a lesson for mobile carriers sourcing fashionable smartphones here. Much better to be selling commodity handsets to a specialised niche where you can give your supplier a good whipping in price negotiations. Try to make yourself the only route for handsets to reach that specific market segment. Don’t let your suppliers have too much power over you!
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