“It’s like a great sort of D-Day,” says Sir Terry Leahy.
It is 10am on a foul snowy morning two days before Christmas Eve and the store’s car park is already almost full.
To describe Christmas at Tesco as being like a military campaign is apt. The sheer scale of the operation is mind-boggling.
This store alone employs over 800 people. Over the course of this week its tills will have taken £3.7m from about 60,000 customers, up from a normal weekly take of £2.3m. To put this in perspective, the average UK business has an annual turnover of £625,000. And this is just one store. Tesco has 2,200 of them across the UK.
“It’s an extraordinary exercise,” says the Tesco chief executive. “The starting point is that UK supermarkets are the busiest in the world, in terms of sales intensity. They are six times busier than US supermarkets. At Christmas it more than doubles. And then you have to land on a spot.”
Behind the store network is a massive logistics operation that controls the flow and volume of stock with minute precision. It is a based on a vast freight and warehouse matrix, thousands of distribution lorries and the mother of all computers. This single shop, for example, will have received 25 deliveries a day this week with more than 1,000 cages of stock for staff to put on the shelves. The machine’s sole mission is to ensure that fridges are stuffed and stockings filled in time for Christmas.
“This business will move 100m cases this week. That’s nearly two per person in the country. But you’ve got to get them to the right store, in the right place, at the right time. It’s like a moon shot,” says Sir Terry.
An extra layer of complication was added by the horrendous weather this week. Sir Terry suffered the consequences first hand. The evening before our interview, his 15-minute drive home became a three-hour one. He knew that many in the UK would be unable to do their shopping when they wanted.
“Our main concern is that stock will flow and that people can get to the store. Clearly with the freeze there might be some local vegetable issues. The staff have come in – it’s fantastic. The main issue is the customers – they get worried about the snow and ice,” he says.
With housebound shoppers in mind, Tesco kept its largest Extra stores open for an additional hour on Christmas Eve. Its Express convenience stores also extended their hours for last-minute shopping.
Further, Tesco mounted a special operation to prevent what could have been a national disaster this week – a Brussels sprout shortage. In the seven days before Christmas it expected to sell around 1,500 tonnes of fresh sprouts. Following the freeze it threw extra resources at getting vegetables out of the snowy fields of Lincolnshire and East Anglia. It also used the Tesco train to bring fresh vegetables down from Scotland, which was not as badly affected by snow.
In one sense, supermarkets have created this vast logistical challenge for themselves. The retailers’ long opening hours and slick operations have created the expectation among consumers that things will be available until the last minute. And so now shoppers take 24-7 availability as a given.
“Christmas is getting later – that’s how life is. But it is also testament to supermarkets. The peak gets higher and later, and this year it is exaggerated with bad weather,” says Sir Terry.
But as shoppers need supermarkets over Christmas, so supermarkets need shoppers. This year the battle for shoppers’ loyalty between the UK’s large grocers is fiercer than ever. Tesco might be the UK market leader by a country mile (it is also the third largest supermarket in the world), but rivals Asda, J Sainsbury, Wm Morrison, The Co-op, Waitrose and Marks & Spencer are all in better shape than they have been for a long time. City analysts calculate that there is more promotional activity than ever before as the chains vie for loyalty.
Tesco, for its part, has been offering double Clubcard points to shoppers and recently sent out its February money-off vouchers early. Sir Terry says that promotions are “part and parcel” of what supermarkets do, but he concedes that the level of promotion is high and will come down next year.
“I think [there will be fewer promotions next year] because high-low promotions reach their natural peak and then you get diminishing marginal benefit. And so I think it is past its peak,” he says.
Although Tesco’s market share is almost twice that of its nearest rival, the chain has been given a run for its money of late. UK like-for-like sales over the 13 weeks to November 28 rose by 2.8pc, excluding petrol. This compares with recent sales rises of 4.3pc at Morrisons and 4.6pc at Sainsbury.
Tesco has argued that its sales growth appears lower than rivals’ as it was the first to take inflation out of its products. But the relatively low comparative figure might explain just why the chain is so keen to prevent shoppers from defecting elsewhere.
The backdrop to this loyalty battle is improving consumer sentiment. Sir Terry says that “essentially the British consumer went into recession in the summer of 2007 and came out in the summer of 2009″. Now that shoppers are spending a little more, retailers are keener than ever to retain their custom.
Tesco has noticed that customers are “trading up”, partly due to a promotion on its Finest range. “There is more money in the pocket,” says Sir Terry, adding that it has been a good Christmas so far.
He picks up a £4 box of Finest clementines: “Last year these would not have been appropriate as shoppers would have been really concerned.”
I ask Sir Terry if he thinks shoppers will have learnt anything from the recession and whether shopping habits will change because of it.
“I think, in terms of the economics, it is like other recessions. They are difficult for everybody, and very painful for some. And it is not new news that nobody likes a recession and they are best avoided,” he says.
“But the special feature of this one was the cause of the recession – the financial crisis – and there it is not clear that we have learnt the lesson. At the heart of it is moral hazard and we have to recognise that it is wrong that the banks make a profit and the taxpayers take a loss,” he adds.
As the boss of the UK’s largest consumer-facing company, it is not surprising that Sir Terry comes out on the side of the consumer.
In terms of reducing the national deficit he says that the Government must “first focus” on cutting public expenditure before it thinks about tax increases, which might have to be part of the package of measures to put the finances in order.
Does he think that the Government has done enough in general?
He says that there is “more still to do”. And while he does not want to comment specifically on the thorny issue of bankers’ bonuses, he says it is “understandable” that the public would “demand some visible action” on the issue.
The longer-term solution for preventing such crises from occurring again, he says, involves increasing banks’ capital requirements so that the amount of leverage in banking is reduced.
However, these weighty issues are not for now. Tesco has the festive season to get through. It expected to sell 650,000 fresh turkeys and more than half a million frozen turkeys. As well as this it will have shifted 14m mince pies, 4m Christmas puddings and 6m Christmas cakes. And on top off all this, there was a thick layer of snow to deal with.
Sir Terry glances around Tesco’s packed store and says: “A lot of British life passes through a Tesco store. It’s where Britain meets isn’t it?”
Sir Terry on…the next Government
“Whoever forms it, Tesco supports the Government of the day. We don’t always agree, but we support them. The tasks will be to keep the recovery going, to address the deficit and to make sure that Britain is a successful, confident society, is economically competitive and engages with the world in trade terms and on wider issues.”
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/
