Ken Towle on Supermarket Trends, Shrinkflation, International Retail

[00:00:00] You're listening to Retail Disrupted, a podcast that explores the latest industry developments

[00:00:13] and the trends that will shape how we shop in the future.

[00:00:16] I'm your host, Natalie Berg.

[00:00:20] Hello and welcome back to Retail Disrupted.

[00:00:32] Today I am thrilled to have Ken Tau with me on the podcast.

[00:00:36] Ken has a wealth of experience in the UK grocery sector.

[00:00:40] He spent a lot of time at Tesco where he led the international expansion and acceleration

[00:00:44] of the group's multi-channel capability.

[00:00:47] Some of his previous roles at Tesco include CEO of Tesco China, Internet Retailing Director

[00:00:53] and Managing Director of Central Europe, Ireland and Turkey.

[00:00:59] More recently Ken has worked for the Al Shia group where he was president of Fashion

[00:01:04] and Teens.

[00:01:05] He was the CEO of Convenient Store Chain NICEA and he led that business through the pandemic.

[00:01:12] We're going to touch on that.

[00:01:14] Most recently Ken served as the SPP of Retail and Logistics at ASDA.

[00:01:21] Ken and I are going to cover a ton of ground.

[00:01:23] We're going to talk about supermarkets, inflation, e-commerce, consumer trends, the

[00:01:29] works.

[00:01:30] But first, a quick update on the podcast.

[00:01:33] I'm going to be flying to Florida tomorrow.

[00:01:35] I am going to be totally off-grid, totally offline for two weeks.

[00:01:39] I'm going to spend some time with my parents who live out in Florida.

[00:01:43] I don't know about you, but since Christmas it has been nonstop.

[00:01:48] It's been go-go-go.

[00:01:50] Although I have really enjoyed all the work that I've been doing, I've had some amazing

[00:01:54] guests on the podcast, amazing to see the podcast grow as well and get feedback from you all.

[00:02:01] Also, just speaking at a lot of events, I feel like events are really back in a big

[00:02:06] way this year.

[00:02:08] It's been great, but it's been so busy.

[00:02:10] I'm really looking forward to getting on that plane tomorrow and having some time off.

[00:02:14] I will be leaving all of my devices, my laptop, my microphone, everything is staying here

[00:02:18] in London.

[00:02:19] You will not hear from me or retail disrupted for a good couple of weeks.

[00:02:24] I will be back mid-April.

[00:02:27] If you don't already subscribe, I would encourage you to subscribe to the podcast because

[00:02:31] I have some amazing guests lined up from mid-April, including the former CEO of Blockbuster.

[00:02:40] The podcast is actually booked out now until June, but I'm always looking for new guests.

[00:02:44] I'm always looking for suggestions around topics to cover.

[00:02:48] As always, please do feel free to get in touch.

[00:02:51] You can reach me on email.

[00:02:53] My email is Natalie at nbkretel.com or on any of the social channels, I'm on LinkedIn,

[00:02:59] Twitter, SlushX, Facebook and I'm also now on Instagram.

[00:03:03] I finally joined the 21st century so you can reach me on any of those platforms and

[00:03:07] I would love to hear from you as well.

[00:03:08] Okay, that's everything for me so I hope you enjoy this conversation with Ken Tao.

[00:03:18] I would love to kick off by getting your thoughts on the consumer and retail environment.

[00:03:24] We know that consumers have been broadly resilient, given all of the disruption that's been

[00:03:29] thrown at them.

[00:03:31] I think there are some encouraging signs that the economic pressures that have faced consumers

[00:03:36] over the past 18 months or so are now beginning to ease but my take is that we're not out

[00:03:42] of the woods yet.

[00:03:44] I'm curious to get your thoughts Ken.

[00:03:46] What kind of year do you think retailers can expect in 2024?

[00:03:50] I think the idea of a consumer is disappeared.

[00:03:55] We've got polarized consumers now in society and so therefore the year will look very different

[00:04:00] if you've paid off your mortgage, if you've got a defined benefit pension, things are probably

[00:04:07] looking pretty rosy.

[00:04:08] If you're trying to get on the housing ladder and you and all your mortgage rates just

[00:04:11] got up and they're going to be looking quite different.

[00:04:14] Therefore I think the consumer is going to be very much influenced by those macro costs

[00:04:18] in their life, particularly housing and the industry.

[00:04:21] Also the idea of wanting to be able to afford the occasional treat or maybe chip away

[00:04:25] at those types of things, so making life tolerable and enjoyable.

[00:04:29] I think depending on which sector you are in, if you're in food and grocery then people

[00:04:34] are always going to have to eat.

[00:04:36] We've seen some of those trends of people thinking about the pennies manifesting themselves

[00:04:40] with the advance of their label, people being very conscious about where they shop, the

[00:04:44] rise of the discounted.

[00:04:45] It's all very well documented.

[00:04:47] I think for those consumers if you're in a discretionary product group, clothing, jewelry,

[00:04:52] those sorts of areas furniture, you're probably going to find that consumers will delay purchasing

[00:04:56] because whether they've got the cash to buy today or they're going to do an extended credit

[00:05:00] either way, they're probably going to be a bit more cautious.

[00:05:02] Whereas if you're in that other consumer group, I was describing a moment ago, probably

[00:05:06] life carry is on and there's probably some great deals to be had out there.

[00:05:10] I think it's a mixed picture, but overall the year will be one of, I think, improving

[00:05:17] outlook.

[00:05:18] I think first half will be more tricky.

[00:05:20] Second half will be heading into an election.

[00:05:21] People might have the benefit of tax cuts coming through interest rates, falling inflation

[00:05:27] falling.

[00:05:28] I'd say the second half is one to be much more optimistic about.

[00:05:31] That's interesting and again, it just drives home that point that as retailers one size

[00:05:36] no longer fits all.

[00:05:37] You really do have to know your customer and what they're dealing with.

[00:05:41] Just some thoughts around the pace of change because you've been in this business for a

[00:05:46] long time, and so you're incredibly well versed in just how dynamic of an industry this is.

[00:05:51] I think that's what attracts so many of us to retail that it is so fast moving.

[00:05:55] It's constantly evolving.

[00:05:57] But I think we have to acknowledge that the pace of change has really accelerated in

[00:06:01] recent years.

[00:06:02] Of course, the first thing that comes to mind when we say that is the pandemic because

[00:06:07] that was the big shock that upended our lives and really changed the way that we shop.

[00:06:12] But even before the pandemic, we had the rise of online shopping.

[00:06:16] We had the mobile commerce revolution which I think many of us often forget about because

[00:06:21] shopping on our phones is just the norm these days.

[00:06:25] We've had all the efforts to digitize physical retail, so technology in stores.

[00:06:29] Now we're moving into this whole new world of artificial intelligence.

[00:06:33] And for a while, the word permacrisis was thrown around quite a lot to describe the state

[00:06:39] of retail and probably the state of the world.

[00:06:41] Because on top of COVID and all of the tech disruption, we also had some pretty significant

[00:06:46] economic and geopolitical disruption.

[00:06:49] Now I would argue that we're safely out of that permacrisis era.

[00:06:52] And perhaps a better way to describe what we're seeing today is permac disruption.

[00:06:58] And I appreciate that definitely does not roll off the tongue so nicely.

[00:07:02] But I'd love to get your thoughts on this idea of permacirruption and whether you think

[00:07:06] the industry can sustain this pace of change or maybe things will slow down a little bit

[00:07:11] in the future.

[00:07:12] What do you think, Hen?

[00:07:13] Well, I would say that you learn over time that changes are constant.

[00:07:19] And actually when you look back and I think you think to some of those big seismic changes

[00:07:24] in the industry and in the world of commerce, they felt very, very incremental at the

[00:07:31] time, but you start changing something and it becomes massive.

[00:07:35] If I took a simple example, there was a time not that long ago where there were no

[00:07:39] sales service checkouts in the UK.

[00:07:40] And now something like 80% of China's items are going through sales service checkouts.

[00:07:45] It didn't go.

[00:07:46] It didn't move as a big bang, but nonetheless it was a profound change and it took two decades

[00:07:51] to play out.

[00:07:52] And I think what we'll find is that we've got this constant level of things that started

[00:07:58] quite a long time ago, gaining momentum becoming more familiar to customers and more familiar.

[00:08:04] We've got technology becoming more available and cheaper.

[00:08:07] We've also had this really interesting dynamic, something which I think we're all pleased

[00:08:11] with, which is people meet our earning more because they're earning more.

[00:08:13] It means that there's a greater case of technology and automation and the affordability

[00:08:18] of capital instead of labor.

[00:08:19] So all of that I think is really, really fascinating.

[00:08:23] And then I think there's a lot of, I think a lot of conjecture about what something like

[00:08:27] AI might do in the future.

[00:08:30] I think the reality is that for retail, great retailing requires doing a fairly short list

[00:08:36] of things really consistently, really well to a standard customer's appreciate and can

[00:08:41] differentiate you from your competitors.

[00:08:43] And I think most significant opportunities with artificial intelligence is actually in

[00:08:48] doing those basics even better or doing them for a lower cost.

[00:08:51] You know, they take something as straightforward apparently as keeping products on sale.

[00:08:56] There's a lot of intelligence that can be applied to just making that outcome better or

[00:09:03] complementaryly, making the inputs cheaper or easier to money.

[00:09:09] Yeah, and that's why I keep hearing from previous guests who've said that the beauty of AI

[00:09:15] in generative AI in particular is that it solves genuine pain points.

[00:09:20] It's not going to be the next metaverse because it's here, it's now and it can genuinely

[00:09:26] improve the experience for the customer and genuinely make retailers smarter and more

[00:09:31] efficient.

[00:09:32] So I'm really fascinated to see where that goes.

[00:09:34] Now I don't usually like to dwell on the pandemic but as I have you here and you were the CEO

[00:09:39] of NYSA at the time, I'd really love to hear what it was like running a retailer during

[00:09:44] this bizarre and very unsettling period.

[00:09:48] So how did you manage it?

[00:09:49] And I suppose more importantly, what were the lasting lessons and how do you think the

[00:09:54] industry has changed as a result?

[00:09:57] Yes, no.

[00:09:59] It seems like a long time ago, doesn't it?

[00:10:01] It does.

[00:10:02] We're still seeing some of the legacy effects of it.

[00:10:05] The nicer business for those that don't know is a wholesale business and so seeing independent

[00:10:10] retailers.

[00:10:11] And I think in the nicer business, like the rest of the industry, whether in retail,

[00:10:16] supply chain or in manufacturing, what we experienced for many of us for the first time

[00:10:21] in our work in live scarcity, we hadn't seen demand go beyond what was available.

[00:10:27] In fact, we've benefited from a long, long time from proliferation of choice and the abundance

[00:10:32] of product.

[00:10:33] So I think that was the first big shock that people responded to the pandemic in a way

[00:10:37] that was looking after their family, making sure they had what they needed.

[00:10:42] And that created a lot of disruption in the supply chain and the availability of products.

[00:10:46] So I think there's a consequence of that, two big things emerged on much deeper respect

[00:10:51] for supply chain specialists and that real science and an ability to manage supply chain.

[00:10:56] But also I think it brought the industry closer together now in the past without the creation

[00:11:02] of the very strategic indicator because of levels of distrust or not enough trust between

[00:11:07] retailers and suppliers.

[00:11:08] I think the pandemic brought everyone much, much closer together because actually it wasn't

[00:11:14] about negotiation, it was about collaboration and ultimately doing the right thing for consumers

[00:11:19] whether you were servicing them directly or you know at the beginning end of that change

[00:11:24] to get products to customers.

[00:11:26] So I think all of those things really matters.

[00:11:28] I think one of the most profound changes we've got which we're still graphing within you

[00:11:33] still here and read a lot about this today is where people work from and how they work

[00:11:37] and I think that will be one of the most prolific and profound changes that we still don't

[00:11:42] know quite how it is going to work out.

[00:11:44] And that has a big effect you know if you're on an in-town retail or you're offering food

[00:11:49] to go in town then you've seen big changes to your business.

[00:11:53] I think similarly you know if you're in the e-commerce business you probably found people

[00:11:57] just at home a lot more and so they're much happier to order products to be delivered

[00:12:01] to home.

[00:12:02] We're hearing a lot that business is now in mandating minimum time in office locations

[00:12:08] and so I think we'll have quite an effect.

[00:12:10] And of course we've got to remember all through that you know retail front line staff,

[00:12:13] manufacturing staff logistics specialists you know they'd never had that option so actually

[00:12:18] we have to be reminded that they have continued to do an amazing job on behalf of the country

[00:12:23] and consumers but I think for those that do have the choice we're still seeing how

[00:12:27] that choice is going to be played out and I think that might have effect on how people

[00:12:30] shop well, the shop frequency you know all those dynamics of a consumer retail relationship.

[00:12:35] Yeah and I think you're right I think it is still playing out in terms of you know figuring

[00:12:40] out how much time in the office versus how much time from home and yeah companies changing

[00:12:44] their policies around that as well so certainly impacts retail.

[00:12:48] Now we're going to shift gears a little bit but we're going to stick with grocery retail

[00:12:51] and there's a lot to explore but if we start off with the doom and gloom which is inflation

[00:12:58] because we have to acknowledge that inflation has been a real bug bear for supermarkets over

[00:13:03] the past couple of years. Now the good news of course is that food price inflation is finally

[00:13:07] easing it reached a peak of around 19% in March last year this was the highest rate in nearly half

[00:13:14] a century it's been on a downward trajectory since then but of course prices are still rising

[00:13:21] it's just that they're rising at a slower pace and I think it's always nice to illustrate this with

[00:13:26] a little bit of data so just briefly if you look at it over a two-year period in November 2023

[00:13:32] food prices were still 30% higher than November 2021. So again just to go back to my earlier

[00:13:39] comment around not being out of the woods yet I think that very much applies here.

[00:13:44] Now can the last thing any supermarket wants to do is to pass on additional cost to their

[00:13:49] customer in the form of higher prices and that's probably especially true in a cost-eliving crisis

[00:13:56] and especially when you've got the discounters breathing down your necks right but then we also

[00:14:00] know that margins in the grocery sector are razor thin so how in your view should supermarkets be

[00:14:08] dealing with inflation? I think in the UK what I mean much of the developed world we've seen

[00:14:14] an inflation shock because we've been used to single-digit inflation for a very long time or

[00:14:19] if that nearly no inflation there are other parts that will actually inflation is a feature of

[00:14:23] the market and they've just become more accustomed to doing that you know has input costs go

[00:14:28] up so do wages and retail prices etc. So given that we have a shock I think the first thing that

[00:14:36] was of I think some surprise to everybody was the scale of it so you know to get into double

[00:14:41] digit and for that to be sustained sometime and you end up into those giddy levels of 19 to 20%

[00:14:45] you know no one I think predicted that but also I think businesses have a responsibility to stay

[00:14:52] healthy and I think you know in in earlier years when inflation was lower there's probably some

[00:14:59] pleasure and you know some pride in the able to absorb inflation for consumers because you

[00:15:03] do things to mitigate that in your supply chain or in your cost of goods or whatever but it was

[00:15:08] at such a scale that that wasn't possible and so it did have to be passed on to consumers and

[00:15:14] it was interesting that no one was absent from that you know that that approach discounters

[00:15:20] included and in fact there was a lot of concern about the fact that some of the commodity seems to

[00:15:24] be inflating much more than you know a manufactured product but that was because of the nature of

[00:15:29] the products and so everyone experienced that the same way what I expect we'll see now and I

[00:15:35] is a race to get well firstly the first race is to stop inflating. I think there's a big question

[00:15:42] about whether we'll see deflation I would expect we would see small levels of deflation I think

[00:15:48] consumers will be hopeful of larger levels of deflation but I think the reality is a lot of the

[00:15:52] changes that created inflation are embedded and so therefore it's going to be hard to reverse them

[00:15:58] but I think we'll get back to an attitude from retailers sort of a strategy from retailers that they

[00:16:04] will do their very best all the time to protect consumers from inflation through the way that

[00:16:09] they run their businesses in the interests of of customers. The only other thing I'd say there is

[00:16:14] all businesses having this responsibility to remain wealthy and strong they do have to make sure

[00:16:20] that if they're going to pass on keen prices that ultimately they're able to make a return on that

[00:16:25] in order that they retain viable and can modernize and improve their business in the future which

[00:16:31] if you're making no money it's hard to do. Yeah yeah absolutely but you're right the supermarket is

[00:16:37] the gatekeeper to the customer they're the ones who you know need to protect their customers

[00:16:42] from higher margins because the market's just too competitive right it's they don't really have

[00:16:46] a choice and one of the ways that we've seen supermarkets look to manage inflation for lack of

[00:16:52] better word is by keeping the price the same but reducing the pack size also known as shrink

[00:16:59] flation in the industry and this has caused some tension with suppliers and I think it's

[00:17:04] for obvious reasons right and I think if we look outside of the UK there's been some really

[00:17:09] interesting reactions from and backlash I suppose from the supermarket so in France we've seen

[00:17:17] some supermarkets create warning signs at the shelf edge to make their customers aware that this

[00:17:23] is a smaller pack size and I just learned that the Hungarian government is making it a requirement

[00:17:29] that large food retailers have to label items that have shrunk in weight or volume so really interesting

[00:17:36] I think some really interesting reactions around the world do you think we might see more of this

[00:17:42] kind of response here in the UK or in fact in other markets around the world. I hope not because I

[00:17:48] think our industry is best when it's regulated appropriately but not own recently and I think the idea

[00:17:55] that you have to start providing lots of information to customers about price changes pack size changes

[00:18:00] etc is a level of detail actually that consumers generally are not asking for most consumers want

[00:18:07] simple fast friction with shopping and you know having lots of superfus information it's not really

[00:18:13] what they want what they want is trust in the retailer the retailer is doing the best possible

[00:18:17] job for them on their behalf and not profiteering so I think you know consumers want to know they're

[00:18:24] getting a fair price and a good deal for products and that's important now interestingly I think that

[00:18:28] is going to be a slight juxtaposition there with portion size and with calorie caloricly valued

[00:18:34] so if you think about some of the products that in the last decade got supersized that's not

[00:18:41] necessarily to the advantage of the end consumer particularly if that's part of an unhealthy diet

[00:18:46] that's good without making judgment about that but I think in the future given that a lot of these

[00:18:51] products actually reduced in price are manufactured and they're quite high caloric products I think

[00:18:58] actually pack size reduction might serve another purpose which is you know helping address this

[00:19:03] big issue that we've got in the country of obesity and health and just moving on to price matching

[00:19:10] and when it's been a little bit more time on price and then we'll move on from price and inflation

[00:19:14] generally but it is a big topic so I'd like to get a few more questions to throw out you here

[00:19:21] so price matching especially when we've seen a lot of price matching in the industry and we've

[00:19:27] especially seen a lot of price matching of the discounters and I can understand the rationale

[00:19:33] of course but just how sustainable of a strategy is this and considering that the discounters

[00:19:40] operate from a completely different business model and how do you think it's working to

[00:19:47] stem the tide of shoppers switching to the discounters?

[00:19:51] Well if I think it's interesting because price I think became a lot easier to understand for

[00:19:58] consumers with the growth of online shopping so as retailers were publishing they're online

[00:20:05] shopping lists and their prices it then became very much easier for consumers to compare and in fact

[00:20:09] there's lots of well-known websites where you can go and that all that work is done for you

[00:20:14] however because the discounters tend not have an online offer understanding the discounter prices

[00:20:20] therefore a bit more difficult now because of the perception of discounters having

[00:20:26] a real cheap price is clearly that there is some weight for customers and I think we haven't

[00:20:32] moved away from the position of let's say two decades ago where you could get cheap products at

[00:20:38] discounters you know as cheap products for low prices now we're in a position where you can get

[00:20:42] good quality products for good prices and that's quite a different proposition it's all

[00:20:47] about the value to customers so I think reassuring customers and again coming back to this idea of

[00:20:52] that trusting relationship between a consumer they're retailing knowing that

[00:20:58] a big one of the big supermarkets is not a discounter but they are doing their bit to make sure

[00:21:04] that you don't have to overpay on all the basics but then giving you all the

[00:21:08] quality benefits of choice that come with their concrete space and their ability to put that

[00:21:13] range together and sustain it that's something which I think a lot of customers

[00:21:17] still appreciate and if you look at the level of cross-shopping in the UK customers have become

[00:21:24] definitely more promiscuous and therefore as a result they're no doubt more aware of what

[00:21:28] the individual retailers are offering but even with that knowledge they are still making choices

[00:21:33] they will place some of their purchases in a discounter store but they're also

[00:21:38] resilient of a number of their purchases for one of the biggest supermarkets and that's all about

[00:21:42] choice but it's also about that ease of access because there's more of those stores

[00:21:48] and it's also about understanding that you know you want a balance between choice and price

[00:21:54] as well as quality and price. Now you've talked about shoppers becoming more promiscuous and I

[00:22:00] think that's a nice segue to my next question which is around loyalty pricing. Over the past couple

[00:22:06] years we've seen this big shift towards loyalty pricing which I mean I grew up in the US and

[00:22:12] this is just how things have always been in the US where you get one price if you have a loyalty card

[00:22:18] and if you don't you know that's you pay a higher price and it's essentially a two tiered model.

[00:22:24] Now there's a big debate about whether this actually drives loyalty or in fact makes us less

[00:22:29] loyal because you know if we're all going to be swiping our cards are tapping you know our phones

[00:22:36] at the checkout you know we're just gonna it's a no brain or of course you're gonna do it I don't

[00:22:40] know if it necessarily makes you more loyal to that particular supermarket but that's probably

[00:22:45] a debate for another day but the supermarkets even if they're not getting our loyalty they're

[00:22:50] definitely getting some valuable data out of this and now the CMA the competition and markets

[00:22:56] authority is launching an investigation to see whether these member only discounts are actually

[00:23:01] restricting competition and disadvantaged those who aren't eligible for a loyalty card like older

[00:23:09] kids who are buying lunch for example now the other argument against these schemes is that it can

[00:23:14] be difficult to compare prices similar to your point about comparing discounter prices but it

[00:23:20] can be difficult to compare prices and there's also a question about whether these member prices

[00:23:24] offer genuine savings or if retailers are simply inflating the non-member price to create the illusion

[00:23:31] of a discount so there's lots to explore and the flip side of course is that you know you can argue

[00:23:38] that this is totally normal behavior in a highly competitive market right so what do you think

[00:23:43] can I'm curious to get your take on this issue well with the person I'd say his customers obviously

[00:23:50] get it and because they're adopting it in vast numbers and to a very high degree and actually

[00:23:56] if you look at a couple of the big retailers in the UK since they've been doing this they have

[00:24:02] been actually able to point to market share again so it does suggest that loyalty is coming through

[00:24:07] in some measurable way so I'd suggest there is customers do get it and it is influencing their

[00:24:12] behavior as a result so I think generally it's positive I think it's a lot to do with just how

[00:24:18] easy it is and in fact I think most retailers other than your point about younger children or

[00:24:23] children you know it is something which is accessible to all and actually is easy to apply

[00:24:30] in some ways it's the old promotion on off cycle you know now changed into member pricing

[00:24:37] in some shape or form neither the retailer nor the manufacturer are making any more or less money

[00:24:44] as a consequence I'd suggest I think they're just choosing to use that money I'd say more smartly

[00:24:50] and I think also the fact that the data penetration the customer penetration is so much better

[00:24:55] the data that can be extracted is going to be so much more powerful particularly in convenience

[00:25:00] so if you look at online shopping in the UK it's always been data rich because you've got all the

[00:25:05] data from the customer in fact you know a lot about your customer super market big store shopping

[00:25:11] has always been pretty rich with data but the convenience segment has always been quite poor

[00:25:16] because transaction levels are lower and you know customers are less inclined to get out of their

[00:25:20] loyalty card for a convenience transaction but member pricing seems to have transformed that

[00:25:26] and I think what we'll see is not only have we got convenience growing as a channel according to

[00:25:32] forecast in the market over the next few years but I think what we'll see is it will be a richer channel

[00:25:37] in terms of source of customer insight and understanding and therefore that will accelerate the

[00:25:44] growth of that channel because both the retailers and the manufacturers will be able to use

[00:25:48] that information to do an even better job for consumers in the convenience sector.

[00:25:53] Yeah that's a really interesting point now we've talked a lot about inflation and pricing strategies

[00:25:59] but I'm curious to get your thoughts on some other challenges or priorities facing the grocery

[00:26:05] industry at the moment so we obviously have the discounters there's the connoperennial challenge

[00:26:11] of e-commerce profitability there's the whole repurposing physical stores and figuring out things

[00:26:18] like automation and AI as we sort of touched on earlier but what do you see as some of the big

[00:26:22] priorities for the mainstream grocers in 2024? I think a lot will be more of the same

[00:26:30] so you know doing the basics really really well and I think there's going to have to be very

[00:26:36] mindful about that channel switch and also they know behavior of customers across channels

[00:26:41] and how we recognize that behavior and respond to it in a helpful way. I think the fact that we're

[00:26:46] going to have polarised groups of customers in the market is going to you know presents and

[00:26:51] challenges and given that we largely have a single price points across the UK rather than you know

[00:26:59] regional pricing. I think that means a lot of emphasis on really good ranging you know both I

[00:27:05] think Tesco and Sainsweez have made quite a play on our and Morrison's as well actually have they've

[00:27:10] been putting more of their value products into their convenience stores and I think being very mindful

[00:27:16] of where customers are feeling the paint is making sure that store ranges reflect that and also

[00:27:21] where people want to treat themselves you know store ranges reflect that as well and then I think

[00:27:26] I probably sum it all up by saying this balance which is never gone away but it's probably a bit

[00:27:32] harder and is moving faster these days is the balance between the propositions you want to give

[00:27:37] to your customers, the operating model you use to deliver that proposition and the returns that

[00:27:41] you get on that and if you get those out of balance then that can be quite problematic for businesses

[00:27:47] so I think in this faster moving environment with a lot of change around keeping that balance and

[00:27:53] and effectively keeping all stakeholders happy is going to be one of the you know the big

[00:27:58] responsibilities and priorities for the year and then add to that elections who knows what the

[00:28:04] outcome that many will predict but anyway that's going to potentially bring further change into

[00:28:10] society as well. That's really interesting and I know you've talked a lot in the past about having

[00:28:17] a customer centric approach which I think most retailers are in board with in terms of the principle

[00:28:25] of having a customer centric approach but making it happen requires a huge cultural shift this idea

[00:28:32] that you genuinely start with a customer and then work backwards so what advice would you give to

[00:28:38] retailers who are wanting to become more customer led in their approach?

[00:28:42] In no particular order I think I'd say it starts at the top so if the leader of a business isn't

[00:28:50] interested enough in the consumer and the customer and what they're telling them and what they can do

[00:28:54] about what they're telling them then you know that more that attitude and behaviour world manifest

[00:28:58] itself throughout the organisation. So to tone from the top leadership, the role modelling all of that

[00:29:04] is really really critical then there's got to be really good sources of customer insight

[00:29:10] now that's both data so the data side of things but then that's also got to complement it with

[00:29:15] both quantitative and qualitative customer insight as well really understanding what's happening

[00:29:19] from a customer perspective. I'm complimenting my colleagues in the business you know because they are

[00:29:26] very often there's a lot of front-line people in the industry they get to hear things first they

[00:29:30] get to see what works really well in the Delights customers they also get to see what frustrates

[00:29:35] customers so having an ability to pull back from colleagues in the business as well is really

[00:29:39] important but then of course all of that is only on any value if you do something about it and I

[00:29:45] think any business that's customer-centric has got to be really really clear about what they're

[00:29:50] doing about what they've heard from customers what they want what customers are telling them that

[00:29:54] they do very well and they should maintain and where they want to see improvement and there's

[00:29:58] got to be quite a drumbly of saying we heard we've acted and you know we've improved things and

[00:30:04] that should be a continuous process and for that to be well understood across the business that

[00:30:09] the business is doing things to make things better because it understands where those opportunities are.

[00:30:15] Yeah and that's actually sparked another thought which is I think it's it's M&S that's now requiring

[00:30:21] requiring everyone in their head office to spend a week on the shop floor which I thought was

[00:30:26] really interesting and I just think that that feels like a no-brainer right feels like that's

[00:30:31] the you know why is it taking the industry so long to incorporate this and I guess I guess cultures

[00:30:37] don't change overnight and maybe that's you know that's what we're seeing play out now but um

[00:30:42] really interesting to see the way the things are moving. Now I'm going to keep you here a little

[00:30:46] bit longer can I want to get your thoughts on e-commerce and then I want to get your thoughts on how

[00:30:50] you see um supermarkets evolving in the future so just just start with e-commerce because we all

[00:30:58] know that grocery e-commerce is notoriously complex. We all embraced it during the pandemic but

[00:31:04] then we quickly reverted back to physical stores and I think that might be partly because of the

[00:31:10] timing of the cost of living crisis and people looking to shop at the discounters which you know

[00:31:15] have dabbled with e-commerce but haven't really made it work um but I also feel like there's

[00:31:20] something more inherent here so what's your take on the current state of grocery commerce and

[00:31:27] as we look to the future are there any trends or developments uh that you're excited about?

[00:31:33] Well I'd say that e-commerce is absolutely fantastic as a consumer you know it's so easy

[00:31:40] you have so much choice and it's so reliable and it's such good value so you know from a consumer

[00:31:45] perspective it takes many many boxes but interestingly despite that it's at what 12 30 14% of the

[00:31:51] market something like that. So despite all of that ease and attraction uh 80 plus percent of

[00:31:58] customers 85 percent plus the customers choosing to shop in store yes they choose to switch and

[00:32:04] I think some of what we saw in the pandemic was actually customers who wanted to be in a shop

[00:32:09] but couldn't either because they were you know restricted from with with access or they were

[00:32:15] had to be thoughtful about their health you know and not mixing these large groups of people. So

[00:32:20] I think there was a natural switch of people who would have gone shopping but couldn't who have

[00:32:24] now reverty to going back to shopping and you know retail is a social shopping is a social activity

[00:32:30] most people do it with someone else most people you know they look forward to doing it and also they

[00:32:36] look forward to sort of bringing the prizes home and you know enjoying that sharing with the family

[00:32:40] consuming product using product. So I think all of that will continue. I think the interesting area

[00:32:46] is going to be um how much do you want to fill quickly because we saw a we saw a big spike in

[00:32:53] you know rapid commerce small basket commerce and we've seen a number of businesses get really

[00:32:59] aggressive about that and we've seen a number four by the wayside and consolidation. I think that

[00:33:05] that picture hasn't finished forming yet and there's still you know I think there's still quite a

[00:33:10] it's quite a demand from consumers for that type of offer at some time for some people for some

[00:33:17] occasions but again it's got to be one from which the provider of that service can make money

[00:33:24] and that's still probably where you know the friction is in terms of the affordable operating model

[00:33:29] scale of operating model for that but I think that's still a big part of the e-commerce channel

[00:33:35] that will develop over time. Yeah and do you think I just going back to your earlier point around

[00:33:40] the fact that more of us are working from home and that's changing the whole the landscape

[00:33:46] of retail more generally but do you think that's also fuel demand for quick commerce if we're

[00:33:51] working from home and we just sort of need something within 15 minutes whether that's some ingredients

[00:33:56] for a meal tonight or you know actually getting food to go do you if we're kind of in the middle

[00:34:01] of working we don't necessarily have time to nip out do you think that that's also helped to

[00:34:07] to fuel that trend. I think it definitely has I think also it's part of why convenience as a

[00:34:15] grown-in will continue to come because convenience is supposed to where people live so I think you know

[00:34:21] it's having that dual, I think, both been an equally attractive solution for people who are at

[00:34:30] home and want stuff delivered but also if you're at home and you're close to your local convenience

[00:34:34] it's quite easy to pop out to get your products lonely. Yeah and we all probably need a break

[00:34:41] in a walk at times throughout the day as well. Just one last thought around quick commerce because

[00:34:46] I think from my perspective I think it's been really interesting to see more supermarket brands

[00:34:53] look to partner with the likes of Amazon or Uber Eats and perhaps to a lesser extent deliver

[00:34:59] room but is I don't know do you have any thoughts on whether this kind of collaboration might be

[00:35:05] the way forward because as you say a big barrier is actually making money from all of this so

[00:35:10] does it make do you think we'll see more collaboration in order to make quick commerce work in the

[00:35:14] future? I think we will. I think we're probably still in the phase where it's the easier option at

[00:35:21] the moment to sort of give someone else the big, notty issue to solve on your behalf. I think

[00:35:27] the watch out is that there's quite a premium being charged for that for consumers and I think

[00:35:32] over time customers will become less willing to accept that premium and therefore

[00:35:37] you know I don't think they can seek a model of it. I heard this providing the fairest value

[00:35:42] will probably win and sustain for the longest and I think in order wherever you've got

[00:35:47] collaboration and partnership you've got value share so which is sometimes you know you're helpful

[00:35:51] and necessary thing but if you can do it yourself then you haven't got to create value sharing

[00:35:56] you could probably do it for a bit cheaper and also make it a better return to yourself as well

[00:36:01] and if you look at now again some of the big supermarkets they've now developed market options as

[00:36:05] well and it looks to be you know done pretty well on the back of their existing infrastructure so

[00:36:11] they're leveraging capability, leveraging scale in a way that's to the benefit of consumers.

[00:36:18] Great I've got one last question for you Ken and that's around international so you led Tesco's

[00:36:24] business in central Europe Ireland and Turkey and prior to that you were CEO of Tesco in China

[00:36:31] I know Tesco has since divested some of these operations but I wonder if you can share with us

[00:36:35] some of the learnings of running a large multinational business overseas because I imagine there's

[00:36:41] a lot of synergies but I also imagine at the same time there is a need for a very localized approach

[00:36:46] which is probably a difficult balance at times and also the UK is very much seen as best in class

[00:36:52] when it comes to grocery innovation but I'm curious to know if there were any reverse synergies.

[00:36:57] Is there anything that you learned from local markets that could be incorporated back into the UK operations?

[00:37:03] Yes, okay that's great. Well look I think I'm starting off by saying that one of the things I

[00:37:08] reflect on is that from an investor perspective, quite often it's hard to get an investor to

[00:37:14] appreciate the value you're creating in a market that's non-core or non-home and therefore

[00:37:19] it's to be very thoughtful about how much opportunity there is in the home market,

[00:37:24] and if you are in a home market, and much return you can generate from deeper

[00:37:29] point of trade than a home market has maybe a higher priority than necessarily getting into additional

[00:37:34] markets. That would be the first point. The second point would be if the conclusion is it's

[00:37:39] right to get into other markets there are many ways of doing that. You think franchise licensing

[00:37:46] all of these types of things join benches I think offer attractive ways of getting brands out into

[00:37:52] new markets with the inherent capability that comes with working with local partners.

[00:37:59] And then I think the third thing I'd say is that retail's only the front end and if you're going to

[00:38:04] do retail really well, particularly food retailing, you need a very strong back end as well with supply

[00:38:08] chain ability to source products. And I've certainly had the experience which is a really good one

[00:38:14] in terms of your depths of understanding consumer and your ability to make a business work,

[00:38:20] that when you step out of a market where your market leader and you step into a market where you're

[00:38:25] you barely register on a market share, you have to take a completely different approach

[00:38:30] to building out your business but also as much as you might be investing in shop front and retail

[00:38:36] space you've got to be investing in supply chain, supply partner relationships

[00:38:41] and in fresh food that gets even more complicated than the manufacturer products.

[00:38:45] So it's been very thoughtful about the scale of the endeavour and international expansion

[00:38:51] is not a quick win, you know it takes decades to carve out a winning position and one that you can

[00:38:57] collect. So we'd only interested to see how some of the brands more recently they've

[00:39:02] stated, they're interested in international ambition get on with that but I think there's many ways

[00:39:06] to do it but the endeavour will be a long one. Fascinating stuff. Ken it's been an absolute

[00:39:12] pleasure to have you on the show, I've really enjoyed hearing your views and insights

[00:39:16] on food retail and I'm sure our listeners will have gotten a lot of value from this conversation.

[00:39:21] So thank you once again for being here today and have a good rest of day.

[00:39:26] Thank you for listening to Retail Disrupted. If you enjoyed this episode and would like to

[00:39:38] support the podcast, please leave a rating or review or share it with others. It really makes a

[00:39:44] difference.