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A lot has changed in three years… - A colleague message from Dave Lewis

John Allan

Chairman
Welwyn Garden City

1 Sep 2017

Three years ago today, Dave Lewis took up the role of Tesco Chief Executive.

Over the last three years, he and the entire Tesco team have worked tirelessly to turn the fortunes of the company around. I have been fortunate to work with the team for most of that journey and it is fair to say that Tesco is a very different business today than it was three years ago.

Dave has written to colleagues with his reflections on what we’ve achieved in that time, and I wanted to share his note here so that every stakeholder in our business can see the progress we’re making.

Of course, we still have further to go before our turnaround journey is complete, but I have total confidence that under the stewardship of Dave and his team, Tesco will continue to serve shoppers even better every day.

John Allan

Chairman

 

Dear colleagues,

Time has flown by, but as we mark three years in our turnaround, it’s worth taking a moment to pause and look back on our journey so far. We know we have more to do, but we have come a long way and I wanted to share some reflections with you.   

Three years ago we faced some very significant challenges. Fewer customers were coming through our doors, our volumes were down and our cost base was unsustainable. Perhaps worse still, our colleagues, suppliers and customers had lost trust in our brand and our business. We had disappointed ourselves and our investors with a series of profit warnings, our balance sheet had too much debt and we had ceased to pay a dividend. 

We also very quickly had to deal with the discovery of an issue in our financial reporting in September 2014, which seriously harmed our business, and lost us the trust of many stakeholders.

These challenges had an impact on our reputation, on the morale of colleagues, and on our finances – but in true Tesco fashion we faced into these realities with objectivity and transparency. As a team we focused on four key things, even when this meant implementing some difficult decisions and enduring significant consequences. 

  1. We put the customer back at the heart of the business

We went back to our roots and listened to our customers and our colleagues. It led to the articulation of a new purpose – serving shoppers a little better every day – to guide everything we do:

  • We reviewed our ranges to make them simpler to shop for customers and to make sure the products they wanted to buy were available. We reduced ranges by a quarter, while increasing space on shelves for our 1,000 top-selling lines.
  • We reduced our prices to become more competitive, with a focus on simple, clear and stable prices. In April of this year we reported that a typical basket at Tesco costs 6% less than in September 2014.
  • We launched Brand Guarantee, reassuring customers they will never lose out on their branded shop – and became the only retailer to offer instant matching and money off at the till.
  • We removed reasons for customers to shop elsewhere by investing around £300m in seven new, exclusive, fresh food brands.
  • We shortened key supply chains to give customers two days’ extra freshness on some of the most popular fruit and
  • We continue to innovate for customers, becoming the first retailer to offer same-day grocery delivery nationwide, and offering one-hour deliveries through our Tesco Now app in London.
  • Following a proposal from a colleague, in 2016 we introduced free fruit for kids in all our large stores, and have already given more than 20 million pieces of fruits to our youngest customers as they shop with us.
  • Our community programmes have grown in both awareness and social impact. In the last three years, we’ve raised over £21m for our health partnership with the British Heart Foundation and Diabetes UK. Bags of Help has helped award grants totalling more than £33m to over 6,400 community projects.
  • Food surplus donations in the last year, through Community Food Connection, have more than doubled compared to last year with over 10 million meals worth of unsold food donated to over 5,400 local charities. This was recognised recently when we were awarded the ‘Building Stronger Communities’ award at the Business in the Community (BITC) Responsible Business Awards 2017.

As a result of our work, we’ve seen sustained improvements across all of our key customer metrics, and record levels of availability. Earlier this year we reported our third consecutive quarterly increase in the number of customers recommending us as a place to shop, backing up a strong performance of six consecutive quarters of sales growth, as well as a steady improvement in brand perception measures in the same period. It is also encouraging to note that earlier in the summer we were awarded The Grocer magazine’s Britain’s Favourite Supermarket award, as voted for by customers, for the third year in succession and picked up the prestigious Grocer of the Year award, judged by industry experts, for the first time since 2006.

  1. We redefined our relationship with suppliers

We have completely rebuilt our commercial model, changing the way we work with our suppliers in order to focus on our customers:

  • We have moved to reduce the forms of commercial income from suppliers from 24 ways to just five - so we spend less time on complex negotiation, and more time on the things that really matter to customers such as quality, innovation and lower costs.
  • We have adopted a transparent and long term cost-based buying model, with consistent and fair standard payment terms that help grow our joint business with suppliers.
  • We created a single Product team responsible for the entire lifecycle of a product.
  • We are collaborating with more than 5,000 suppliers through our online Supplier Network, and we’ve launched a helpline to quickly escalate and resolve any issues suppliers face.
  • We are supporting British agriculture through our Sustainable Farming Groups – and the launch of our Fair for Farmers Guarantee means that every pint of milk we sell in the UK is 100% British, farmers are paid fairly, and every cow is well cared for.
  • We’re partnering with suppliers to use our combined expertise and reach to reduce overall levels of food waste in the supply chain and to make thousands of foods healthier through reformulation. With their support, since January 2015, we’ve removed 8,000 tonnes of sugar, salt and fat from over 2,000 products.

In 2014 the Groceries Code Adjudicator (GCA) launched an enquiry into Tesco’s payment practices, prompted by the information we shared. In June, the GCA named Tesco as the most improved retailer in our relationships with suppliers in her annual survey – reflecting the huge amount of hard work from colleagues to get to that place. We were also ranked top in the independently run supplier Advantage survey, and our own internal Supplier Viewpoint shows that suppliers think we are easier to deal with and fairer partners than before.

  1. We simplified how we operate and significantly lowered the cost of running our business

To reduce our cost base, and allow us to focus more time and effort on serving shoppers better, we have simplified virtually every area of our business since 2014:

  • We have reviewed our operations across the Group, in order to focus on our core food business – resulting in the sale of our business in Turkey, and several businesses in the UK, including Dobbies, Giraffe, Harris + Hoole and Tesco Opticians.
  • We started our turnaround by putting over 4,500 new colleagues into customer-facing roles in store to significantly improve service – and we have continued to invest every year since to ensure stores have the hours they need to serve customers.
  • We took the difficult decision to close around 60 unprofitable stores.
  • We also changed our service model in store – moving from night to day replenishment in 195 stores, stepping back from 24-hour opening in over 80 stores, and introducing new management structures across our formats.
  • We have announced changes to simplify our UK Customer Engagement Centres with the proposed closure of our call centre in Cardiff.
  • In our offices, we closed our former headquarters in Cheshunt last year and, most recently, we have begun to align our office teams to our new service model, reducing complexity and duplication in our structures while also bringing down our cost base.

These changes have been incredibly difficult and have impacted many of you, and I am very grateful for the professionalism and commitment that you have shown throughout. At every point, we have aimed to make changes in the most respectful and considerate way we can, and they have always been made to put the focus back on customers – allowing us to invest in our offer and become more competitive.

  1. We have implemented a corporate renewal plan with processes and controls aimed at helping and protecting both colleagues and our corporate reputation
  • We simplified our KPIs and made them more consistent, with the launch of the Big 6 in 2015.
  • We have reshaped our leadership team, who are today focused on clear turnaround goals, which will continue to be delivered through our values.
  • When we set out the three priorities for our turnaround, we put rebuilding transparency and trust at the heart of them – and implemented a transparent “speak up” culture as a focus for the leadership team.
  • We rolled out a new Code of Business Conduct across the Group, with clear guidance on speaking up, supported by face-to-face training of senior leaders and e-learning throughout the business.
  • We refreshed and increased our training for our Product teams on the Groceries Supply Code of Practice (GSCOP), and linked compliance with GSCOP to the Product team’s objectives.
  • We have launched a three year Finance transformation plan, to create a world-class finance function which delivers value and drives simplicity.

Over the last three years, these four areas have allowed us to face up to the past, and set our business on a more sustainable path as we begin to rebuild profitability. 

While the consequences of the accounting issues of September 2014 are still being felt and will be re-examined, particularly over the next few months, it’s important to remember that today we are a fundamentally different business to three years ago. We have faced into the consequences of our position and paid our fine to the Serious Fraud Office – having reached a Deferred Prosecution Agreement – and we have just launched a scheme to pay the necessary compensation to certain investors.

So it's time to look forward. We have plans to further improve the Tesco business for customers and colleagues, and of course we have the unique opportunity of our proposed merger with Booker and the aspiration to create the UK’s leading food business. Our focus now must be on maintaining our momentum and serving shoppers better – but we should be proud of what, together, we have achieved already. 

Thank you for everything that you have done over the past three years.

Dave

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