The woes of Tesco have been analysed in numerous ways by numerous journalists since the announcement of the £250m error in their accounts.
That is indeed a very big error and presumably not just a case of someone falling asleep at the wheel. Many commentators suggest that there is more bad news in the pipeline.
In the past I have talked about brand equity life stages – from rising stars to orbiting stars to falling stars. My theory is that every brand moves through these life stages whether it’s over a few years or decades.
When brands drift into the falling stars phase life becomes very difficult indeed.
Falling stars attract more and more bad news and changing the climate of opinion is like pushing water uphill.
Yesterday evening I called in at my local Tesco Express to pick up a few groceries during the six to eight rush hour. Of the six checkouts just two were manned and the queue was at least 20 deep. Around me people were muttering about the poor service and “no wonder Tesco have problems” was the general conversation. I have heard local people say numerous times that they hope Waitrose takes over the store one day.
The cause of the hole in Tesco’s accounts appears to be the trading accounts they have with suppliers. These will involve taking cash for promotions, shelf space, advertising etc in advance – so therefore not a true reflection of actual trading performance. I wonder if this has been a road crash in the making for years?
When I worked at Cadbury a very long time ago the company promoted many of its brands on TV. Who can forget the great Flake ads?
Blackmail and bullying
But slowly Cadbury stopped advertising its brands and one big reason was the growing pressure from the major grocery retailers asking for cash to stock the range – basically blackmail.
This had two massive effects over time.
Firstly advertising became impossible for many companies due to funds being diverted to retailers. So many well-known brands slipped off the radar completely.
Secondly the big retailers had found a stealth tax they could levy on suppliers to prop up their own margins. They were not earning this money from their skill as retailers but through strong-arm tactics bleeding suppliers.
I have worked with numerous brand owners who struggle to find sufficient funds to advertise their assets because of this pressure but they have been too scared to deal with it as loss of distribution can kill any business.
On the bullying culture allegations made in the media, I have a real example. A good friend of mine who worked for a major brand owner transferred from marketing to sales, as a national account manager.
He was given a well-known grocery retailer as a customer and on his first visit the buyer would only address him via a glove puppet throughout the meeting. What kind of culture condones behaviour like that?
My guess is that if trade marketing is unmasked as the reason for the black hole in Tesco’s accounts and this becomes properly public it could cause a major backlash.
If you work in the Cadbury factory and learn how Tesco is squeezing the business – and your livelihood – you might just boycott their stores.
I would speculate that, in future, retailers will need to declare their trading relationships with suppliers to maintain public support.
If they don’t they’re in danger of slipping into the ‘falling stars’ category we described earlier and this is to be avoided at all costs.
As Tesco is finding out.