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You remember 2008, of course? Leona Lewis was everywhere with Bleeding Love. The Spanish started dominating football with a string of victories that saw them lift the Euro 2008 trophy. And as we entered the end of the Bush administration, the global financial crash (GFC) smashed apart the world economy and everything turned to piss.
There are so many narratives to weave into that potent little period of time between the dramatic fall of Lehman Brothers in September and our gradual escape from recession a year or so later. Nestled somewhere in the middle of all of that was the bruising story of what happened to Tesco.
Traditionally a beneficiary of tough times, Tesco took a beating during the GFC because times had changed. Specifically, the two mighty German discount retailers – Aldi and Lidl – had established themselves in the UK by 2008 and both operated brands built on value, private labels and no-nonsense. Perfect fodder for a recessionary British shopper suddenly looking to save money.
You can be a master of negotiations. Have the biggest, strongest brand in the category. Enjoy double-digit growth. None of it matters.
In the space of 18 months, Tesco lost a full percentage point of market share with much of it ending up with the German discount duo. That might not sound much. But in a relatively stable category where a single percentage point of share is worth almost £2bn, you can imagine how much impact it had on the people at Tesco.
And in many ways the GFC moment precipitated the decade that followed. From a high point of almost a third of all grocery sales in the pre-GFC era, Tesco’s market share steadily fell to its current level of 27%. Meanwhile, Aldi and Lidl’s combined share rose during the same period from barely a rounding error at the bottom of the chart to 13% of the market.
Tesco’s price-focused response
It’s easy to see how many at Tesco’s Hertfordshire HQ now see the last recession as the place where the company’s domination was lost and the apparently irresistible rise of the German discounters began. As the British economy heads into its next big recessionary period, one that will probably dwarf the GFC, the big brains at Tesco face the biggest strategic challenge of their careers.
This new recession will not take Tesco by surprise. According to The Grocer magazine, senior executives have already established their new strategy, which will be launched with the campaign slogan of GPED – ‘Great Prices Every Day’ – in the coming days.
Tesco is reportedly pulling back from other promotional activity and will instead focus all its efforts on achieving and communicating the lowest possible retail price to its customers. Suppliers are currently meeting with Tesco to agree on those new prices, with one supplier describing the discussions as akin to being “taken to the precipice”.
Interestingly, there appears to be little focus on Tesco’s fighter brand, Jack’s, which was originally launched two years ago to replicate and counter the threat from Aldi and Lidl. There have been rumours Jack’s is heading to the great supermarket dumpster in the sky. Tesco’s leadership had apparently finally come to the same realisation as the rest of us: that Jack’s would have almost no impact on the German discounters while dividing resources and lessening focus at Tesco when it can least afford it.
Instead, Tesco is using a genuine and sustainable point of differentiation – its Clubcard – as the main tactic against Aldi and Lidl. Clubcard has 19 million members and if Tesco can convince this giant army of shoppers they can access the lowest prices by using their cards, the retailer might avoid the 2008 experience and defend its customer base during this recession.
But the problem for Tesco is an intractable strategic one. It simply cannot match the Germans on price because no-one can. Aldi’s core competence – the central gene in its brand DNA, the thing it does 24 hours a day – is get prices down.
Its focus on less inventory, smaller and more efficient stores, and a preponderance of private label mean Aldi will always be and seem cheaper. And they also mean that Tesco – with its bigger brand equity, larger-format stores and higher-priced inventory of manufacturer brands – will always appear the more expensive alternative.
Even Tesco’s relative domination of the market is a weakness because it means the company will lose proportionately the most to Lidl and Aldi as they continue to grow their share of the UK market.
Markets shift in recessions
So, what is the answer? How does Tesco grow in the face of such difficult rivals?
The short, sad answer is that it will not increase sales in the murky months ahead. And most of Tesco’s executives are probably aware of this fact already. This is not an attempt to grow share, like most marketing campaigns; it is a defensive attempt to maintain sales and restrict losses. What Tesco is trying to do is to limit, but certainly not eradicate, the amount of damage the German discounters will do in the difficult months ahead.
And once again marketers are left with an important insight about recessions. Yes, they are a time when consumers cut back and private labels come to the fore. But they are also a crucible of change for established industries. How big companies handle the changed conditions of the dark years ahead is important in its own right, but it’s far more crucial as a starting point to the post-recessionary period that ultimately follows it.
Like a depressing game of…
