Coverage of the Tesco scandal has oscillated between accounting misdemeanour and supplier treatment. Either way, this story is of great interest and distaste to the British public. A public whose spending loyalties the retailers compete for – and now a public with another reason to turn away from big retailers. As well as being uncompetitive, undifferentiated and financially challenged, the retailers are so mean! .
The Tesco scandal is all about misaccrual of profits and deception of the financial markets. Yes, there is pressure on suppliers, but mostly what we see is a powerful buying organisation leveraging its power. If you’ve grown to that size you deserve buying power – and with eight retailers making 72% of sales it’s hardly a monopoly, so complaining about bad treatment and buying power is simply an admission of being ill-prepared to manage the interface that is the most dynamic negotiating arena on Earth. .
Meanwhile, the real issue facing the big four and therefore suppliers is that in today’s market, cheap price is beating wide range choice. Waitrose is an exception – it actually does have worthwhile range differentiation. But the discounters’ prices are enabled by small stores, small range and low stock levels. So hacking the price down when you’ve still got big stores, wide range and associated stock will never work. .
Unlike Sainsbury’s slump of the late 1990s (recovered admirably by Justin King), Tesco’s was a scandalous fall from grace: horsemeat, horse-trading and horsing around with numbers. King just had to reverse a trend caused by successful loyalty drives elsewhere. Tesco’s sales performance is a horror show and the turnaround strategy will not involve going easy on suppliers: shocking to the public, but true. .
They need less stock to compete. Expect pressure to move to invoice on scan; expect also delisting pressure. They need better differentiation and you can help. Consider developing exclusive products by retailer – you did it for Poundland, which isn’t nearly as big. The good news is that you’ll get less pressure for accelerated payments but that’s the only variable that won’t hit you in the teeth. The rest will be business as usual.
