UK: Are we falling out of love with Tesco?

The growth was so rapid that few could fully comprehend it. Then Sir
Terry Leahy, the chief executive, nailed it with eye-catching
precision. Tesco accounts for £1 of every £8 spent at British
shops, he told a room of analysts in September 2003. Pithy, stark and
a staggering measure of dominance, it was a statistic that would be
quoted endlessly in the years that followed.




Nearly five years later, the figure is closer to £1 in £7, an
unprecedented success story in British retailing. But that is also the
problem. As the biggest beast in the jungle, Tesco has been accused of
monopolisation, exploitation and bullying anyone who dares to stand in
its way. It has become a lightning rod for every critic of corporate
power, homogenised high streets and the malign influence of
multinationals in the developing world.




The past week alone has seen the supermarket giant battered by
criticism - over exploited textile workers in India, over the rearing
of chickens, over importing vegetables from Zimbabwe and by US
presidential hopeful Barack Obama over the union rights of its staff
in America. Another day, another negative headline or three. After a
disappointing Christmas, and as its rivals claw back market share,
Tesco might just be facing the beginning of the end of its love affair
with the British consumer.




That £1 in £8 figure now seems like the preening 'rallying cry of
someone who had just reached the top of the tree', said Bryan Roberts,
an analyst at retail research group Planet Retail. 'It was a boastful
thing for the market leader to say. The tide turns against anyone who
is seen to be in a dominant position.'




That summer five years ago, when the City hailed 'gobsmackingly good'
results by a company that 'hasn't put a foot wrong', sent Tesco into
the stratosphere with consistently record-breaking profits. Last year
it made £2.8bn with a market share double that of its nearest rival,
Asda. With sales of £52bn after a massive overseas expansion, it is
now ranked fourth biggest retailer in the world behind Wal-Mart,
Carrefour and Home Depot, up nine places since 2001.




As Adam Leyland, editor of the Grocer, put it: 'It's suffered from
being the 800lb gorilla that everyone likes to take a pop at. It
definitely faces more challenges than it did five years ago.'




Among those challenges are the credit crunch, reinvigorated
competitors and a hostile climate of opinion. This month its shares
fell to their lowest level for two months after a trading update
showed growth half that enjoyed by rival Morrisons. Tesco also
admitted that Asda and discount outlets such as Aldi were 'having a
moment in the sun' in the tougher economic climate. Its overall market
share has fallen fractionally.




Leyland said: 'Three years ago [Tesco's] closest rivals were in
disarray. Sainsbury's share price had gone to the dogs and Asda and
Morrisons were struggling, but they've all now got their acts in order
and competition is far fiercer. The credit crunch has also benefited
budget supermarkets like Iceland.'




With food prices rising at their fastest rate for more than a decade,
shoppers are changing habits. Tesco, Sainsbury's and Asda responded
with a round of discounts in what could yet become an all-out price
war.




Robert Clark, an analyst at Retail Knowledge Bank, said: 'There is a
lot of coxing and boxing going on to attract consumers who might want
to trade down. Consumers are going for value, experimenting with
own-brand products and three-for-two offers, and in general there is
cannier shopping going on. As a result stores like Asda, Morrisons,
Aldi and Lidl are doing better.'

Clark likened the situation to the mid-Nineties, when Sainsbury's was
the market leader but lost its crown after it was seen to become
arrogant and lose touch with shoppers - an environment that enabled
Tesco to expand rapidly.

Last Friday Tesco's annual meeting marked the culmination of a
bruising week. Problem upon problem had been piling up in the in-tray
of the company's media firefighters. Separately they were the kind of
negative stories that are run today, gone tomorrow. But together they
began to look less like bad luck and more like a trend.




The most prominent thorn in its side was celebrity chef Hugh
Fearnley-Whittingstall. The star of Channel 4's River Cottage series
put forward a resolution calling for Tesco to improve chicken-rearing
standards. It was soundly defeated, but the row ensured a torrent of
unwelcome publicity.




Fearnley-Whittingstall, who had to raise more than £86,000 to cover
the costs of his resolution being heard, said: 'I think it's succeeded
in putting Tesco on its mettle. I think we will see more
higher-welfare chickens in Tesco stores. This is a campaign that needs
publicity, so I don't apologise for the fact that it's got some. The
way chicken has been produced in Britain has been something of a
secret for some time.'




He argues that Tesco has failed to meet RSPCA standards and ensure
chickens enjoy the 'five freedoms' - freedom from hunger, discomfort,
pain and fear and the freedom to express normal behaviour. But Tesco
rebuffs the allegations: 'Tesco is working actively to improve animal
welfare and to keep chicken affordable for all our customers,' said a
spokesman. 'Our shareholders have voted decisively to support this,
and customers will continue to feel the benefit.'




At the meeting Tesco chairman David Reid said that the cost of a
standard Tesco chicken was £2.90 a kilo whereas a
Fearnley-Whittingstall chicken would be three times as expensive at
£8.99. Tesco has called on the Department for Environment, Food and
Rural Affairs to hold a meeting to discuss industry-wide animal
welfare issues. Tesco also came under attack over its fledgling
American chain's relationship with trade unions, which had already
stirred Democratic nominee Barack Obama to write to Leahy to express
his concerns. 'I am aware of Tesco's reputation in Britain as a
partner to unions,' Obama stated in his letter. 'I would hope that you
would bring those values to your work in America.'




The notion of the putative most powerful man in the world bothering
himself with Tesco would have been laughable only a few years ago.




Jim McLaughlin, president of the United Food and Commercial Workers
Union (UFCW) in Arizona, told shareholders and the board: 'We are here
to inquire why there has been no dialogue in the US, whereas in the UK
it is an established practice for Tesco to engage with unions. All of
our calls to the company have fallen upon deaf ears, so we are looking
to engage with the company at a higher level.'




Leahy responded by accusing the union of adopting a negative attitude
from the start towards Tesco's 60 US grocery outlets, which are
branded Fresh & Easy. He said: 'The UFCW has attacked Tesco from
day one and only showed an interest in damaging our business. Every
Fresh & Easy employee has the right to be in the union, but they
don't want to join.'




A Tesco spokesman added: 'We are in the process of recruiting 750
staff for the next phase of openings and are getting 13 applications
for every job. People are very happy with the pay and benefits we are
offering.'




Others at last week's annual meeting felt they were snubbed. The
anti-poverty charity War on Want alleged that Tesco is being supplied
by an Indian factory where textile workers struggle to survive on less
than £1.50 a day and a 60-hour week. A researcher had come to the
meeting from India and raised her hand at every opportunity but was
never called to ask a question.




Simon McRae, senior campaign officer at War on Want, said: 'They
ignored us but they obviously knew we were there. Terry Leahy came and
spoke to us for a couple of minutes at the end. He said that he was
looking at the issue, but didn't make much commitment in terms of
suppliers.'

Tesco said the charity had declined to divulge details of the
factories involved, to protect workers, but the decision not to name
names meant that it could not investigate. 'If there is an issue in a
factory supplying Tesco we will deal with it and ensure that the
interests of workers are protected,' said a spokesman.

Activists have also accused Tesco of bringing tons of produce to
Britain from crisis-torn Zimbabwe, where the economy is in meltdown
and President Robert Mugabe is restricting access to food. Dr Vincent
Magombe, director of pressure group Africa Inform International,
compared the retailer to 'hungry sharks who are feeding on the carcass
of a dead country'.




Tesco's position was defended by its new broadcasting manager, Sri
Lanka-born Dharshini David. The former BBC journalist provoked further
controversy by suggesting that Zimbabweans would not want the
vegetables sent to Britain. 'We are taking out the kind of vegetables
that aren't eaten much locally,' she said. 'These aren't the kind of
products that would make up the staple parts of people's diets in
Zimbabwe. They probably do need food, but they also need money, and
that is what we are providing them with.'




Such headaches have been coming thick and fast in recent months. In
April, after Tesco launched libel actions against three critics in
Thailand who questioned the supermarket's growth, its behaviour was
described as 'grossly disproportionate' by some of Britain's best
known authors. Mark Haddon, Joanne Harris, Nick Hornby, Marina Lewycka
and Deborah Moggach were among those who signed an open letter to
Leahy condemning Tesco for resorting to 'deeply chilling' lawsuits to
silence opponents, and urging it to 'impress your critics with the
force of argument, not the threat of imprisonment'.




Earlier, in February, the retailer also launched a libel and malicious
falsehood action against the Guardian when the paper incorrectly said
Tesco was avoiding up to £1bn in corporation tax on a series of land
deals. Tesco described it as 'a devastating attack on its integrity
and ethics'. The Guardian, which with The Observer belongs to Guardian
Media Group, has already acknowledged errors and apologised and has
offered to do so again.




Along with the avalanche of bad news stories, there are more
fundamental problems with Tesco's public image. It has become the
shorthand villain of the piece for campaigners who blame supermarkets
for driving local businesses out of towns and villages. It has 2,100
stores in the UK and is often accused of using its muscle to secure
planning permission despite the objections of residents. The Tescopoly
Alliance, an organisation of NGOs, unions and pressure groups, says
the number of inquiries from people anxious about new Tesco
developments has never been higher.




But the Competition Commission has just completed a two-year
investigation into the UK grocery industry, an exhaustive inquiry that
rejected many campaigners' arguments, including the assertion that
small shops were in 'terminal decline'. Commission chairman Peter
Freeman ruled that supermarkets were giving consumers a good deal, but
proposed several changes to the system, including a new planning
restriction to block dominant retailers from opening more shops. He
will also appoint a regulator to keep check on how supermarkets treat
suppliers.




Tesco argues that the findings amount to more 'red tape' and is
considering whether to appeal - it has until tomorrow to do so.




The phrase 'clone towns' was coined by Andrew Simms, author of
Tescopoly: How One Shop Came Out on Top and Why It Matters. He said
that Tesco's dominance had prompted a backlash: 'There has been a
massive change of attitude in the past three or four years. The
appearance of the likes of Tesco on the local high street used to be
seen by councils as a sign of economic progress; now it's treated with
a healthy scepticism. Rather than an attractive opportunity they are
now an unattractive necessity for a lot of people. There has
undoubtedly been a culture shift: the ground is shifting beneath
Tesco's feet.'

But, whatever the mood music, there is no sign yet of a major dent in
Tesco's hunger for expansion. Simms noted that City analysts believe
it has enough capital and land to double its current selling space,
and there seems little to stop it doing so. It also appears that
negative headlines about faraway places have limited impact for
consumers attracted by Tesco's prices, range and
convenience.

Philip Dorgan, retail analyst and head of research at Panmure Gordon,
said: 'If the average member of the public was really bothered about
these issues, you'd see it quite soon. One or two per cent of
customers is the equivalent of the profit margin, so they'd feel
it.

'It all comes down to
customers. There was the example of tomatoes, which in British
supermarkets are generally tasteless. Tesco thought why not invest in
making a brilliant tasty tomato, but when they tried it people made
clear they preferred the tasteless one, so they went back to that.
They follow the basic advice: listen to the customer and don't act too
quickly. As the sales figures show, they have still got their finger
on the pulse of the British consumer.'