Institute for Simplicity

Consulting Based on the Principles of Simplicity

Tesco: Caught by complexity and What is Top Management good for?

Artikel vom 12.02.2015

The British retailer Tesco generates revenues of about 100 billion USD yearly and is one of the largest retailers in the world. Lately there has been lots of pressure on them by Aldi and Lidl. Tesco´s sales and earnings have been hurt. Customers go away and shop more and more at german discounters who successfully expand in the UK. The discounters offer every day low prices, no promotions, no loyalty programs (ALDI: „Loyalty does not need a card“), easy shopping, huge savings of money and time, no tricks how to move customers through the store and manipulate what customers should buy. Simply a very customer-oriented concept.

Tesco sells 28 types of Ketchup, Aldi only one! Tesco has 98 different items of rice in their assortment, Aldi sells only 6! While Tesco offers the incredible number of 283 different sorts of coffee, Aldi offers only 20. The assortment of Tesco is purchase-driven. Aldi´s business is customer-driven. All those products get into Tesco´s assortment because suppliers pay for it. Aldi has never accepted any of these payments. Their assortment decisions only depend on customers´ acceptance. Each item has to proof itself by high sales. Aldi´s profits come from sales while Tesco generates a lot of money by extra payments from suppliers.

90.000 items at Tesco generate enormous complexity cost (Aldi sells about 2000). These are hidden cost in the organization, IT and processes. Every item has to be negotiated, ordered, delivered, paid, stored, placed into shelves – no matter whether customers want to buy the product.

The understanding of complexity and its hidden cost in organizations is a rare ability in most companies. Few managers are aware of the effect of increased assortments, additional models or variations of existing products. 

However, the real scandal at Tesco is not the huge assortment. It is the fact that Top Management of Tesco now asked Boston Consulting Group to help reduce the number of items by 27.000. One may wonder what qualifies BCG to do this task and why Tesco´s management is unable to do such a task themselves. Obviously, Tesco has outsourced the management of its company to external consultants. Managing the assortment is the core task of every retailer. Tesco´s issue is not a too large assortment but bad management. What is Tesco´s management doing all day long? Surely, BCG will come with wonderful sophisticated tools to optimize the assortment and to identify which items to drop and which to keep (example: items with high margins to secure profits). All this with the money of the Tesco shareholders.