Why Tesco Express Wasn’t

The powerful combination of focus and persistence on business success

Tesco’s first stores in the US will be based on their successful convenience model, Tesco Express. By the end of their financial year, Tesco estimate that they will own over 750 Express stores in the UK alone. Given their ubiquity in this country and their use for strategic growth initiatives overseas, you may think of this format as an obvious, easy win for the company.

A little more examination of the format’s development suggests that nothing could be further from the truth. There was no overnight success for the model. In fact it took over 6 years for the company to get over 20 stores off the ground. Express by name? Yes. Overnight success? Hardly.

So how did this ugly duckling become a swan? What were the stages of development and growth? What were the drivers of success? And, most importantly, what lessons does this give you in creating your own growth strategy?

The chart of store number growth highlights that throughout most of the 1990′s Tesco were in essence tinkering with the format. In fact you can detect three key periods

  • 1994-1999 – proving the concept. By 1999 there were 17 stores, and the Annual Report noted that it was becoming a “promising format”. At this time a joint venture with Esso was announced
  • 1999-2003 – creating scale. Openings of new stores are accelerated and the model is further refined. There were 109 stores by 2003
  • 2003-present – driving turbo growth. Tesco acquires T&S Convenience stores, and sets about rebranding them in addition to new locations. Current store numbers of 751.

This picture of success contrasts all too vividly with many companies. Driven by their desire to find a magic success, the need to please analysts and investors, and the temptation to find clear blue water with troublesome competitors, many businesses fall into the trap of reaching for ill-conceived, quick win solutions. Invariably they fail, and the company lurches from one strategy to another.

Take for example Boots’ foray into health and beauty services. Against a background of increasing grocer competition and falling prices, Boots sought to move into services such as dentistry, laser eye treatments and massages to drive future growth. And they wanted to move fast!

For example, from a standing start in 2000, the company had opened more than 50 dentistry practices by summer 2002. However, by 2003 growing pains were beginning to hurt and losses were increasing. Operational reviews led to a change in the concept’s business model, with dentists becoming self-employed. The medicine didn’t work, however, and by 2005 the dentistry business had been closed with write-offs of £35 million.

Similar stories could be told for the other services businesses. In less than the elapsed it took Tesco to develop and prove the concept for its Express format (17 stores in 5 years!), Boots had opened over 100 locations, burned over £100 million in cash and lost a Chief Executive as a result of its approach to building a services business.

Another example of doing it the wrong way is shown by x. [to complete]

So what lessons can you learn for your business? I suggest 5 high-level take-outs from this review

  1. Clear strategic focus – At the heart of any strategy is focus and trade-off. The Tesco team had a clear view of where the Express format sat in its future success. They knew that there was a significant customer and financial opportunity if they could find the right solution. The development of the format wasn’t a “suck it and see” but a strategic move. It was the individual trials that were the tests not the overall concept.
  2. Don’t take your eye off the core business – Whilst Tesco was busy driving growth from its core business as it developed the Express format, Boots’ management were reorganising to drive a Services business that wasn’t there. Without a strong core business, growth into new, adjacent areas will not work.
  3. Build the economic model before rolling-out – It took 5 years and 17 stores for Tesco to prove the economic model of the Express format. Boots went from nought to 50 in less than two years before spending time to find a way of making money.
  4. Consistent management commitment – despite early difficulties with the Express format, the Tesco management remained committed to its success. They knew that there was demand from their customers for this type of store, and that there were scale opportunities. It was therefore a matter of persistence and focus that ultimately delivered success.
  5. Manage external expectations (down!) – Annual reports and presentations are opportunities to share success. For executives under pressure there is the temptation to focus on the new, the untried in the hope that this will distract attention. Successful companies such as Tesco play down the importance of the new areas until they have delivered material benefits.

The basketball legend, Michael Jordan, once said “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

I think the team responsible for developing the Tesco Express format would agree totally with that sentiment.

 

To find out more contact Stuart by clicking here or call +44-(0)1636-526111.