Tesco Understands Economics


Sir Terry Leahy: The ‘Robert Mugabe of retail' bites back – People, News – The Independent

First off, that's a pretty nasty nickname, being called the Robert Mugabe of anything. I don't know the whole history on that one, but Tesco is a British retailer, who could be described as the “Lean Wal-Mart.” More about Tesco's Lean work can be found through a quick Google UK search — they are featured quite often through the Lean Enterprise Institute and the Womack/Jones books (including Lean Solutions: How Companies and Customers Can Create Value and Wealth Together).

For all the talk about companies increasing prices because costs are going up (ignoring, at their own peril, basic supply-and-demand economics), Tesco has it right, I think. Their CEO and Chairman, Sir Terry Leahy, says:

“It's impossible for us to manipulate our prices because in this market if you price up unilaterally, it's commercial suicide. Therefore the industry would have to do it collectively, but it can't because that would be collusive behaviour. 

How many of the companies that are raising prices, using costs as an excuse, are committing “commercial suicide?” Time will tell.

Another thing in the article that reminded me of Toyota was Tesco's frugal and spartan headquarters, as described by The Independent:

It's not exactly how you would expect to find the boss of the world's third biggest retailer. After 20 minutes' train journey into the indeterminate hinterland just outside London you walk a few hundred yards to a rather seedy industrial estate. It announces itself with a garage offering MOT testing and repairs. Barely a hundred yards beyond the car bashers looms a low-slung concrete block. This is the global headquarters of Tesco: annual sales £51.8bn, yes, billion.

The single receptionist sits beneath a sign reading: “Every Little Helps”. Two minutes later Sir Terry Leahy is in the reception to take me upstairs to a fittingly unpretentious office.

Frugality – a core Lean principle, don't you think? “Every Little Helps” — that's kaizen at work.

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  1. Peter P Patterson MD says

    Wow … talk about vicious press … the 4th estate you say … sounds like someones forgetting that mission.
    Reading about that mentality in the English press I remember when I was growing up – north of 49 – we called it not-so-Great-anymore Britain…Sad.
    /Dr. Pete

  2. Mark Graban says

    Costco has a similar understand that they can’t force prices on customers, from today’s WSJ:

    Discount chain Costco Wholesale Corp., one of a handful of big chains that had been thriving amid the consumer-spending slowdown, delivered a surprise profit warning Wednesday, saying that its costs for merchandise were rising faster than it could pass along price increases to consumers. The news drove down Costco stock almost 12% and depressed shares of other discounters, including Wal-Mart Stores Inc. and Target Corp.

    “Retailers don’t have a lot of pricing power,” says Love Goel, chairman of Growth Ventures Group, a private-equity firm that invests in retail businesses.

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