Is Tesco's $1.5 Billion Revamp Enough to Restore Sales Growth?


Britain's supermarket chain, Tesco, is the world's third largest retailer.  Since the mid 1990's, it has enjoyed strong growth fueled by innovative ideas like its Clubcard and its value and premium own label ranges.
 
However, in the last three years, the chain concentrated on overseas expansion and lost focus on its UK stores, which still account for two third of its revenues.  Tesco diverted most of the cash flow from its UK operations to fund expansion into the US and China, resulting in staff and service standard reductions.  This year Tesco's share price dropped 22% after the company issued the first profit warning in two decades.

CEO Philip Clarke realized that Tesco' stores had become dull and sterile and earlier this year announced a $1.55 billion revamp of a number of UK stores.  The overhaul's aim is to make the stores friendlier and warmer.  Changes essentially encompass four areas:
  • Improved Customer Service - Tesco is going to hire as many as twenty thousand employees to keep shelves properly stocked and improve customer service.
  • Enhanced Stores - Tesco is planning improvements in its signage, lighting, aisle fixtures and product packaging.
  • Expanded Website - Tesco is revamping its website and its online strategy.  Other companies are now allowed to sell through its website and the chain is going to add an additional 700 click-and-collect pick up points in its stores.
  • Relaunch of Tesco's Brand Ranges - Tesco is re-launching its brand ranges, as about 2,000 new lines are going to be introduced this year. 
These measures are certainly moving the company in the right direction.  Tesco's efforts to improve in-store comfort, customer service and online business, as well as the introduction of new branded product ranges should result in an enhanced customer experience.  However, are these changes enough?

Some analysts believe that the changes are not sufficient to ensure top-of-the-pack sales growth, as The Wall Street Journal reported earlier this month.  Unfortunately, I tend to agree.  While Tesco's move is positive and impressive for such a large retailer, it is not radical enough to develop a differentiating and remarkable customer experience.  Tesco's new retail concept would still lack the "Wow Factor", as LEGO would call it (see the post LEGO's Experience Wheel Reveals the 'Wow" Factor).

To really develop an outstanding customer experience Tesco would have to adjust the design, products, and promotions in each store to the clientele.  Stores in urban areas would have to offer a slightly different experience than stores in more rural areas and the large supermarkets would have to be a little different than the smaller convenience stores.  Additional ideas could include the following:
  • In-store Events - Tesco could have a location at the center of each store, whete it could organize a number of in-store events.  Those could include some kind of farmer's market in the week-ends, themed events that feature fresh seasonal and local produce, fairs that display typical products from other European countries or even more exotic destinations, cooking classes and information sessions where customers learn new ways to use Tesco's products.  The aim would be to give customers additional reasons to visit the stores and a new and exciting experience every time they do. 
  • In-store Experts - The shopping experience itself should be more interesting and informational.  Tesco could consider employing a number of experts that could guide and counsel shoppers.  Wegmans, an American regional supermarket chain, has made this one of its success factors.  Wegmans for instance could send employees to Italy and France to refine their knowledge of cheese or hire pastry chefs from award-winning restaurants. 
  • Improved Communication with Shoppers - Tesco should develop an in-store system to assess the specific needs and demands of its clientele in each store, as well as an online one.  Additionally, it should have stronger ties to its suppliers to ensure that it can fulfill those specific demands in a timely manner and adjust the product selection to local tastes.  Trader Joe's has just such a system in place: store employees are encouraged to determine customer's wants and likes and to pass that information to the buyers, who in turn are capable to get specific products in the stores that request them in a matter of weeks (see post 3 Key Tactics that Retailers Should Learn from Trader Joe's).
Other improvements could be beneficial.  Let me know if you have other ideas in the comment box below.

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