the customer

is king n It ain't easy being this good, so the saying goes. Behind Tesco's apparently effortless supremacy lies hard work and a relentless drive to understand shifting consumer demands, a perspective now crucial for the whole food chain as Terry Leahy tells Julian Hunt Picture, if you can, Terry Leahy as a swan trying to swim against the tide. Above the surface of the water he is graceful and serene, beneath it he is paddling like hell to make headway. Probably not the best of analogies. But if you think of everybody at Tesco ­ the profits juggernaut of which Leahy is chief executive ­ in the same way, you can start to understand why it is that the multiple continues to produce exceptional results year after year. Ours is a very simple strategy to explain, says Leahy. The hard bit is turning it into a reality. That strategy has four basic elements: the need to maintain a strong UK business, a desire to grow non food sales, an eagerness to build retail services, and an aggressive international development programme. Beneath that is the frenetic paddling making the strategy so successful. Activity such as the step change programme yielding £200m in annual efficiencies, or its constant work to improve supply chain logistics, or its new store layout system, or its groundbreaking work on continuous replenishment. The list is almost endless. But underpinning it all is Tesco's absolute belief that if you follow the customer, you follow the money'. It's almost a mantra. When it comes to groceries, this is a the message that Leahy clearly believes every part of the food chain should take to heart. "Every year people ask the same question: Where's the growth going to come from?' and every year we find the answer," adds Leahy. "If you look at businesses, there are very few companies that can grow consistently year in and year out; decade in and decade out. Tesco is already beginning to belong to a small group that's proving able to find that growth. "We do it by having a fundamental belief that consumers change enormously and out of that change comes opportunity. What we have to do is spot it and become the one that realises that opportunity." As far as food is concerned, the challenge facing those looking to add value and so grow their sales is enormous. A fact readily accepted by Leahy, who adds: "The amount of calories we eat doesn't change that much, but the way we deliver those calories does." It was this kind of thinking that led the supermarket sector to embrace ready meals back in the days when chilli con carne was seen as exotic. And, more recently, it prompted the likes of Tesco to jump on to the organics bandwagon before it had a chance to really get rolling. Leahy claims Tesco has seen its sales of organics grow by 40% in the past six months to be worth a "couple of hundred million", making it the UK's largest retailer of such products. And, he says, organic foods have had a profound impact: "For those consumers the value of that food has changed. They are prepared to pay considerably more for a product because they see it as being more useful." The trick for suppliers, of course, is finding, and then exploiting, such profitable new niches at a time when price inflation is still virtually non existent and retailers such as Tesco remain firmly focused on value. Leahy makes no apologies when he says Tesco has cut the price of the grocery bill of an average household by £3.50 a week over the past five years. And he makes no bones of the fact it will continue to reduce prices: "We have had to learn to live with much lower prices on products we sell. But we have made a virtue out of that. If you really accept that that's the world in which we live, you can do well. "But Tesco is not just about selling everything for the cheapest possible price. It's actually about understanding the mix of attributes that constructs best value for customers. Competitors come to the UK, look at value, and fail to grasp that it's about price, quality, convenience, choice and service. And we are quite good at sensing that." The Finest range is a great example. And Leahy says this sort of success can be repeated in other areas, as long as retailers and their suppliers find new ways of being more useful to customers ­ perhaps by providing more convenient, more exotic or healthier foods. Again: it sounds simple. But for those at the start of the food chain, this goes right to the heart of the problems they are now trying to address, because it will be very hard, if not impossible, for some farmers to switch from a production led system to one more consumer orientated. Leahy says he understands the concerns of those in the farming community who see how fast the world is changing. "I do see a duty to work with farmers to explain how customers are thinking, acting and behaving today," he adds. "But if you are prepared to accept that the customer is king and their wishes are primary, and that every business should organise themselves to deliver that, it gives a much better perspective on the problem." And to show how Tesco "works tirelessly" with British farmers to develop new markets, Leahy rattles off a great list of projects the multiple has undertaken with fresh produce suppliers, and highlights its sponsorship of the organic research unit at Newcastle University. But he also stresses Tesco has always had close links with farmers ­ a statement that would surprise many commentators given all the sniping against the multiple in recent years, particularly over prices in its stores. "Our relations with parts of the farming community have always been constructive and very strong because they are people we do business with. But perhaps our motives have been less well understood by the wider community who don't have any direct experience of working with Tesco," says Leahy. "The greatest frustration for the NFU and others must be misinformation ­ the fact offered in the pub, which never stands up to close inspection, but which still becomes perceived wisdom. The retelling of these tales doesn't help the agenda of the NFU in terms of the constructive development of farming." The debate about the future direction of farming in this country has intensified in the wake of foot and mouth. And if the crisis has done anything, it is demonstrate that relationships have started to improve along the food chain. Leahy says Tesco has worked constructively with the NFU throughout the crisis ­ particularly when it comes to sharing information ­ in a way that he says has allowed many farmers to see first hand that Tesco is a consistent partner. Like its rivals, the multiple has also increased its range of pork cuts and agreed to take light' lambs to help farmers offset some of the losses caused by FMD. Away from the short-term issues raised by the crisis, Leahy says the company has always been absolutely committed to local production. And that's not just for altruistic reasons: local produce is easier to source, costs less to transport, and customers identify with it more readily. Leahy adds: "It makes lots of sense to try very hard to ensure that production is local. But, despite all that effort, you still have to import because of significantly better quality or significantly better value or significantly better availability." His words will never appease the many critics of the supermarkets, yet the Tesco boss seems relaxed about the fact there will always be those having a pop. But Leahy also believes the industry has plenty to be proud of: "At a professional level, relationships within the food chain in this country have always been the best in the world. Our food chain is second to none. It's extremely responsive to consumers, it delivers what they want, and safely, and offers very good value." Leahy also points out that the industry has had powerful independent backing in recent years ­ from the Competition Commission and its inquiry. "This was one of the most important tests of whether we served the public interest, and we got a resounding thumbs up," he says. In Leahy's eyes, the most important feedback stems from customers, who he says are "largely satisfied" that supermarkets do a good job. If there is any negative feedback, it relates to the growing concerns about food safety in the wake of E.coli, BSE and foot and mouth. But Leahy says it is important the food chain spends less time trying to persuade consumers they are wrong about food safety issues, and more time actually listening to their concerns and responding to them. "I have found in my work never to challenge consumers too strongly about why they think what they think. Rather you should understand and be prepared to accept what they think," he says. When asked for an example of that, Leahy immediately cites the 1980s when Tesco was moving very strongly upmarket, but consumers wanted better value and lower prices because the country was going into recession. "It's uncomfortable for an organisation that is going in a new direction to learn its customers want to go in another direction," says Leahy, "Thank God we were prepared to accept that, because the rest is history." Had Tesco not followed its customers, the multiple may well have ended up as one of the ugly ducklings of retail. So the swan analogy comes full circle. And with it comes an important lesson for everybody in the food chain. {{FEATURES }}