Tomorrow's Retail World – speech by Matt Atkinson, Chief Marketing Officer

25 Jun 2013

Speech to the British Retail Consortium Symposium

Matt Atkinson, Chief Marketing Officer, Tesco

Speech to the British Retail Consortium Symposium, 25 June 2013

Tomorrow's Retail World


I’ve worked in retail for many years. But never before has there been such rapid and profound change as we see today.

A fundamental change not just in how people shop, but how they live their lives, and what their expectations are of the companies they spend their money with. These are seismic shifts, and require all retailers to look again at all aspects of how they serve their customers.

Change in the way people shop is being driven by the digital revolution. It is highly disruptive but that disruption creates extraordinary opportunities, and I’m going to talk today about those opportunities – not just in terms of what retailers sell and how we sell it, but how we communicate and behave as organisations, and how we can use those opportunities to make a difference to the world around us.

The most important principle of retailing remains the same. And it is this: the best retailers have always been built around their customers. Logic which is as true today as ever.

There is a big change though: the number of ways we can interact with consumers has grown exponentially. In tomorrow’s retail world the customer is in charge, and will choose how and when they interact with us from a wide range of options. For Tesco, it requires us to be the most accessible retailer across all formats and channels, innovating on behalf of our customers

It’s a global revolution. Let’s consider China for a moment: the statistics there tell their own story. 55% of China’s 330million smartphone shoppers have shopped online, and while it might not be familiar to many people in this room, the most powerful advertising medium is something called wechat, a Chinese mobile text and voice communication service.

Here’s an illustration of how retail has changed in the UK.

The words on this slide probably mean nothing to you – they certainly meant nothing to me. But they would mean something to you if you were a member of the Phandom – fans of two cult Youtubers who call themselves AmazingPhil and Danisnotonfire – who are now BBC radio DJ’s.

The point of this slide is to show that communication today can’t be top down. We have to empower our people to enter into conversations – face to face or virtualy –connecting us to our customers when, where and how they want. And if you want to see the reach of this conversation, look at the number of retweets. I think I can safely say this wouldn’t have been a conversation Tesco would have been having even two years ago.

You may think that a quirky example, but I am really excited by the opportunities the digital age offers us to serve our customers better. And to capitalise on those opportunities requires a new type of business, new skillsets and a new relationship with customers.

Technology is the key enabler which will allow us to create the retailer of the future, and the aim has to be to create a seamless blend between the stores and the digital business. This year we will invest £500m of our capital spend to technology and the pursuit of that goal.

What’s so exciting about technology is that it is enabling retailers to develop innovative new services relevant to the way customers are living their lives today, and then to evolve those offers as we understand more about our customers. It means we can come up with innovative products and services which customers would never have imagined they needed, but rapidly become indispensable.

The evolution of online grocery is an example. We have a market-leading, and profitable, online grocery business. But for those shoppers who didn’t want to wait in for a delivery, or pass a store on the way home from work, how could we combine the convenience of having someone else pick the shopping with the ease of dropping by a store when they’re passing?

That was how our drive through grocery model was born. Its success has surpassed our expectations, and drive through grocery is now in 150 stores around the UK, complementing our home delivery service which continues to grow strongly.

But what does this growth of online shopping mean for our big stores? As you know we called an end to the space race last year, but we see a bright future for our existing stores, even the largest. We have an outstanding portfolio of stores in fantastic locations, a portfolio our competitors would kill for, and they are at the heart of our plans for the future.

What will happen is that their function will change. And many will have to get smaller. Take the example of Stockton on Tees, where we have a 120,000 sq ft store - which is simply too big. We’re reducing the trading area to 80,000 sq ft, are repurposing the mezzanine area for a gym, and are planning a soft play area on the ground floor.

What stores are best for is the things you can’t replicate online. Our stores should be the hubs of the communities they serve. That means providing friendly personal service to those who shop with us, and great counters offering genuine retail theatre. But it also means using our space differently, which is why we’ve been investing in exciting brands like Giraffe and Harris & Hoole, as well as looking at other creative leisure uses like the ones I mentioned in Stockton.

Brands like Giraffe and Harris & Hoole will play a fundamental role in changing our stores into relevant and compelling destinations, places our customers want to spend time and meet their friends, not just places to complete the weekly shop as quickly as possible.

The biggest challenge for the retailer of the future is attracting and retaining a customers’ loyalty. The digital age puts the customer in control – just being the nearest store to them is no longer enough

But again, there is a huge opportunity. If you can tangibly reward customers for their loyalty, and surprise them with innovative products and innovative ways of providing them, they will respond. Clubcard, and the power of the insights, gives us a unique opportunity in this area. The key is personalising the offer, and making it relevant.

The breadth of the Tesco business is a huge asset in this environment. For instance, the main focus of Tesco Bank today is not about being the biggest bank in town, but about being a trusted provider of great products and services to loyal customers who are members of Clubcard, and we can see that this reinforces their loyalty.

Another example is our digital entertainment offer. For many years Tesco has been one of the leading retailers of film, music and books in the UK in physical form from our stores. It’s no secret that these categories are declining. But the digital revolution enables us to offer exciting new ways of providing our customers with entertainment products direct in their homes, or on the move

That’s why in March 2013 we launched Clubcard TV using the blinkbox platform, a service providing family friendly films and television series to our most loyal customers – free of charge. These are services our customers and their families love. What they love is that we’re surprising them, by offering them a little thank you, from us to them, in their own homes.

Later this year we’ll be launching blinkboxbooks and blinkboxmusic as we expand our digital entertainment offers, making the most of the other exciting businesses we’ve acquired, WE7 and Mobcast, as well as blinkbox itself.

In fact Tesco is one of the top three digital entertainment brands in the UK, and we’ve just appointed Michael Comish, the founder of Blinkbox, to a new role as group digital officer, overseeing a team of 350 colleagues specialising in digital and based in London. Having cutting edge digital skills at the heart of the business – not at arms-length just because it’s the done thing - is essential to making the profound changes any company needs to become the retailer of the future

But creating the retailer of the future is about more than what we sell and the channels we use to sell it. It’s about how we behave as a business, and our culture. Customers’ expectations of the businesses they shop with have grown enormously – they want to have confidence that they spend their money with businesses which do things the right way.

Transparency and openness will have to be at the heart of the way organisations like Tesco think. Not just with customers, but suppliers, regulators, politicians, NGOs too – all the stakeholders who are interested in our business. Consumer businesses by their nature are in the public eye, and we have to respect that and make ourselves open and accessible to the world around us. That’s why we’ve committed to opening up our business

Again, this is another example of where digital can help. When like many retailers we were affected by the discovery of horsemeat in four of our products earlier this year, we committed to more direct relationships with farmers. We have started the process of opening up our supply chain, so consumers can go online and find out exactly how their food is being made and what goes into it. Simple, honest, human – no spin, just an open dialogue with our customers.

But perhaps the biggest opportunity for retailers in the future is that they can be the driving force for social change. Look around the world. Governments have run out of money. There is no longer a big spending, top-down approach to change. Real social change in the future is about partnerships between business, government and the not for profit sector.

If you think about all the big challenges the world faces – the environment, food security, and creating jobs in the new global economy – all of these require action from the retail sector. No government can do it alone. And we as a major retailer can lead the positive change by harnessing our operational capabilities and working with our partners across the supply chain. Think of the energy, innovation, and sheer power we can create if we pool our efforts and work together

That’s why we have launched the Big 3, the three major issues we believe Tesco can use its scale for good on a global basis. They are food waste, tackling obesity through providing health choices and tools that enable health living and critically creating opportunities for young people – all areas where we are confident we can make a real difference, for our customers, and for the wider communities and societies we operate in

Take food waste as an example. Right now, around a third of the world’s food is lost or wasted. That’s a massive issue for the future – as there are major concerns around how we can feed growing global populations affordably, not to mention the environmental impact of all the food which is going to waste. We are big enough galvanise change at every level – from the farmer’s field to the customer’s fridge. And by doing so we can help our customers save money too – the average UK family wastes £700 a year by throwing away food they don’t eat.

Making the type of changes I’m talking about isn’t always easy, and can’t be done overnight. But the scale and speed of change demands retailers move at pace. There will be challenges, but there is no option but to face them head on, and embrace them.

I am excited about the opportunity to help shape the future of retailing, and so are my colleagues at Tesco. Why? Because it will mean us making a positive difference to the lives of our customers, and to the places where we operate. The prize is huge, and I’m confident that by focusing on our core objective of making what matters better, together, we at Tesco are building the retailer of the future.

 

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