Based In a drab five- storey block, on an Industrial estate north of London, It hardly seemed a fitting location for Britain’s most successful retailer, and one of the world’s top three (behind Wall-Mart and Carefree). Its chief executive, Terry Alley, was similarly low-key. Sometimes slated as dull, restrained or lacking in charisma by profile writers, he was likened by one to “a lecturer in a consider university. “l But appearances can be deceptive.
Knighted in 2002, Alley was widely recognized as the architect of Deco’s spectacular transformation from the Auk’s number two supermarket chain into a global retailing powerhouse: multiplying sales and profits by more than 300%; taking one pound In every eight spent In Britain’s shops; becoming the country’s largest Internet retailer and biggest private sector employer; and expanding Internationally Into more Han a dozen countries, Including Japan and China (refer to Exhibit 1 for Flanagan data).
Analysts dubbed him “Terry Tests” for his unwavering focus and spoke glowingly of his ability to “turn every innovation into gold. “2 Business writers traveled up to head office in search of the “secret recipe. ” Typically, Alley treated them to a Tests ready- made meal in the windowless executive dining room – “we don’t do swanky as he liked to say – before revealing the “secret”: It’s this: never stop listening to customers and giving them what they want. It’s that simple. 3
If they were lucky, he might have added that the company had worked very hard to organize Itself “from A to Z so we listen to customers,”4 or else that the trick was “to watch everyone and everything and to learn from them quicker than they can learn from you. “5 But want lay Deanna tense pat statements* H what could others learn from Tests? T pull clear AT ten pace Copyright 2008 by MID – International Institute for Management Development, Lausanne, Switzerland. Not to be used or reproduced without written permission directly from MID. This document is authorized for use only in MBA 5 HARM by Dry.
Philip Stiles at Erasmus University – Rotterdam from February 2014 to August 2014. -2- MID-3-1955 1992-1997 Every Little Helps In 1979, Alley Joined the then “pile it high, sell it cheap” supermarket chain as a marketing executive. Deco’s reputation at the time was so shabby that a leading tobacco firm declined to acquire it, for fear of harming its own brand image. 6 But through the sass, under Ian Manchuria, Tests closed the gap with its market rival Kingsbury by investing heavily in centralized distribution and out-of-town superstores.
By the early sass, Tests was a much more efficient operation, but shoppers were rowing tired of it following Kingsbury lead. In the midst of economic recession, Deco’s share price and sales were hit harder than those of its rivals and Manchuria decided to call on his marketing director, Terry Alley, to help him put the company back on course. A large-scale customer survey confirmed that customers did not like Tests copying Kingsbury. Tests responded by adopting a new advertising slogan: “Every little helps. ” Over the next few years, the chain adopted a much more customer-driven approach that resulted in a series of innovations.
In 1993, it introduced the nine,” a range of 100 basic own-label goods in no-frills packaging – prompting analysts’ fears that this could undermine Deco’s previous efforts to reposition itself as a quality operator. 7 At the same time, Tests launched “First Class Service,” a training scheme aimed at encouraging store staff to be more helpful – and it instituted regular customer panels to monitor customer service improvements. The company set about trying to create “the best shopping trip. “8 The following year, the “one in front” queue-cutting drive was introduced, whereby a new till would open whenever a checkout line exceeded two trolleys.
It meant hiring thousands of extra staff, again drawing skeptical reactions from analysts. Tests also added a new type of outlet, Tests Express, linked to petrol stations and aimed at the “top-up” market. This gave Tests four distinct formats (refer to Exhibit 2), turning it into a contender for almost every potential development site. Then, in I-arrear 5, lesson unveiled Cellular, ten TLS notational loyalty card. Despite successful trials in 14 stores, the launch drew disparaging reactions. Experts advised that it might “alienate” shoppers or “inundate Tests” with more information than it could handle. The chairman of Kingsbury dismissed it as an electronic version of the long-abandoned discount stamps. Al As it turned out, five million shoppers Joined the Clubbers scheme in Just seven weeks, resulting in the fastest sales growth in the sector. 12 Collectively, these marketing-inspired initiatives lifted Tests out of its rut and put it ahead of Kingsbury in market share in 1995. They also propelled Alley into the position of deputy managing director in 1995, and Manchuria confirmed that he would soon succeed him. 3- Top of the Food Chain With retailing still very much a local activity, the newly promoted Alley managed to organize himself a visit to Wall-Mart’s head office, where he was welcomed and spent an afternoon discussing operations with senior executives. 13 The following year, Tests raised the emphasis on service by investing EYE million in hiring and training 4,500 “customer assistants” – blue-waistcoat’s staff whose sole role was to use their initiative to make shopping easier for customers – from unloading trolleys and fetching forgotten items, to answering queries and noting suggestions.
The company also started testing 24-hour shopping. Meanwhile, Tests continued to invest 20% of its profits in the Clubbers. 4 The top team recognized that it would only succeed if Tests was prepared to change the way it did business – including how stores were run and how marketing and business decisions were made. The main problem was the vast quantity of data. Just transferring it took 30 hours using the highest bandwidth connection available. Analyzing every purchase was not technologically feasible.
So instead, the dedicated consultancy working with Tests took Just 10% of the data once a week, to look for useful patterns. An early insight was the realization that in any single store, the 100 biggest spenders were as valuable as he bottom 4,000. 15 Of course, by June 1996, the competition – including Safety and Kingsbury – had launched their own versions of loyalty cards. But Tim Mason, recently promoted to marketing director, reckoned that they would not derive the same benefits: When you move first, customers see you are doing something for them, otherwise they know you do it to reduce someone else’s advantage. 6 In March III/, when Leanly took over as cancel executive, tenure were a Tee Internal concerns about his aggressive management style and occasional stubbornness, but the retiring Manchuria noted approvingly: Any CEO has to have a spiky side to him. You can’t be nice to everybody all the time. 17 Leases appointment was popular with analysts who described him admiringly as “a hard man” with “the common touch, important for a mainstream retailer. 18 1997- 2001 Competing on All Fronts Prior to taking over as chief executive, in March 1997, Alley drew up a prolonged strategy intended to: x Increase the core UK market Expand into international markets Grow the non-food side, and Extend retailing services. -4- The plan was to develop Tests as a brand, rather than a supermarket chain. Alley also announced that overtaking Kingsbury was irrelevant: No disrespect to Kingsbury, but we Just worry about customers. The only number one that matters is to be the shop that looks after customers better than anyone else. 19 Marketing people were quickly appointed to head up Deco’s product groups.
A Customer Insight Unit was also set up to analyze the business, customers and competitors – looking at issues such as why customers switch between supermarkets. Tests also introduced a variation on the “balanced scorecard” concept, dubbed the Steering Wheel (refer to Exhibit 3). Divided into four quadrants, it monitored ongoing reference for each store against individualized customer, staff, operations and financial targets. With equal emphasis on each of the four quadrants, the steering wheel supported the transition from a financially driven to a mission-driven organization.
Deco’s formal mission statement became: Continually increasing value Tort customers to earn tenet Title loyalty Having defined its values and priorities, Tests embarked on a massive training program for all of its 12,000 managers. The training focused on improved communication, providing greater support to front-line staff and addressing the actors that would make the workplace more effective. 21 Tests also introduced a number of Continuous Improvement Projects (Sips) with a shared aim of making the stores, and the business as a whole, “better, simpler, cheaper. 22 On the international front, Tests decided to sell off the troublesome Chateau chain in France – acquired Just four years earlier – and a good deal was struck at the end of 1997. Instead, Deco’s focus switched to the underdeveloped retail markets of Eastern Europe. Having steadily entered four countries since 1994 by acquiring local chains, Tests announced plans to co-develop new giant hypermarkets in Hungary, Poland ND the Czech Republic – with the additional retail space planned for 1998 set to match that of new openings in the I-J.
Building on its experience in developing markets, and with the economic crisis taking hold in Asia, Tests then seized the opportunity to buy into a chain of 13 Thai hypermarkets in mid-1998. This was followed by moves into Taiwan, South Korea and Malaysia over the next two years. As in Eastern Europe, local managers ran the operations, with Tests providing the big systems and supplicant support. The deputy chairman, David Reid, in charge of the international strategy, noted: Terry wants us to benchmark ourselves, not Just against Kingsbury, but against Wall- Mart, Carefree and so on.
We’ve got to have formats that can stand up to these people and be in areas that give us access to growth. 23 Domestically, the company moved into higher-end products – introducing more butcher, fishmonger and deli counters alongside its prepackaged selection. In 1998, it also launched its “finest” range of premium own-label goods, which served to counterbalance the down-market connotations of its “value” range. -5_ At the same time, Tests continued to march into new areas, such as clothing, courseware and selected electrical goods including TV’s, mobile phones and computers.
Limiting itself to a few bestselling items in each product category, it used its purchasing muscle and a low-cost base due to a huge new depot equipped with state-of-the-art handling and price-labeling systems to offer these goods more canella tan spectacles outlets z Tests also added services, starting with internet grocery shopping in 1997, then an online bookstore in 1999, before Joining forces with a German catalogue company to create an internet superstore, Tests. Com, in 2000. It also used its revamped website o publish price comparisons on over 1,000 grocery items.
Similarly, building on the success of the Clubbers, it teamed up with the Royal Bank of Scotland to offer a credit card (Clubbers Plus) and gradually extended its range of personal financial services. Deco’s low customer-acquisition costs coupled with its reputation for value gave it an edge over conventional banks. When asked if the Tests brand could be used to sell anything, Alley replied: We don’t assume the brand will stretch everywhere. In each specialty… If we don’t do a better Job than the existing operators, we will fall flat on our face. 5 Keeping the Show on the Road As the Auk’s biggest private sector employer of union members, it was vital for Tests to have a strong relationship with USDA, the union covering shopkeepers. It had long been a union-friendly employer, but in mid-1998, the company concluded an agreement that members of the new left-wing government hailed as a “milestone. ” The partnership gave staff more chance to air their views and to be involved in business decisions through a structure of forums in every store.
It provided staff representatives with consultation rights in areas such as company performance, customer research and HER statistics, as well as extending the negotiation agenda to include issues of Job security, training and career prospects, not Just pay. In December 1998, Tests was named Britain’s most admired company for the second time in three years. 26 Outwardly, Alley remained unmoved: We like to point out to people who say that we are number one in Britain, that we are only about number 12 in the world. 7 A few months later, in June 1999, Leases comments took on added resonance as the giant Wall-Mart announced its plans to acquire Britain’s third-largest supermarket chain, SAD. Deco’s shares were hardest hit, plunging nearly 11% in the week following the announcement. Alley quickly set up a high-level strategy group to assess the impact of Wall-Mart’s arrival. 28 Shortly after, SAD decided to drop its loyalty card scheme and invest instead in wide-ranging price cuts.
Within months, Safety followed suit, claiming that trying to extract data from it was like “drinking from a fire hose”. 29 -6- I en tenure posed Dye Wall-Mart Tuttle AAA t 01 IANAL concerns tout losses International strategy, forcing Alley and members of the top team to convene a full-day briefing or analysts to persuade them of the merits of its approach. 30 In spite of the ensuing price war, by early 2001 it was clear that the arrival of Wall-Mart had failed to dent Deco’s market share or profits.
While Wall-Mart’s economies of scale helped SAD slash prices, it lacked Deco’s detailed understanding of which price savings were most valued by which customers. 31 By contrast, Tests could now identify drop-off in card activity and send defectors customized promotions to lure them back. As Alley noted: We knew that the reality was that Tests is competitive against anyone and we’ve ever let anyone come in from outside and do a better Job for our customers. 32 Although he had been at the helm for four years, Alley was still only 44 years old.
The team he had progressively gathered around him included some Tests lifers, like himself, some of whom had entered as teenagers: Tim Mason (42, 17 years with Tests), now also running Tests. Com; Philip Clarke (40, 26 years), the distribution and supply chain director; David Potts (43, 27 years), the retail director; and Richard Brasher (39, 18 years), the director of marketing operations. Every Monday and Wednesday morning, they met as a team, for two hours. Alley remarked: One of the things that keep the feet on the ground is that all of us grew up in this business when it wasn’t successful.
HER head Chapman noted that Tests was not looking for functional loyalty from its staff but rather emotional loyalty, where people “bring their brains with them. ” The way to get this was “by constantly reviewing how you reward staff, and by listening to them. “38 The survey also revealed four things that all staff wanted from their Jobs. As Alley put it: They [want to] find it interesting, [to be] treated with respect, [to] have the chance to get on, and [to] find their boss is helpful and not their biggest problem. 39 Reiterating the last point, Chapman noted: We have 200,000 people in the I-J.
What makes the difference is the person they report to. We have a very big programmer of supporting our leaders to be best in the business… We (are)… Always scouting for talent. 40 Deco’s Talent Spotting program was not limited to the upper ranks, but included the whole workforce. Managers were trained to develop a “toolkit” of telescoping ideas and encouraged to recall their own “big break. “41 Spotting and nurturing talent became a key part of every manager’s role. As noted by the group-resounding director, the new process did not rely on complex or expensive technology: It wasn’t Just about ticking boxes.
It was a major change program about our attitude and behavior to talent. In many companies managers try to hang on to the best talent at all costs. This is about releasing and liberating talent within the company. 42 I en program quickly generated results In Its TLS Dull year, workers were promoted or fast-tracked – backed up by a new training program (Options) designed to help them develop the necessary management skills. 43 The bulk of Deco’s training was delivered in-house, with dedicated training managers attached to each tore and store employees receiving an average of 30 minutes of training a week. 4 Indeed, Tests became the first retailer to have its in-house apprenticeship scheme accredited by the national exams authority. But Tests also ran a store manager training program with Manchester Business School and sent its most senior managers to top international programs. -8- In terms of attracting the right people externally, the company shifted to more targeted recruiting. Realizing that 80% of its candidates were also customers, Tests started advertising in stores, rather than in the local press.
Cardboard cutouts advertised for store managers, while ads in the baby-changing area were aimed at returning mothers and ads on toilet mirrors targeted the over-fifties. One of Deco’s senior HER executives described what it looked for in all candidates: The key thing for us is that they have the right attitude and the potential to develop. They must be energetic, interested in people and enthusiastic about retailing. 45 New communication practices were introduced, including five-minute team briefings (Team-5) to deliver three key messages for the week and five-minute huddles for informal exchanges (Take-5).
In addition, building on the theme of listening to staff, Tests launched an annual drive known as TWIST (Tests Week in Store Together) to make sure executives spent time in the stores. Alley showed the way by spending a week at checkouts, the fish counter and the warehouse. When quizzed, he made it clear that this was no stunt: I learn an enormous amount because the vast majority [of the people we employ] do those sorts of Jobs. So I have to understand what it’s like to work for Tests. 46 All head office managers were expected to do the same, including Chapman who felt she learned three things from the experience:
I saw the importance of keeping life simple for staff. I found that what staff want to do is spend time with customers, which is what we want too. And I realized that if we want to make improvements then the people to ask are our staff.. 47 I en SWISS’ scheme was later opened up to ten Tall’s top 200 suppliers. Betting on Innovation To capitalize on good ideas coming from the shop floor Tests also revamped its ideas scheme in 2001. To be adopted and rewarded, an employee suggestion had to pass one of three simple criteria: it must be better for customers, simpler for staff or cheaper for Tests.
Those same three principles were driven relentlessly through the organization. As one senior executive observed: You are unlikely to get approval for a project at board level unless you can prove it will be better for customers, simpler for staff and cheaper for Tests. 48 However, as another executive pointed out, if ever there was a conflict between the three, “what is better for the customer comes first. “49 The search for simplicity also developed into a veritable obsession. Tests adapted the lean supply chain methods pioneered by Toyota to eliminate waste and speed up processes. 0 As explained to employees in a short booklet: Making things simple is in itself complex and requires creativity and real effort. It can be achieved by knowing where to pay attention and what to ignore… Lat requires exploration and lateral thinking! 51 As one senior executive pointed out: In order to make something simple, you have to totally understand it… Simplifying and improving your service is a Journey that never stops, it keeps on developing. 52 Another senior executive noted that staying true to a core set of beliefs helped: It’s difficult to keep innovating when you’ve not got great clarity around what you are trying to do.
By keeping it simple we are able to keep ourselves focused. 53 Meanwhile, Tests continued to innovate on its product lines, adding new lifestyle ranges to its private label portfolio, such as “Organic, Free and Healthy Living. ” Its “Finest” range proved so popular that the label was extended to homewards and fashion products – and was widely regarded as the industry benchmark for food products. 54 When Kingsbury finally came up with its Taste the Difference range, the executive setting out the strategy was met with: Oh, you mean like Deco’s Finest? 55 Alley was credited with creating a business with the same broad appeal across