Thursday, May 17, 2007

The Tesco Effect

One of the great things about living in Abingdon is the proximity to Oxford, and as I now (mostly) have Thursdays off, I decided to head off into the city with Alex for a few hours. As you might expect given its situation and student population, Oxford has three large bookshops. Blackwells is far and away the best, and is good to pop into for general inspiration, replenishment of the soul, and worshipping at this cathedral of books. Waterstones and Borders on the other hand are good for the odd spying raid (mentioned before on this blog), and having Alex with me is a good excuse to hang around the children's room for a while without being escorted from the premises. Being anonymous in these places allows me to engage the staff in conversation about business - and everyone agreed that the last month or so has been quieter than normal. I got this message from several other (non-book-related) businesses as well. But it was the very revealing chat I had with one business owner that got me thinking. He runs a fantastic little shop in Oxford (which will have to remain anonymous for the moment as I was sworn to secrecy). Apparently, he had been approached by the manager of a well-known UK chain in the same line - who was a bit desperate, having seen a massive fall in sales over the past couple of months, and had come in to ask, with much humility, what on earth was going on. Now, my sample here is small, and it could be due to lots of factors such as the weather, rising interest rates, etc. But I think we're about to see some dramatic changes in retail (a Tipping Point if you like), partly due to the inexhorable rise of the Internet, but mostly due to what I like to call the Tesco Effect. Back in April Tesco posted record profits (again) of approximately £2.5 billion. Sales increased in excess of 10%, and if you are the size of Tescos, and increasing sales by that much, your competitors must be suffering pretty badly. Add increased sales by Sainsburys, and that's a big hit for anyone competing with the big supermarkets. And that can be just about anyone. I don't think it's any surprise that the retail chains suffering the most at the moment are media (including books), clothing and electricals. These are all the areas that have fuelled the impressive sales growth of Tescos et al. Next Wednesday sees sales figures released by Next, DSGI (what used to be Dixons), and Sainsburys. What's the betting that Next (clothing) and Dixons (electricals) are hurting, whilst Sainsburys post some new records? In their seminal (though slightly clumsily-titled) book, The 22 Immutable Laws of Marketing, authors Al Ries and Jack Trout explain that, as any market matures, usually only two major players are left in the game (the others having gone bust, or have been bought out). These would be Tesco and Sainsbury then. However, what market are we talking about? Not the grocery market - after all, we can't be using 10% more toilet paper every year. No, the eventual market will be "everything-that-can-be-sold-by-a-supermarket" market. And what can't they sell? So if you're selling something that's sold by the supermarkets, and haven't worked out your niche yet, start getting worried. Depressing? I don't think so. You just need to work out your niche (if you're not a big supermarket). And this report from the US - who are a few years ahead of us on this, having been battered by Wal-Mart - say that there are fantastic opportunities for independents. I think if there is going to be an imminent massacre on the British High Street, people are going to want to do something, and supporting local shops might be an easy, rewarding way for people to feel empowered in the face of these retail behemoths. Abingdon is in the front-line of this paradigm-change in consumer habits BTW. We have one of the UK's most profitable Tescos on the outskirts. Fed up with several years of small expansions (which don't trigger planning reviews, but are slow and messy) Tesco has now decided to go for broke and apply to increase its store by a third (or 19 independent shop sizes). I wouldn't mind, but the store is already huge. It's a Tesco Extra store. You have to walk half a mile to find the milk. On a foggy day, you can't see the far wall. On Monday, the District Council will decide to approve this application. They can't really do anything else. If they oppose it, Tesco will continue to appeal until they win, and then the council will have to pay Tesco's legal bills. Tesco has deeper pockets than the council (and better lawyers and expert witnesses probably). Sad, and democratically-emasculating, but that's the modern world for you. If I were Tesco, I'd do exactly the same. The politicians set the rules, Tesco maximise their shareholders profits within them. And don't forget, Tesco got so big by being brilliant at customer service. If Tesco weren't #1, we'd be moaning about Asda Wal-Mart. I think Tesco is actually a great business. But it's ironic that I get several communications a week asking my opinion about THE taking over Bertrams (Titanic and deckchairs anyone?) and a deafening silence about the big supermarkets taking over the world. So - I think we can forget some brave local councillors standing up for choice and biodiversity in retailing. Instead, I think we need to get creative, and work out what competitive advantage we have over Tesco. I think it's a lot - but what does everyone else think?

9 comments:

  1. An interesting post Mark. I'm not sure that I have any answers for you, but in France there are very strict Sunday trading laws and I suspect that it is this which keeps all the small boulangerie, boucherie, fromagerie etc. going, the supermarkets are not allowed to open on Sunday. Are the UK government willing to support small businesses in the same way?

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  2. Anonymous10:38 PM

    Hello and welcome to my world! I stopped shopping at Tesco nearly 3 months ago because they are trying to bully their way to increasing the store size near me by buying a business park and evicting the businesses there.

    BUY LOCAL!! BUY INDEPENDENT!!!

    By the way, Friends of the Earth run courses on how to oppose Tesco.

    Don't forget the Tescopoly site.

    J
    x

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  3. When I had the chance to meet (briefly) David Cameron a few weeks ago, you could see the Conservatives feel there are votes in helping small businesses - but it'll take a lot for the Tories to change their traditional (at least since 1979) support for big business.

    J, in some ways big companies cannot *help* but bully, because they are so big their actions squash the little guys almost by default. However, rather than just object to big supermarkets, I prefer to think of ways to compete - and I forgot to link to a fantastic initiative which I think is one of those "ideas whose time has come" - go take a look at Pop To The Shops - this should be the thing that has Tesco's quaking in their boots...

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  4. Hi Mark. I shop in the Abingdon Tescos - you've seen me there - and I admit that I pop the odd book in the trolley when it leaps off the shelves in front of me even though I have a publishing background so I know I shouldn't because of the squeeze supermarkets put on both publishers and the small independent booksellers that I value. However, the books in Tescos are such a limited selection and browsing in a good bookshop is a wonderful experience, finding things you didn't know existed, spotting new books from favourite authors that haven't made it into the book review pages of your normal paper/magazines, seeing the hardback and knowing it'll be out in paperback before too long...
    It's this interesting, wide and ever-changing range that draws us back and back to the shop (and of course the friendly faces behind the counter!)and you do a great job. Mostly books is a great and welcoming place to visit. I hope that's enough for the long term.

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  5. A very thought provoking post Mark. Much as I dislike Tesco (and loathe even stepping foot in the Abingdon store, which is one of the most soul-destroying shopping experiences I think you can have) I do recognise that for millions of people it provides the groceries et al they need at a price they can afford and the convenience of getting it all in one place. Where I think independents will always win out, is in those areas people are really passionate about - books being a prime example. If you love reading, I would bet you don't love the experience of buying books in Tesco - however I challenge anyone not to love the experience of shopping in Mostly Books, and get far more out of it (and hopefully spend more too). Sadly, working for an entertainment retailer, I don't see the same consumer passion propping up our stores at the moment - but then again we're not an independent...

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  6. I thought you might be interested to know that last night the District Council voted to *reject* the Tesco application - which I'm staggered by. This is a very brave decision (as Sir Humphrey might have said).

    The two councillors who voted for it did so because they feel the council will be bankrupted when Tesco go to appeal (which they surely will - appeal that is, not bankruptcy). This presupposes that Tesco will win an appeal - I don't know whether that's true (or, indeed, enough about the planning laws in this country) but we shall see.

    Esther, Kathryn, thanks for the lovely comments! Please collect your £5 next time you are in! Seriously, my post was never an anti-Tesco post (which I think I made clear), it was more a comment on how we can compete in a world in which Tesco, Amazon, et al are unstoppable in terms of ever bigger stores, wider ranges and lower prices.

    As far as Abingdon is concerned, whether Tesco expands or not, they are still part of the retail landscape around here (a big part) and independents (and town centres) need to adjust to compete rather than expend all their energy fighting them (IMHO).

    BTW, I noticed that M&S posted huge profits today, so that's another factor impacting on clothing retailers...watch those Next results tomorrow...

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  7. Andy Laties12:06 PM

    I gave a talk last year to a group of business owners and managers of non-profits in a rather rural village that's near a large commercial strip. What struck me at the time -- having researched the region -- was that the largest non-profit among them was a land-conservation organization. (Environmental preservation. Open lands and wetlands.) This organization functioned by raising money in order to buy parcels of land so as to keep them out of the hands of real-estate developers. (I think in Britain it's the National Trust for instance that fulfills this function?)

    Anyway, what I realized while doing the research is that the Buy Local types -- the advocates of Small Business -- didn't seem to be engaged in a fruitful dialogue -- or, ANY dialogue -- with the Land Conservation types. And yet they were both fighting the same enemy: Development and Sprawl, with Big Box Retailers a major opponent of both.

    So, if the Environmental Conservation groups were allied to the Buy Local/Small Business groups, they could jointly fight the Big Box Retailers more effectively.

    I think that since the Buy Local/Small Business people have the more difficult point to make to the general public (which is, approximately: people should pay a higher price for the stuff they buy today because they'll benefit overall tomorrow) -- that therefore it's the Buy-Local advocates who need to approach the Enviro-Conservation groups with proposals for joint initiatives.

    For instance I suggested to the community leaders I met that the local businesses should jointly carry out a fundraising campaign on behalf of the Land Conservation organization. The local shops would all promote the activities of the Land Conservationists: for instance perhaps a particular parcel of land that needed buying and for which money was needed would have that money raised, jointly, by the local businesses. The shops could jointly produce a line of jams and jellies -- that is, "preserves" or "conserves" (you know "raspberry conserves" or "strawberry preserves" -- because of the pun on Conservation and Preservation) and there would be a special label on these jams -- a "house brand" label -- that branded the collaboration among these local organizations.

    I don't think the village did anything I suggested, however...sigh. Someone does need to WORK to carry such projects out....

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  8. Like 'em or not (and the Splund doesnt), Tescos are a fact of life, in general and in the life of Abingdon. Its refreshing to see a local business with a realistic approach to managing the threat they pose - find a niche and be damn good at occupying it - rather than whining about Evil Tesco as so many do.

    After a long and dreadful period there seems to be hope for the centre of Abingdon (traffic fiasco notwithstanding).. Fat Face has a halo effect, Sandman are great and seem to be making a go of it (even if the Splund is getting too old to wear much of their stuff), Mostly Books is great (and hopefully you guys are doing well), there is a decent art shop (with another opening soon) a nice deli and a decent toy store.

    I think Abingdon will thrive if it carries on being a home for a group of good independent stores - leave the chains to Didcot and the horror of the Orchard centre!

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  9. sparrowfoot8:15 AM

    Could a book shop generate enough income to survive by selling only the books that Tesco doesn't sell?

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