Tesco returned to profit of £162m for the year to February 27 on sales of £48.4bn. It grew like-for-like sales for the first time in three years – up 0.9% in the fourth quarter.
Tesco boss Dave Lewis puts this dramatic turnaround down to one thing, an unerring focus on customers. It has cut prices, improved availability and customer service. This, he explained, is Tesco “living its purpose” of serving the customer and being as helpful as it can.
“The customer is our number one priority,” he said, speaking at a press event last week. “We have to remove any reasons for them to shop elsewhere. We have lots of people that shop with us but they don’t do all their shopping with us. We need to give them all they want on one occasion and we do that by doing more of what makes Tesco unique.”
What makes Tesco unique
Lewis told Marketing Week there are two parts of a “value equation” that make Tesco unique. The first part aims to make the supermarket competitive on products that can be found at rival supermarkets. Lewis said the average basket price decreased by 4% between August 2014 and February 2016 while couponing was down 37%, meaning it can offer “lower more stable pricing”. Its ‘Brand Guarantee’ price-matching scheme ensures customers never lose out on branded shops either.
Tesco’s new ‘farm brands’ are also key. Lewis said that on the 51 meat, fish and fruit and vegetable common across grocers, Tesco used to charge a total of £103.11, compared to £89.06 at the cheapest competitor. The introduction of farm brands cut that to £86.39, a 15% drop.
“Shoppers had taken that shopping mission elsewhere. It was a reason not to shop with Tesco,” he explained.
The second part of the strategy is to invest in what differentiates Tesco. As Lewis told Marketing Week: “That is the Tesco brand itself and what we do with our own-label, the proposition we put in stores in terms of service, range, availability and price. But it also means the brands only we have – F&F, Clubcard.
“It’s that combination of things that make shopping in Tesco a unique experience, they will be the things that ultimately differentiate us and ladder up to helping serve Britain’s shoppers a little better every day.”
Dave Lewis, CEO, Tesco
That is not to say Lewis has found all the answers yet. More investment will be needed, particularly on price. And conditions across the industry remain challenging, not only due to the discounters but also the rise of convenience and online grocery shopping.
“We were in crisis but now we have stabilised the business. Customers are happier, most satisfied and shopping with us more. But there is more we need to do, want to do and can do,” he said.
Differentiating its marketing
Tesco has also been keen to stand out when it comes to its marketing. At Christmas, the supermarket eschewed an emotional campaign for humour using the family of characters, played by Ruth Jones and Ben Miller, it had introduced earlier in the year.
Tesco’s marketing boss Robin Terrell told Marketing Week: “We are trying to approach things in a very different way. If you look at the market generally there’s a lot of sameness out there. Even in terms of media mix, execution, style, tone, it’s all the same.”
He admitted that while adopting humour was risky, it was a risk the supermarket was willing to take to ensure cut-through.
He added: Humour is an interesting medium because it doesn’t work for everyone. Not everyone finds the same things funny so we learnt some things around that. It does polarise some opinion but what it also showed is it really cut-through and we had some executions that worked really well in terms of intention to shop at Tesco, but also driving the brand in the way we wanted it to do around helpfulness. We feel we’ve got a good platform and we’ll continue to build on it.”
The drive to digital
Another big difference in Tesco’s marketing strategy was its above-the-line ad spend. Figures from Nielsen show that Tesco’s spend has dropped from £110.6m in 2013 to £77.7m last year, a decline of almost a third.
Terrell said those figures, while “not precise”, reflect the changes at Tesco as it shifts more money into digital channels, as well as its own media.
“Our media mix has changed quite dramatically. We were very TV focused. We are now putting a lot into digital and making the most of our own media. Even things like trucks. We have thousands of trucks and we’ve installed panels in the trucks so we can change the media very easily and inexpensively.
“We won’t talk specifics but the mix has changed significantly. We are spending less and as we spend less overall we are moving money around.”
Perhaps a further sign of the changing role of marketing at Tesco is Terrell’s expanded role. He is charge of new business development as well as its loyalty programme Clubcard.
Terrell said he works “very closely” with the Digital Labs team to help roll out services such as mobile payments but said technology, like the rest of the business, is focused on “actually helping customers”.
“There are two things [that help boost how helpful people think the Tesco brand is]. One is around what we do, the other what we say. Disproportionately what is important to customers is what we do and that’s where we are most focused,” he explained.