Are we falling out of love with Tesco?

Tag : claw chains


The growth was so rapid that few could fully comprehend it. ThenSir Terry Leahy, the chief executive, nailed it with eye-catchingprecision. Tesco accounts for £1 of every £8 spent atBritish shops, he told a room of analysts in September 2003. Pithy,stark and a staggering measure of dominance, it was a statisticthat would be quoted endlessly in the years that followed.

Nearly five years later, the figure is closer to £1 in£7, an unprecedented success story in British retailing. Butthat is also the problem. As the biggest beast in the jungle, Tescohas been accused of monopolisation, exploitation and bullyinganyone who dares to stand in its way. It has become a lightning rodfor every critic of corporate power, homogenised high streets andthe malign influence of multinationals in the developing world.

The past week alone has seen the supermarket giant battered bycriticism - over exploited textile workers in India, over therearing of chickens, over importing vegetables from Zimbabwe and byUS presidential hopeful Barack Obama over the union rights of itsstaff in America. Another day, another negative headline or three.After a disappointing Christmas, and as its rivals claw back marketshare, Tesco might just be facing the beginning of the end of itslove affair with the British consumer.

That £1 in £8 figure now seems like the preening'rallying cry of someone who had just reached the top of the tree',said Bryan Roberts, an analyst at retail research group PlanetRetail. 'It was a boastful thing for the market leader to say. Thetide turns against anyone who is seen to be in a dominantposition.'

That summer five years ago, when the City hailed 'gobsmackinglygood' results by a company that 'hasn't put a foot wrong', sentTesco into the stratosphere with consistently record-breakingprofits. Last year it made £2.8bn with a market share doublethat of its nearest rival, Asda. With sales of £52bn after amassive overseas expansion, it is now ranked fourth biggestretailer in the world behind Wal-Mart, Carrefour and Home Depot, upnine places since 2001.

As Adam Leyland, editor of the Grocer, put it: 'It's suffered frombeing the 800lb gorilla that everyone likes to take a pop at. Itdefinitely faces more challenges than it did five years ago.'

Among those challenges are the credit crunch, reinvigoratedcompetitors and a hostile climate of opinion. This month its sharesfell to their lowest level for two months after a trading updateshowed growth half that enjoyed by rival Morrisons. Tesco alsoadmitted that Asda and discount outlets such as Aldi were 'having amoment in the sun' in the tougher economic climate. Its overallmarket share has fallen fractionally.

Leyland said: 'Three years ago [Tesco's] closest rivals were indisarray. Sainsbury's share price had gone to the dogs and Asda andMorrisons were struggling, but they've all now got their acts inorder and competition is far fiercer. The credit crunch has alsobenefited budget supermarkets like Iceland.'

With food prices rising at their fastest rate for more than adecade, shoppers are changing habits. Tesco, Sainsbury's and Asdaresponded with a round of discounts in what could yet become anall-out price war.

Robert Clark, an analyst at Retail Knowledge Bank, said: 'There isa lot of coxing and boxing going on to attract consumers who mightwant to trade down. Consumers are going for value, experimentingwith own-brand products and three-for-two offers, and in generalthere is cannier shopping going on. As a result stores like Asda,Morrisons, Aldi and Lidl are doing better.'

Clark likened the situation to the mid-Nineties, when Sainsbury'swas the market leader but lost its crown after it was seen tobecome arrogant and lose touch with shoppers - an environment thatenabled Tesco to expand rapidly.

Last Friday Tesco's annual meeting marked the culmination of abruising week. Problem upon problem had been piling up in thein-tray of the company's media firefighters. Separately they werethe kind of negative stories that are run today, gone tomorrow. Buttogether they began to look less like bad luck and more like atrend.

The most prominent thorn in its side was celebrity chef HughFearnley-Whittingstall. The star of Channel 4's River Cottageseries put forward a resolution calling for Tesco to improvechicken-rearing standards. It was soundly defeated, but the rowensured a torrent of unwelcome publicity.

Fearnley-Whittingstall, who had to raise more than £86,000 tocover the costs of his resolution being heard, said: 'I think it'ssucceeded in putting Tesco on its mettle. I think we will see morehigher-welfare chickens in Tesco stores. This is a campaign thatneeds publicity, so I don't apologise for the fact that it's gotsome. The way chicken has been produced in Britain has beensomething of a secret for some time.'

He argues that Tesco has failed to meet RSPCA standards and ensurechickens enjoy the 'five freedoms' - freedom from hunger,discomfort, pain and fear and the freedom to express normalbehaviour. But Tesco rebuffs the allegations: 'Tesco is workingactively to improve animal welfare and to keep chicken affordablefor all our customers,' said a spokesman. 'Our shareholders havevoted decisively to support this, and customers will continue tofeel the benefit.'

At the meeting Tesco chairman David Reid said that the cost of astandard Tesco chicken was £2.90 a kilo whereas aFearnley-Whittingstall chicken would be three times as expensive at£8.99. Tesco has called on the Department for Environment,Food and Rural Affairs to hold a meeting to discuss industry-wideanimal welfare issues. Tesco also came under attack over itsfledgling American chain's relationship with trade unions, whichhad already stirred Democratic nominee Barack Obama to write toLeahy to express his concerns. 'I am aware of Tesco's reputation inBritain as a partner to unions,' Obama stated in his letter. 'Iwould hope that you would bring those values to your work inAmerica.'

The notion of the putative most powerful man in the world botheringhimself with Tesco would have been laughable only a few years ago.

Jim McLaughlin, president of the United Food and Commercial WorkersUnion (UFCW) in Arizona, told shareholders and the board: 'We arehere to inquire why there has been no dialogue in the US, whereasin the UK it is an established practice for Tesco to engage withunions. All of our calls to the company have fallen upon deaf ears,so we are looking to engage with the company at a higher level.'

Leahy responded by accusing the union of adopting a negativeattitude from the start towards Tesco's 60 US grocery outlets,which are branded Fresh & Easy. He said: 'The UFCW has attackedTesco from day one and only showed an interest in damaging ourbusiness. Every Fresh & Easy employee has the right to be inthe union, but they don't want to join.'

A Tesco spokesman added: 'We are in the process of recruiting 750staff for the next phase of openings and are getting 13applications for every job. People are very happy with the pay andbenefits we are offering.'

Others at last week's annual meeting felt they were snubbed. Theanti-poverty charity War on Want alleged that Tesco is beingsupplied by an Indian factory where textile workers struggle tosurvive on less than £1.50 a day and a 60-hour week. Aresearcher had come to the meeting from India and raised her handat every opportunity but was never called to ask a question.

Simon McRae, senior campaign officer at War on Want, said: 'Theyignored us but they obviously knew we were there. Terry Leahy cameand spoke to us for a couple of minutes at the end. He said that hewas looking at the issue, but didn't make much commitment in termsof suppliers.'

Tesco said the charity had declined to divulge details of thefactories involved, to protect workers, but the decision not toname names meant that it could not investigate. 'If there is anissue in a factory supplying Tesco we will deal with it and ensurethat the interests of workers are protected,' said a spokesman.

Activists have also accused Tesco of bringing tons of produce toBritain from crisis-torn Zimbabwe, where the economy is in meltdownand President Robert Mugabe is restricting access to food. DrVincent Magombe, director of pressure group Africa InformInternational, compared the retailer to 'hungry sharks who arefeeding on the carcass of a dead country'.

Tesco's position was defended by its new broadcasting manager, SriLanka-born Dharshini David. The former BBC journalist provokedfurther controversy by suggesting that Zimbabweans would not wantthe vegetables sent to Britain. 'We are taking out the kind ofvegetables that aren't eaten much locally,' she said. 'These aren'tthe kind of products that would make up the staple parts ofpeople's diets in Zimbabwe. They probably do need food, but theyalso need money, and that is what we are providing them with.'

Such headaches have been coming thick and fast in recent months. InApril, after Tesco launched libel actions against three critics inThailand who questioned the supermarket's growth, its behaviour wasdescribed as 'grossly disproportionate' by some of Britain's bestknown authors. Mark Haddon, Joanne Harris, Nick Hornby, MarinaLewycka and Deborah Moggach were among those who signed an openletter to Leahy condemning Tesco for resorting to 'deeply chilling'lawsuits to silence opponents, and urging it to 'impress yourcritics with the force of argument, not the threat ofimprisonment'.

Earlier, in February, the retailer also launched a libel andmalicious falsehood action against the Guardian when the paperincorrectly said Tesco was avoiding up to £1bn in corporationtax on a series of land deals. Tesco described it as 'a devastatingattack on its integrity and ethics'. The Guardian, which with TheObserver belongs to Guardian Media Group, has already acknowledgederrors and apologised and has offered to do so again.

Along with the avalanche of bad news stories, there are morefundamental problems with Tesco's public image. It has become theshorthand villain of the piece for campaigners who blamesupermarkets for driving local businesses out of towns andvillages. It has 2,100 stores in the UK and is often accused ofusing its muscle to secure planning permission despite theobjections of residents. The Tescopoly Alliance, an organisation ofNGOs, unions and pressure groups, says the number of inquiries frompeople anxious about new Tesco developments has never been higher.

But the Competition Commission has just completed a two-yearinvestigation into the UK grocery industry, an exhaustive inquirythat rejected many campaigners' arguments, including the assertionthat small shops were in 'terminal decline'. Commission chairmanPeter Freeman ruled that supermarkets were giving consumers a gooddeal, but proposed several changes to the system, including a newplanning restriction to block dominant retailers from opening moreshops. He will also appoint a regulator to keep check on howsupermarkets treat suppliers.

Tesco argues that the findings amount to more 'red tape' and isconsidering whether to appeal - it has until tomorrow to do so.

The phrase 'clone towns' was coined by Andrew Simms, author ofTescopoly: How One Shop Came Out on Top and Why It Matters. He saidthat Tesco's dominance had prompted a backlash: 'There has been amassive change of attitude in the past three or four years. Theappearance of the likes of Tesco on the local high street used tobe seen by councils as a sign of economic progress; now it'streated with a healthy scepticism. Rather than an attractiveopportunity they are now an unattractive necessity for a lot ofpeople. There has undoubtedly been a culture shift: the ground isshifting beneath Tesco's feet.'

But, whatever the mood music, there is no sign yet of a major dentin Tesco's hunger for expansion. Simms noted that City analystsbelieve it has enough capital and land to double its currentselling space, and there seems little to stop it doing so. It alsoappears that negative headlines about faraway places have limitedimpact for consumers attracted by Tesco's prices, range andconvenience.

Philip Dorgan, retail analyst and head of research at PanmureGordon, said: 'If the average member of the public was reallybothered about these issues, you'd see it quite soon. One or twoper cent of customers is the equivalent of the profit margin, sothey'd feel it.

'It all comes down to customers. There was the example of tomatoes,which in British supermarkets are generally tasteless. Tescothought why not invest in making a brilliant tasty tomato, but whenthey tried it people made clear they preferred the tasteless one,so they went back to that. They follow the basic advice: listen tothe customer and don't act too quickly. As the sales figures show,they have still got their finger on the pulse of the Britishconsumer.' Tesco in numbers