Tesco's three different crises reinforce each other

No stone left unturned

New CEO Dave Lewis has lost another three experienced managers, whose retail experience and supply network he needed to move Tesco away from the idea that it only fights on the price front. Tesco’s internal crisis fully exploded as Deloitte and Freshfields’ researchers leave no stone unturned to find the cause of Tesco’s accounting blunder, where it had embellished its six-month profit with 250 million pounds.

British media have reported on researchers who are going through every email with a comb and who have told managers to step away as they might hinder the researchers’ work out of self-preservation. Eight high-ranking managers have already been fired and those who are left live in fear. According to suppliers, the current buyers at Tesco are met with researcher suspicion and that has resulted in a culture of fear at Tesco: commercial matters are pushed aside while judicial matters have taken center stage.

Three crises that reinforce each other

Tesco not only has to deal with an internal crisis, but also with a supplier relation crisis and a market position crisis. It cannot compete with Aldi and Lidl when it comes to price, which means the market leader needs a new strategy to entice consumers and investors alike.

The three separate crises also reinforce each other, which complicates matters. The internal crisis paralyzes the organisation and incapacitates a managerial team which had to help the rather inexperienced CEO Dave Lewis with their retail knowledge and their supplier network. Tesco therefore cannot come up with believable alternatives to help it fight the supermarket war on other front instead of only on price.

Tesco: based on power, nor love

An excellent understanding with its suppliers is required if Tesco wants to shift its position, but years of brutal purchasing policies focused on the lowest price – and the competition between A-brand suppliers and its own home brands – have resulted in supplier relations based on power instead of love.

Now that Tesco is struggling, it could use some assistance from the sector. Paul Earnshaw, its packaging manager, said it will improve its negotation style with suppliers: build a relationship and only talk about new prices every three years instead of every year.

The company needs the support of its suppliers more than ever and will have to charm them to get certain things done. It remains to be seen whether that will work now that it is facing an internal crisis as well: drinks suppliers were appalled by the decision to suspend Tesco’s global BWS director Dan Jago for example. They now fear that Tesco is too focused on itself, instead of trying to figure out the important strategic question on how to get the company back on track.

Nokia, Kodak, Tesco?

It remains to be seen if that can be done. Blogger Alastair Dryburgh compares Tesco to Nokia and Kodak, once iconic in their own branch. They failed to survive the struggle and according to Dryburgh, Tesco fits that profile as well. He also feels that splitting up the company won’t help at all, because “how do you know which bits you want to keep and which it might be possible to dispose of”.

Tesco will publish its next quarterly numbers on 23 October and will then also give more feedback. The most important news will come in January 2015, when British retailers usually divulge their holiday results and then everyone will be able to see what Tesco’s triple crises will have done…