Troubled Tesco – why can’t the UK’s largest retailer be more like Government?

The next time someone suggests that the public sector should be more like Tesco, in procurement or indeed any other field, please remember this.

Just days before the last election in May 2010, Tesco’s share price was 440p.  As I write this (Friday June 28th, 2013), it is 331p. The firm has lost almost exactly a quarter of its market value since the election, which represents a loss to shareholders of some £9 Billion. Yes, nine billion pounds.

I should know – I’ve owned a few shares in Tesco for some 20 years, and to be fair, they did well until a few years ago. But the last five years or so have been pretty disastrous, and the other day we saw the ex-Chairman of Tesco, Lord MacLaurin, publically criticising the ex CEO, Terry Leahy, and saying that it was his legacy, particularly the ill-advised expansion into the US, that was to blame for the recent woes.

So I’d argue that  the current government has probably performed better, all in all, than Tesco over those last three years. So here’s a suggestion. Why doesn't Tesco look to be more like the public sector? Look at the service improvements many public organisations have managed to make in the last three years, in parallel to reducing running costs.  How many private sector organisations have pulled off that trick?

I’m not simply being facetious here and neither am I joking (not completely, anyway). In my experience, the private sector screws up just as often as the public sector (Rok and Southern Cross – there's two more ex-firms whose shares I owned), we just don’t hear about it quite so often.  So we need to be very careful when we try and apply glib comparisons across sectors and organisations.

In all seriousness, of course government can learn something from Tesco – but the opposite applies just as well, I’d suggest.

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Voices (8)

  1. Bill Atthetill:

    And here’s an interesting perspective, from a slightly different angle (but I’ve been told that we shouldn’t mention it to Colin Cram, or we won’t hear that last of it…). Article below (see link) has been written by a ‘principal’ (whatever that is…) at AT Kearney so try your best to cut through the consultancy-speak to get to the content. Basically, if Terry Leahy was CEO of the NHS….

    In a nutshell:

    – set, and adhere to, targets

    – standardise everything including whole buildings

    – use data (especially customer data…)

    – choice and competition is good (unless you’re a competitor to Tesco, and especially a local SME, whom you should crush under the wheels of the truck carrying the building materials for constructing the next big, local, mega-store)

    – innovation is good if it takes out cost, and

    – ‘differentiate failure’.

    On the subject of failure, it’s important to differentiate, because if you’re a crap store manager, “you’ll never work here again”, whereas, if you invest billions in a foreign market (like the US) and it all goes tits-up, then you’re ok because “at least you tried”.

  2. Chris C:

    Since when did speculative stock market movements reflect the true long term value of a company? Mind you, British consumers may have finally realised how overpriced the big retailers have become in their six monthly efforts to report continued revenue/ turnover increases.

    1. PlanBee:

      Probably a stock market price movement over 5 years is quite a responable assessment of a company’s future value. I would agree however that day to day movements are meaningless

  3. Dan:

    The problem (or at least one of them) is the media, and the perception it creates. If a public body messes up, then its in the public interest so its reported fairly widely. If a private company messes up, then its of interest only to its shareholders, so it’ll be reported only in the business pages if at all. And of course, if there’s one thing that politicians know how to do, its how to follow the headlines.

    If a foreigner who had never been to Britain before read a newspaper here, they could be forgiven for having the impression that the private sector is much more efficient than the private sector.

  4. Trevor Black:

    Peter, you have made a highly relevant observation and those (in particular politicians) who have adopted the ‘animal farm’ approach to business e.g. private – good, public – bad should take heed.

  5. Ian Taylor:

    In the public interest I think Peter should declare what other shares he owns in case they are also facing a stock market thrashing or financial failure.

    1. PlanBee:

      Yes Investment strategy 1-

      ‘If Peter Smith is holding shares in the same company as you, then sell’

      1. PlanBee:

        Spoke to Peter yesterday – You might do well to follow his wine buying strategy though!

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