The nation’s shopkeepers never had it so good, until now.
The value of Tesco shares plunged on Thursday, after the retailer issued a profit warning in the wake of “disappointing seasonal trading in its UK heartland”. This warning from our largest retailer must tell us a lot about the state of the nation, and the UK food-retailing industry. Even Tesco’s sophisticated promotional techniques couldn’t win our cash in the supermarket trolley battle of the festive season.
When Napoleon said “L’Angleterre est une nation de boutiquiers” it was intended as a disparaging remark, describing England as unfit for war against France. He didn’t make up the saying; Adam Smith did in The Wealth of Nations, in 1776, in a different context. Anyway, Napoleon was proved wrong about that, but we do seem to be pretty good at running shops.
However, there comes a time when even the British don’t need any more shops and that time is now. The profitability of UK food retailing peaked a while back – it can only be downhill from here.
There is no escaping the fact that food retail in the UK is a mature industry. There is scarcely any significant differentiation between the major brands out there. So, they are competing on price and that’s never a happy scenario. The only way forward is into less mature markets and that’s where Tesco’s top line growth comes from.
Many businesses operate in mature markets and are faced with the considerable hurdle of diversification into new markets to sustain growth and leverage their expertise and intellectual capital. It is a very challenging thing to do as managing anything at a distance, both geographic and cultural, is fraught with danger.
If you are operating in a mature market that still offers you value, someone will come chasing you. Unless you are very well differentiated, you don’t have many options. Either, buy the competition, get out, or diversify. If you don’t, you will soon be giving margin away just to stay put. A little anticipation of the inevitable can be very valuable. So make sure you’re looking ahead and not just at the shopping trolley in front of you.