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Shopping these days feels like making a journey in a different dimension in time, dominated by a strain of nasty Corona virus. It is greatly an unfamiliar, ambiguous dimension that forces consumers to divert from their habits and modify usual forms of shopping behaviour. Their considerations while shopping may change as well. Since the vast majority of shops and stores are closed, we are left to talk about shopping for food and other products for the household (e.g., in supermarkets, minimarkets and neighbourhood grocery shops). In other words, shopping is focused on necessities for maintaining some normalcy in daily living at home.

Time and distance become major factors in the planning and conduct of a shopping journey in a supermarket. Reducing the length of time spent in the store and keeping distance from other shoppers are imposed as constraints on the shopping trip; although they may not be formally enforced, they are very much recognised and felt by consumers. These factors hover above other choice considerations (e.g., format or version, ingredients, brand, and price), likely to cause shoppers to shift their priorities for some of their choices or to reconstruct their preferences on the fly.

Consider, for example, selecting fresh fruits and vegetables from trays in bulk. In normal times, the shopper may try to make an optimal selection, say of tomatoes — scan over the pile for tomatoes that look nice and red enough, pick a few for closer inspection of appearance and touch (but do not squeeze), return if the tomato has some defects on its surface and pick another, and so on until the needed number of good tomatoes is selected. This process is not easy to execute now. First, it is not desirable that two people will pick their tomatoes at the same time side by side, so one has to stand back and wait from a distance or choose another produce to select from. Second, the shopper may not afford to be too picky because each tomato one inspects takes more time and the shopper also may not want to touch too many of them. Hence shoppers would be more lenient and willing to trade-off time with the quality of the produce selected. Not everyone has the patience to carefully select fresh produce, and in these Corona days probably most shoppers have even less of it.

When choosing packaged products from shelves in the aisles, shoppers are likely to exhibit a stronger tendency to rely on habit and to buy the familiar brand one most frequently uses. These could be food products (e.g., pasta or rice, mustard, chocolate), cleaning substances or personal care products. To start with, most shoppers probably do not want to stay in a narrow corridor for too long, especially if another shopper or store employee is present in the aisle. Hence it is likely that the shopper will check first if the usual brand and format is available from a product category, and if so, pick it and quickly move on or out of the aisle. If the familiar or preferred product is not in sight (e.g., out of stock), the shopper may pick the nearest option that seems satisfactory and continue with the shopping journey. This seems less the time to explore new options or to search for the most desired brand, content or flavour of a product. Shoppers would be inclined even more than usual to apply a ‘satisficing’ choice strategy.

Similar behaviour will probably be found also at the department of refrigerated dairy products, though shoppers may take a little more care in selecting items because it is fresh produce. However, it is reasonable to believe that they will be more flexible in their choices with attributes of desire (e.g., flavour, add-ons) than need (e.g., sugar, fat). At service counters of delicatessen (e.g., cheese, salads), meat and fish, shoppers seem to be reluctant to join a line with three or more other shoppers standing before them, so they move on, and may return later or give up. Yet, since in recent weeks the entry of shoppers is monitored at the door (e.g., allowing for no more than ten shoppers to be in-store at any time), crowding of more than three people is quite unlikely near any display, counter, shelf or refrigerator. If crowding does occur, shoppers appear to quickly disperse by their own will and move to another display until the area nearly clears.

A supermarket can be a remarkably quiet place these days as everyone is pre-occupied with completing his or her shopping — allowing for brief amicable exchanges among the shoppers or with staff, no fuss, little arguments. Shoppers may come more prepared for their shopping trip, by relying for instance on a shopping list (for greater efficiency), but this is truly a matter of personal discretion. Ordinarily, research has shown that shoppers in large stores like supermarkets develop a stronger attraction to the cashiers as they progress in their shopping journeys, trying to make their journeys shorter.  But now shoppers can be expected to develop such an attraction sooner, perhaps from the moment they enter the store, even for consumers who largely enjoy to shop, search and select products for home.

The use of means for protection from contracting COVID-19 can make shopping further less convenient. At the entrance, a shopper may wear disposable gloves offered by the supermarket, after cleansing the hands of course with alcoholic gel (hand sanitizer). However, some nylon gloves seem to be sticky, and may also get torn after several hand gestures (e.g., it is not easy or comfortable to pick product items with the gloves). If one does not use them, the shopper better repeat cleansing the hands with alcoholic gel intermittently. Face masks, now mandatory in some countries, additionally make the shopping experience less pleasant (e.g., when talking with service staff, eyeglasses get covered with the steam of breath so it may be better to remove them). These protection means, some if not all, are necessary for protecting our own health and of those around us, but unfortunately they might disrupt and impede the shopping process.

  • Consumers who wish to avoid the hurdles of this shopping experience altogether can order their required products for delivery to  their homes. Albeit, there have been repeated complaints by consumers that deliveries  can take up to ten days.

Shopping in a minimarket store or a grocery shop has its own strengths and weaknesses. On the positive side, a shopper is likely to be exposed to fewer people, staff or peer shoppers, inside and outside the store during his or her visit than in a large supermarket store. On the negative side, however, a minimarket or grocery shop is usually more condensed, with narrower aisles than in a supermarket. Hence social distancing is a greater challenge in these smaller stores: one could be in closer vicinity to another person for a moment or two in-store, and maneuvering to clear the way is more difficult.

The puzzled consumer may have to think more deliberately about a shopping strategy, such as: (1) make short visits to buy a small number of most necessary items (e.g., about five) at the smaller store closer to home just to fill-in supplies at home, and avoid the larger store hubs; (2) make longer and less frequent visits to a large and more spacious supermarket store for renewing the stock of a larger variety of home supplies. Shortages in some products at stores (e.g., toilet paper, pasta, eggs, milk) may require shoppers, nevertheless, to visit more stores than desirable during a week to find the missing needed products. The strategy does not have to be innovative or so different from how consumers planned their shopping until this crisis. Yet the situation and restrictions imposed by government introduce significant constraints that force consumers to pay attention to details they did not consider material before and to calculate their steps for shopping more meticulously.

At this time (mid-April 2020) the vast majority of stores and shops for a variety of products and services are closed for business. For example, on a circular street of premium shopping in Tel-Aviv, with about a hundred active outlets of stores and shops (e.g., fashion, homeware, jewellery, bookshop, hairdressers, and a bank branch), about 15% were open to customers-shoppers in the afternoon in the fourth week of March, having a semi-lockdown imposed. At the end of that week an extensive lockdown went into force. Note that stores never closed on this street in mid-day until this time. This scale of closure was not experienced even during war conflicts of the past thirty years. In the last three weeks the greater part of outlets are completely locked while some 10%-15% maintain some level of presence on premises (e.g., receiving customers by phone appointment only). Some of those that are locked leave a note with a message that they are temporarily closed and others provide a phone number for enquiries and receiving orders.

When more stores and shops re-open, hopefully as soon as next month, consumers will probably remain cautious, still subject to some restrictive code of behaviour. Therefore, it is likely that consumers-shoppers will follow patterns of behaviour similar to some degree to those described above. It is too early to predict, however, the pace and extent at which consumers will return to be engaged in shopping. It may be a function of priorities set by consumers and their level of confidence, vis-à-vis how many and what types of commercial outlets the government gradually allows to re-open.

Rigorous research, based on observation and surveys, will be most welcome in order to achieve well-founded understanding of the effects of the Corona pandemic crisis on shopper behaviour. Data from directly interacting and observing consumers about their dispositions and behaviour can be supplemented by recorded data on their actual purchases (i.e., their shopping ‘baskets’). Such research will study and substantiate, for example, the changes in shopping tactics and patterns of behaviour effected by the pandemic and public policy (as suggested in the propositions above, based partly on casual observation and personal experience). The research may enquire specifically about the trade-off between taking measures to reduce risky exposure (i.e., avoid virus contagion) and the quality of choices made, or implications of ‘stock shopping’ (i.e., buying varied products in large quantities to create stocks at home).

Shopping in a food store, large and small, can be a tiring and stressful experience under the restrictions of the Corona pandemic and fear of contracting COVID-19. However, there is good reason to believe that consumers will return by and large to their older shopping practices once the crisis is over — consumers are able to adapt well to changing circumstances, and it should be furthermore easier to adjust to familiar conditions from the near past. Nevertheless, the re-adaptation will not be quick or complete as the process of recovery is expected to be gradual and we do not know when it will start and at what pace it will occur. Consumers will probably remain more alert than before, staying ready for more ‘surprises’ like resurgence of the pandemic; this will likely have impact on shopping of any kind, and moreover on receiving services one-to-one. Unfortunately, concerns that arise from economic consequences of this pandemic crisis may replace concerns about the virus itself and extend the recovery of shopping  behaviour and customs. Welcome to the Corona dimension.

Ron Ventura, Ph.D. (Marketing)

Feel Well. Keep Good Health.

 

 

 

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The major British grocery retailer Tesco is in a crossroad. Strategies that have brought the retail chain success, good reputation, and a leading position do not work as well as in past years. Tesco has been frequently commended for its Clubcard loyalty programme, established in 1996, that implemented an exemplary customer data-driven approach in the realm of relationship marketing; it has put the chain way in advance of all its UK competitors. During the previous decade Tesco also initiated its advanced concept of segmented network of different types of stores for different types of shopping that is continuously growing. Notably, the UK-based company has expanded into more countries and to more types of business, becoming a giant global retail group. But now Tesco finds itself in difficulty. The mission is to find where matters have gone wrong and how to put Tesco back in order.

The recent accounting blunder in which the group over-stated its profits, troubling enough, is truly only a symptom of deeper problems in the management of Tesco, going at least three years back. The profit error in excess of £263m corresponds mainly (£118m) to the first half of the current financial year (2014/15), but it extends to the previous two years, too (following an investigation by Deloitte concluded in October).

  • This error was caused, in the words of departing chairman Broadbent, by “accelerated recognition of commercial income and delayed accrual of costs in the UK food business“(1), referring to incorrect timing of reporting payments made to suppliers (done late) and concessions Tesco received from them due, for example, to promotions given in its stores (done too early). The accounting misstatement may have occurred innocently because of lack of professionalism and a guiding hand in running the company’s finances (Tesco, reportedly, did not have a CFO for a while). In the worse case, it was done to conceal the decline in its business and poor financial performance. Either way, it is evident of underlying faults in the way the company was run in recent years.

The years 1997-2010 have been a significant period of intensive activity and growth at Tesco, led by two successive CEOs, Leahy followed by Clarke. It was a period full of ambition to extend internationally and engage in additional product and service categories, beyond Tesco’s core competence in food and general household retailing. But then Tesco was caught unprepared to cope with the financial crisis of 2007-2008 and the recession that followed, especially since 2010. Tesco under Clarke was late to respond, and continued its expansion “business as usual” despite the evident decline in consumer spending. Time has now come to re-align and to take a more focused approach on those business areas and retailing activities in which the company is more capable to satisfy both its customers and shareholders. The new CEO Dave Lewis, as of August 2014, re-stated that Tesco sees itself as a customer-centric company that intends to continue providing best value to consumers through its pricing, services, and stores. It remains to be seen how the new management keeps true to this commitment.

Tesco’s Stores in the UK

The British retailer distinguishes between different patterns of consumer shopping under different circumstances or for varied purposes; about ten years ago it split its mother-chain into four main types of chain stores. At the core are traditional supermarkets, known as Superstores at Tesco (482 stores as of Oct. ’14). It has added Extra mega-size stores with a much larger range of products and at lower prices for shoppers who want to stock-up their households for longer periods on fewer concentrated shopping trips (248 stores). On the other hand, Tesco developed a Metro type of store (reduced supermarket) to be located in centres of large cities and accommodate the unique needs and time constraints of working shoppers (194 stores). In addition they established a sub-chain of Express stores in a format like convenience stores for really rush trips and smaller baskets for products in immediate shortage — this is in fact the largest sub-chain currently (1,709 stores).

Mainly the three new groups of stores have grown since 2005; all four types account for more than 2,600 stores in the UK (there are some additional 800 stores of other retail-formats). The Express chain stores faced particular resentment from independent merchants because these stores have been established at their expense, by buying them out or by drawing local customers from them in their neighbourhoods (some have resolved the issue by becoming franchisees). However, it apparently was a more correct move to make than creating the Extra stores. To the surmise of Tesco, consumers are less attracted to the mega-store format because they are now less interested in making large purchases on any single shopping trip. Instead, consumers are more inclined to fill-in their stocks for the coming days (e.g., as budget or available cash allows). The advantage of buying at lower prices at Extra stores, as in the chain as a whole, also diminished in face of a challenge from more efficient discount chains like Aldi and Lidl from Germany.

Tesco has several concerns to confront and resolve. Its position is furthermore unfortunate because it is sandwiched between discounters as mentioned above and high-quality, high-status chains such as Sainsbury’s, Morrisons, and Marks & Spencer. Tesco invested in its own-brands and in prepared as well as fresh meals, and yet it is still not considered in the same class with the high-quality chains. Those chains have a much clearer proposition with regard to product and service quality than Tesco. In addition, analysts argue that Tesco’s stores have become complicated to shop — they are too large, hard to navigate, difficult to find products needed from a selection too broad, and particularly too difficult to find value. (2)

From 1994 until the end of 2005 the market share (MS) of Tesco climbed consistently from 17% to 30%, surpassing in 1995 Sainsbury’s, the leader until that time, and leaving all food and grocery chains far behind. Since 2006 and until the beginning of 2014 Tesco’s MS was essentially stable (30%-32%), then it started to slip below 30%, according to data of Kantar Worldpanel reported by the BBC. Sainsbury’s has kept floating between 15% and 20%. Three challengers are notable — although they are still well below Tesco, they can and do cause trouble for the leader: (a) Morrisons (11% after a steep leap forward from 6% to 10% in 2005); (b) Asda (Wal-Mart’s branch into the UK , 17%, climbed mainly until 2005); Aldi & Lidl (MS grew more slowly from 2% to 4% until end of 2010 and then accelerated in almost four years to 8%). Kamal Ahmed, Business Editor of the BBC, suggests that the position of Tesco has been eroded due to structural changes in retail attributed primarily to online shopping, overall weakening position of the four big chains, and customers who want “smaller daily top-up shopping”. (3)

It seems early to predict if the recent slip in MS is a sign for an ongoing decline, and it depends very much on how Tesco will react. As already indicated by CEO Lewis, Tesco is going to reduce its range of products. It may have to consider the scale of its Express sub-chain, that might got too large. It will have to carefully assess if it can and should compete again hard over price with upcoming discounters or develop and enhance other competitive advantages like shopping-related services and in-store design. Tesco is already in the midst of a project to re-model and improve the layout and design of its stores (“Transforming Our UK Stores”). While part of this work is dedicated to improving their Extra stores, Tesco’s management may want to consider alternative approaches to these stores. For instance, re-arranging the store as a cluster of several autonomous shops under the same roof (e.g., food & grocery; personal care; home improvement & gardening; repairs) which shoppers can visit independently and pay at separate cashiers.

Extended Lines of Business

Tesco has added a variety of services “in a supporting role”, that is, they do not intuitively belong in a food and household merchandise retail business but they may be regarded as facilitating acquisition and fulfilling complementary needs of customers who come to shop at the chain-stores. But even under this flexible definition, Tesco may have reached too far. Consider just the next few examples:

  • Tesco Bank provides, in addition to current accounts, also savings, loans, and credit card services (even car insurance and travel services are available);
  • Tesco Mobile offers mobile telecom service packages and smartphones, and has even introduced its own-brand tablet device “hudl” (generation 2 just launched), acting as a technology company;
  • Tesco operates a network of gas stations for shoppers to fuel their cars;
  • Extending from beauty and cosmetic products for personal care, Tesco is also in the healthcare and pharmacy business, supplying medications, medical devices and NHS-approved services;
  • Internet services (broadband, e-mail & storage) are also available from Tesco.

The top management of Tesco may have to show greater scrutiny not only with regard to the range of product types it displays in its stores (and online) but also those supplementary services and products, finding a correct balance between benefit and value they provide and the burden and complication they cause.

Tesco owns the analytic company Dunnhumby as a subsidiary to perform in-house the important work of analysing purchase and personal data of Clubcard customers, and exploiting new possibilities of Big Data, to produce intelligible insights. Yet, the retailer needs to make sure that Dunnhumby keeps to its original charter. Expanding services to external clients, for instance, could complicate its activities too much, distract the company from fulfilling its vital duties for Tesco, and expose it to unnecessary business risks.

Customer Service —  Tesco is repeatedly criticised that its in-store staff is not available and helpful enough. It has been further argued that over-reliance of the retail chain on automatic self-service scan & pay posts in its stores (instead of human cashiers) signals to customers that the staff tries to avoid contact with them. These customer concerns are worrying especially given the difficulties in shopping at large and product-crowded stores. Problems with customer service may better be resolved in parallel to issues of merchandising as well as store layout and interior design to obtain greater improvement in customer-shopper experience.

Tesco has made great effort to execute an inclusive Brick & Click approach in its retailing business, not to foresake any of the physical and online channels. The retailer furthermore works to keep the channels inter-linked. It established, for example, a Click & Collect service —  to their convenience, customers can make the order online in the morning before work and pick-up the shopping package from a store of their choice (out of 260) on their way home. It is a demonstration of effort in the right direction.

Reaching Internationally — Tesco is operating store chains in twelve countries beyond the UK, either under direct ownership or through franchising and co-operation with local retail chains. Besides nearby Ireland, the group’s overseas reach is mainly into Central and Eastern Europe (e.g., Czech Republic, Poland, Hungary, as well as Turkey), and Asia (e.g., India, Thailand, South Korea). A discussion of global operations should take into account economic, cultural and legal considerations with respect to each country. For example, operations in China had to be ceased; they are expected to restart in a new formulation with a local chain. Nonetheless, the venture of Tesco in the US, that lasted between 2007 and 2013, is knowingly the most damaging and embarrassing for the company. Its Fresh & Easy chain of neighbourhood supermarkets on the West Coast was hit by a strong opposition from US-based strong retailers, mainly Wal-Mart and Trader Joe, and in addition its approach was not well accepted by the American consumers. Tesco eventually had to fold out and leave the country.

Vis-à-vis the slip in market share of Tesco in the UK, sales of the retailer at home dropped by 2.6% in first half of FY 2014/15 (Feb.-Aug. ’14) compared with the same period last year. Like-for-Like sales (same-stores, excluding petrol) fell by as much as 4.6%. However, the more alarming outcome for stakeholders and analysts about Tesco has been a decline in profit of 55% in the UK (trading profit for H1 stands at £499m post-correction out of  £23,566m in sales, a margin of 2.3%). (4)

Overall, the sales of Tesco group (£34bn) fell 4.4% and trading profit (£937m) declined 41%.  Both Asia and Europe have seen a fall in sales, though profits in Asia dropped (-17%) and in Europe they increased (+38%). Markedly, Tesco Bank  has enjoyed a rise in both sales (4.6%) and trading profit (16%), to the envy of the retailing business. Analysts doubt that Tesco can overcome and offset these declines by end of the financial year in February 2015. The upcoming Christmas and New Year season is clearly crucial for Tesco. It is also needed as an injection of optimism for its share price that fell from nearly four pounds to £2.50 in the past two years, and then dropped furthermore to just £1.50 in September, recuperating somewhat lately to a little below two pounds.

Undoubtedly Tesco has made positive moves into the 21st century to enhance the consumer shopping experience in its brick-and-mortar stores, establish its presence online, and strengthen endurable relationships with its customers. Yet, improvements it achieved have been swollen in the wave of expansion in different directions, wherever it seemed possible and connected somehow with its main field of business. It is, therefore, ever so important and desirable for Tesco to identify and focus on those areas wherein it is more competent, especially with respect to improving the quality of shopping experiences of individual customers.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) Tesco Group Interim Results: Financial Performance, H1 2014-15 (26 weeks ended 23/8/14), Press Release 23 Oct., 2014 http://www.tescoplc.com/index.asp?pageid=188&newsid=1074.

(2) Tesco Admits Accounting Missteps; Stock Slides, Stanley Reed, International New-York Times, 23 Sept. 2014

(3) Tesco Share Slumps After Raised Profit Error, BBC News: Business (Online), 23 Oct. 2014 http://www.bbc.com/news/business-29735685

(4) Ibid. 1

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