BCC Annual Conference 2019 speech by Dave Lewis

28 Mar 2019

Dave Lewis speech to the British Chambers of Commerce Annual Conference 2019

CHECK AGAINST DELIVERY

Thank you. And thank you to the Chambers for the great work you do.

You work tirelessly to help business thrive and grow. It’s invaluable and greatly appreciated.

Tesco marks its centenary this year.

I’d like to start if I may, by dipping into our history.

Not to be self-indulgent but because after 100 years, our value – like other retailers - reaches far beyond the checkout and shopping basket.

And really that’s what I want to talk about today: The importance of shops to Britain and how their value to our communities is now threatened.

First of all, why?

Second, why that threat matters?

And, finally, what we need to do about it…?

So, to Well Street Market 1919. Where our story begins.

A story about how a small market stall started by one young man, changed the face of British shopping.

That young man was Jack Cohen.

He grew up in the East End and served in the Royal Flying Corps in the First World War. But when he got back, he didn’t follow dad into the family tailoring business.

Instead, Jack took his £30 demob money, bought some surplus army food and got himself a pitch.

Jack was a grafter. A family man. He worked hard to give customers what they needed at a time when they were struggling to put food on the table.

He sold all kinds of things. Pickles. Posh jam. Russian biscuits. New Cornflakes from America.

He was a wholesaler too. Supplying other barrows. All over London.

But it was tea that gave Jack his big break. He did a deal with a trader called TE Stockwell, repackaged tea into affordable little paper bags and sold it at affordable prices to eager Londoners.

They needed a name. So, they took the T-E-S from TE Stockwell and the C-O from Cohen putting them together to make…TESCO. An iconic brand was born.

By 1929 Jack opened the first Tesco shop in Burnt Oak. 100 more followed in just ten years.

And when Britain went to war in 1939, this time Jack fought on the home front…for fair food rationing. Working with Government on a simple points system. Everyone treated equally. Everywhere. Rich or poor.

After the war, Jack visited the States bringing back self-service. Britain’s shoppers took time to get used to it, but 10 years later it really caught on.

Green Shield Stamps followed. “Something for nothing” as Jack would say.

They became a national phenomenon and were important to Tesco’s fight against resale price maintenance in the sixties.

Superstores opened out of town with handy bus services.

And when (in the late 70s) the next generation of management took over from Sir Jack as he was now called, the ideas kept coming.

Tesco petrol stations tore up the rules of fuel retailing.

Little innovations came from listening to hundreds of thousands of shoppers…

…One-in-front cut queues. Baby changing for mums and dads. Just two of over 100 innovations captured in that phrase – Every little helps.

Clubcard was groundbreaking.

New formats. Metro. Express.

Tesco Bank. Mobile…

From one market stall on Well Street…to a Tesco within 15 minutes drive of 95% of the population.

An incredible journey.

But, with scale comes huge challenges and huge responsibilities.

Early this decade we lost sight of the customer. We lost sight of our core purpose…of our every little helps mantra.

Lost sight of those responsibilities…and by 2014 we were in trouble.

Back then a competitor CEO described my new job as “open-heart surgery performed in public”.

He was mistaken.

There was nothing wrong with the heart of Tesco. It was always strong.

But, when I visited stores, colleagues said they felt let down.

They wanted to live up to Tesco’s values but they couldn’t.

Not without leadership doing the same.

Those words ring in my ears today.

For the last five years we have been painstakingly rebuilding trust in Tesco - recommitting to our values from boardroom to checkout.

We used our purpose – Serving Britain’s shoppers a little better every day - to turn back to face the customer.

And, if there is one big lesson from going wrong and getting back on track, it’s that:

Clarity on values and purpose really matters…

…but living up to them matters even more.

Earlier, I missed out one pivotal piece of our history.

Back in 1984, an elderly customer of ours, Jane Snowball up in Gateshead, made the very first home delivery order. Placed through her telly on Teletext.

Pressing those buttons, Jane started a revolution…

Fast forward and Tesco delivery and grocery home shopping has become the biggest in food delivery in the UK.

Of the total £380bn UK retail sales, e-commerce takes 20%.

That sales shift comes on top of the rise of convenience and a decade of fragile consumer confidence. Buying behaviour has changed.

We’re shopping stores differently.

Single weekly shops becoming multiple trips.

Online to offline. Virtual to physical.

All with instant price comparison in the palm of our hands.

We expect one seamless experience within one brand ecosystem.

Mobile order and pay. Frictionless checkout. Self-scanning. Delivery. Click & Collect…

There’s never been less delineation between channels than now and retailers are having to re-engineer business models…while being squeezed by shifting demand and rising costs.

Our industry is at a tipping point and the value of retail to this country is threatened.

Retail in 2018 was brutal.

Store closures and failing businesses.

35,000 employees impacted by the insolvencies of just 8 large retailers.

61,000 retail jobs lost between March and September alone.

Followed by a disastrous November…

…then for many, the worst Christmas in 10 years.

But why does it matter and should we care?

Short answer: Yes.

There are three layers of value from retail.

Value to the nation as a whole.

And to local communities.

To the customer.

Nationally…

It’s the largest private sector employer.

9% of the total workforce or 3 million jobs.

One third of those held by under 25s.

14% of all apprenticeships.

Retail is the second largest contributor of tax at £14.5bn.

It’s a vital route to market for agricultural produce and manufactured goods.

Two years ago we asked KPMG to analyse Tesco’s socio-economic contribution in the UK…

Tesco’s direct Gross Value Add is £6.4bn.

Paying around £1.2bn in tax.

And for every £1 we take at the checkout we return 73p to our suppliers.

In total we spend around £33bn with them…growing demand and building volume for their products. Creating efficiencies as we do.

Taking into account supply chains, our total GVA nationally is over £37bn supporting just under 3/4 of a million jobs in the UK across the country..

Given that national picture, retail (and particularly food retail) is without doubt, strategically important to the UK economy.

Yet retail has no place in Industrial Strategy.

It’s treated differently from other so-called traditional industries.

I struggled to understand the logic of that…

When it comes to helping valuable industries make structural transitions…

…why wouldn’t we shepherd retail’s economic value alongside say, cars or steel.

We don’t.

And frankly, the way we talk about retail jobs in this country makes me angry.

Good retail jobs form the base of our economy…developing skills and confidence that transfer to other workplaces and sectors.

For many, we’re a good start to working life.

For others we’re a way back into work. Flexing around family commitments.

For many more we offer a lifetime of progression.

There’s no better example than our own Tony Hoggett. He started on the shop floor/bakery. Worked his way up at home and abroad. Before returning to take up his current role as Group Chief Operating Officer. Age 16 he started getting on. He’s still going strong and now runs a team of 300,000 in the UK.

Good retail jobs also balance out our economy…they’re distributed across every region.

The industry makes local community contributions everywhere:

Take Tesco in the North West…we’re connected to 2.1% of all jobs in the region. 16,000 directly employed. A further 45,000 supported through suppliers. We add £3.3bn to the region’s economy.

It’s similar in all parts of the United Kingdom.

  • Scotland 42,000 jobs supported.
  • Yorkshire and Humber over 51,000
  • The South West over 48,000
  • West Midlands over 55,000.
  • Northern Ireland over 10,000
  • Wales 22,000

Getting even more granular, you can punch your postcode into our Value In Your Town calculator on our website…

…and if for example, you’re from North Nottingham you’ll see Tesco’s local economic contribution is £15.3m…paying £2.1m in rates…and creating 600 jobs.

I could go on, but the other part of our local contribution is through:

• Community Food Connection and Neighbourhood Food Collection – 60 million meals
• and, of course…the Tesco Bags of Help scheme…as Tesco carrier bags are filled, we collect, award and distribute grants to local community projects around our stores. 17,800 projects last year alone. £67m awarded since 2015.

For customers our value is…

…mainly as a reliable, accessible source of quality, affordable, fresh food.

Over decades, supermarkets have made a significant contribution to reducing the proportion of household income spent on food.

Our supply chains bring food to the home faster, more efficiently and with fewer touchpoints. That means lower prices, more choice and food that’s fresh in the fridge for longer.

We’re making a big contribution on health too.

Working to reduce sugar, salt and fat content across thousands of everyday products…

…while our Helpful Little Swaps gently nudge shoppers to healthier choices.

The value retailers bring is immense…

The benefit is felt nationally, locally and at home with customers…

…but there are two things we must consider urgently if we are to steward that value effectively for the benefit of the country .

First, the Apprenticeship Levy.

Since 2012 we’ve supported nearly 10,000 apprenticeships.

They help us to address skills gaps like our LGV driver apprenticeship…where we started out with just a handful of apprentices. In the next few years that will swell to 150 helping us to grow…

Our apprenticeships cater for all ages in all geographies and 60% of participants are women. It’s a vital pathway into employment.

But, the policy framework for apprenticeships is broken. I agree with the National Audit Office when it questions the value, effectiveness and viability of the programme.

Not enough flexibility. Too open to abuse.

Tesco can only use 20% of money paid-in.

We can’t use it to train for new skills we need.

So, in effect, it’s an 80% tax on training

It makes no sense.

A couple of things need changing:

Backfill costs for retailers should be covered from the pot and administered in the same way as incentive payments.

And functional skills training (before apprenticeships start) should also be funded from the levy pot…you’d get fully focused apprentices from the start improving performance with less time away from the day job.

Tesco alone wants to take on more but we are barred from doing this cost effectively.

Many other businesses are frustrated in a similar way…

I hear the right noises but it’s time for the Government to act and to unlock thousands of new apprenticeships.

Second, we need to rethink our business tax system.

Retail has the highest cumulative tax bill in the UK driven by the highest property taxes in Europe….Second highest in the OECD.

Let me illustrate: a new UK supermarket of 50,000 sq. ft. would be billed £500,000 in annual property taxes. In Europe or the OECD it would be less than £250,000.

Retail pays 25% of total business rates while being 5% of GDP.

Just 10 companies pay 40% of all retail rates. Tesco alone £700m – double compared with 10 years ago.

Rates have become a rising tax on investment while profit taxes have fallen.

They’re a drag on growth and competitiveness.

They no longer reflect the balance of sales so...

I believe it’s time to consider an online sales levy.

2% would raise £1.5bn.

That could fund a rate cut of 20%... levelling the tax playing field between physical retailers and their online competitors.

It’s compatible with UK and EU law.

And it’s revenue neutral to HMT… incentivising investment and creating a more sustainable and growing tax base in retail.

I hear the argument that this levy taxes the future.

I would argue business rates are killing the present.

Damaging our economy.

And don’t doubt retailers have no choice but to pass through the extra costs…it’s hurting shoppers and households too.

Whatever Brexit brings (and we have done all we can to prepare on behalf of colleagues, customers and suppliers), it does not change the dynamics or priorities I describe today.

380,000 retail jobs are predicted to be lost by 2022.

If the Government acts now it could benefit millions of businesses…

…across retail and therefore the wider supply chain.

In the process, saving thousands of jobs…

…preserving social and economic value across our villages, towns and communities.

This goes far beyond the shopping basket.

Beyond products and services.

Beyond affordable fresh food.

Shops are more important than that.

Food and feeding the nation is more important than that.

So, while I don’t expect everyone to wake up worrying about the nation’s shops…

I hope we start the next 100 years in a country committed to the ideas, energy and skill of traders…to this nation of shopkeepers....because strong retail makes a stronger Britain.