There is more in store for Tesco with T&S buy

Tesco doesn’t take over other companies, especially in the UK, just for the hell of it, so what lies behind its &£519m acquisition of West Midlands-based T&S Stores convenience chain? We can accept that it makes sense at face value. By adding its brand, buying power, own-label offering and supply chain strengths to a company that’s already successful in its own right, Tesco can expand its presence in the fast-growing convenience sector. But is there more to this than meets the eye? Perhaps.

Outfits like T&S might just be that crucial link in a long-term strategy to create a next-generation value proposition. A value proposition that goes way beyond the current buzzword of format choice – a choice between superstores, city centre stores and convenience stores, all from the same brand.

The real goal is something rather different: the seamless integration of these formats around a new logic of customer, rather than corporate, convenience. A move that amounts to nothing less than the reinvention of the grocery industry.

To see some possible ingredients of this transformation, let’s cross the water to Koblenz, Germany, to a seminar for senior retailers, brand manufacturers and academics organised by ECR Europe. There, Ronald van Solt, supply chain supremo for the Royal Ahold group addressed an eager audience.

First, he claimed grocery retailing has reached a watershed. The post-war period was about overcoming scarcity. That morphed into quality, variety and choice. And that, in turn, is morphing into convenience and personalisation. Consumers are “overwhelmed by choice”, van Solt asserted. According to him, the consumers’ cry is “Please, make it easy for me. Give me something tailored for me. Guide me. Adjust to my personal lifestyle.”

Second, he noted, no existing retail format addresses the full range of consumer buying needs. To illustrate this, van Solt drew a simple time line – from nought to one day, to two days, to three days, to this week, to next week, to next month – to depict consumers’ forecasting and planning horizons. From nought to one day for immediate stuff like milk for breakfast and snacks for lunch (C stores), one to three days for close to immediate use, later this week and next week for basics (supermarkets and superstores) – up to three or four weeks ahead for things I know I’ll need, like toilet paper.

The era of one format (the out-of-town superstore) competing with other formats (such as high street supermarkets) is over, van Solt implied. Instead of one format trying to steal share from another, retailers need to deploy all of them to meet customers’ needs completely.

Third – and here comes the bombshell – “home delivery will be more efficient than stores”. Yes, Ahold-owned Peapod in the US is still losing money. But Ahold logistics gurus have done their number crunching. As door-drop densities, purchase frequencies, basket sizes and operational infrastructure are all brought into sync, it is becoming cheaper to supply consumers at home than via expensively fitted out, labour-intensive stores.

“We will become champions of the last mile,” declared van Solt. “We will take the letters for the postman. We will deliver books for Amazon.com, clothes for mail-order companies”. Grocery retailers are the “natural” people to do this, he asserted.

In other words, if grocery retailing has an operational centre of gravity, around which various optional extras orbit, in future the superstore might not be this centre of gravity – home delivery could take its place. And retailers will use this new home-focused infrastructure as a springboard to expand their offering. For instance “We will add value beyond the store’s walls,” declared van Solt, by offering things that consumers consider to be “special” and not traditionally sold in store – products that can now be sourced and delivered item by item.

This in turn will allow retailers to reinvent their existing superstores to fill gaps created by the new core: stores as “social centres, centres of learning, for being inquisitive, for acquiring expertise” – for the high-touch, high-experience, high-stimulation aspects of food and shopping.

Van Solt’s dream, then, is to offer consumers lower-cost, routine replenishment plus new personal sourcing services (ranging far beyond grocery) and high-experience retail theatre, to suit different needs and modes. It’s a dream that takes grocery retailers far beyond groceries – and beyond traditional retailing too. Beyond simply buying produce and selling it to take on a new role as the consumer’s convenient “sourcer” who makes it easy for consumers to source the stuff they want, when and where they want. As van Solt remarked: “We create availability.”

So what has this got to do with Tesco and T&S? Well, compare van Solt’s gist with comments made by Tesco IT and logistics director Philip Clarke and Dan Jones (a long-time Tesco supply chain adviser) at another recent ECR conference (this time in Barcelona).

The future is about “customer-driven supply chains”, they suggested. Here’s how such a supply chain could work. A “right-sized” store close to the customer’s home “acts as the point of contact with the retailer. It carries a customised range of fresh and ‘fast-moving products’ and can obtain anything from the complete range of ‘slowmoving products’ from the regional distribution centre or superstore, to order, within a few hours. Customers can order on the Web at home, or do so in store, adding to the goods they have selected in the store. They can either pick up their goods later or have them delivered. The retailer actively offers products, services and advice to regular customers based on regular feedback (not just orders) from them.”

Integrating a full range of sourcing services around the customer’s convenience takes retailing way beyond format choice. But it requires a very different infrastructure. Tesco already has the superstores and regional distribution centres. It has the information systems and (via ClubCard and Tesco.com) it is developing “feedback”. But what it lacks, so far, is that “right-sized” neighbourhood presence. If it can fill that gap, it may start transforming its vision of a customerdriven supply chain into reality.