Cheshunt, England, 2014-3-18 — /EPR Retail News/ — Our Group CEO has delivered a keynote presentation at The Guardian Changing Media Summit 2014.
Thank you for inviting me here today.
You might think this is an unusual platform for the CEO of a supermarket chain. After all, we’re retailers, not a media company. In fact Tesco is the largest retailer in the UK and the second largest in the world.
But I’m going to use the next 20 minutes or so to tell you why our industries are facing pretty similar challenges, and why digital media is absolutely at the heart of my strategy to create the leading multichannel retailer for the future.
I’ve spent my 40 year career in retailing, but even to someone from outside the media, it’s clear how profoundly your industry is changing.
Retailing is changing too. Retailers are having to shape our businesses to lead in the digital age.
The word multichannel and other terms like omnichannel are bandied around a lot in retail, but my definition of it is simple.
It’s about putting the customer in control, and enabling him or her to engage and transact with Tesco in whatever way best suits them – physically or digitally, transactionally or non-transactionally.
This change is being driven by the consumer – the demanding connected, discerning 21stcentury consumer.
The changing way in which people are shopping is presenting some well-documented challenges for businesses like Tesco.
Not everyone wants to shop in big stores anymore. Convenience stores are the growth format. And people are increasingly choosing to shop online, especially for non-food products like televisions or entertainment. They are no longer going to big stores for them.
But while these changes bring short term challenges, we at Tesco are not trying to resist them. We are embracing the change.
And that’s because the digital revolution brings opportunities too. Opportunities to offer our customers products and services they’d never before have expected from Tesco. Opportunities to surprise and delight them, to strengthen our relationship with them and their families, making everyday life that little bit more fun.
Today I’m going to talk about some of the ways we’re doing this, but first, I want to explain why it’s so important for us to engage with customers in different ways.
For any consumer facing business, the most precious commodity is loyalty. But in an age where customers have more choice than ever in how to shop and who to shop with, loyalty is harder to come by, and easier to lose, than it ever has been.
In the past, being big and ubiquitous was a strength for a business like ours. Today, bigger does not automatically mean better.
But what we can do is demonstrate how we can use our scale to do more for our customers, and to deliver a genuinely tailored offer for all our shoppers – a personalised Tesco serving every customer in whatever way suits them best.
You can’t do this if you don’t know who your customers are, but we have a unique advantage in this regard, which is Clubcard.
43 million people around the world hold a Tesco Clubcard, and through the insight it gives us it means we can tailor our offer to best suit their individual needs.
It enables us to send our customers tailored offers which are relevant to their weekly shop.
And we are fortunate that we own Dunnhumby, world leaders in the analysis of customer data. The insight they provide helps us understand our customers’ lifestyles, their needs and wants in a way few other retailers can.
We have this unique relationship with customers. But why does it need to be restricted to their weekly grocery shop?
While the food people eat matters – and clearly we share our customers’ passion for food – it’s clearly not all that matters.
Entertainment is one of the things which binds us together as families.
And it’s a sector which is being transformed, transformed by an internet driven revolution in home entertainment.
One thing which unites both media and retail is the importance of content. Looking at the programme for this conference it is clear to see that compelling content is what drives success in the media.
Your content is different to that which we retailers have traditionally provided. You provide words and images. For us, it’s about the content we offer our customers in our stores, on our website. Innovating for the customer, and investing in our offer.
We have spent tens of millions of pounds in the last year alone on product development, creating new products which reflect the changing ways customers live their lives.
As one example, we’ve seen a big shift towards customers wanting to live healthier lives, and interested in products related to their wellbeing, and we’ve shifted the uses of space in our stores to reflect that.
And it’s this longstanding focus which means we are well-placed to provide a content-based offer in other areas not related to the traditional weekly shop.
Let me explain in a bit more detail why we have invested in digital entertainment. There are three main reasons why it sits very naturally with our core business:
Firstly, it is a powerful way of engaging with customers. People have a high emotional connection with books, music and films, and they are consumed frequently. They’re passions, and vital parts of how we live and enjoy life today. And so they work powerfully to strengthen our relationship with our customers.
Secondly digital entertainment helps us build a connection with customers through the devices on which they are increasingly living their lives and which are driving ecommerce growth.
The mobile phone is the ideal device through which to listen to music – a tablet is perfect for reading a book. And these are the growth devices for ecommerce more broadly as customers migrate from stores to online. So there is a clear synergy here with how our core business is evolving.
And thirdly, it helps with brand perception. We are moving from being a traditional bricks and mortar business to one which offers a much broader range of services and products, reflecting the way customers are living their lives today.
We are not the first company to recognise the strategic value of entertainment – iTunes drove Apple’s growth, while subsequently all the mobile phone operators have bundled entertainment to drive growth. In the USA, Samsung has introduced Milk Music, a free music streaming service with a library of 13 million tracks available for free on Galaxy devices.
The new digital entertainment services we are offering bring to life our commitment to serve our customers in different and exciting ways.
We have seen a fundamental shift in how people consume media.
As in retail, consumers are more demanding – they want to be in charge, and consume the product how, where and when suits them.
And they expect the experience and service to be faultless – good enough is no longer good enough.
Physical is replacing digital, schedules are a thing of the past – today is about on-demand, at a time of the customer’s choosing
It’s no longer about products and ownership, it’s about services and access.
And the TV is just one of a variety of screens through which people consume media today, alongside their phones and their tablets.
The services we have developed have sought to reflect and meet these changing consumer demands.
When we invested in Blinkbox it was already the UK’s leading movie streaming business. Today we have grown the business into music and soon into books.
Blinkbox movies now offers 20,000 of the world’s best movies and TV shows to buy or rent, without subscription.
Blinkbox music has 12 million songs, free of charge, on PC, tablet and mobile
While Blinkbox books will offer all the bestsellers on PC and the most popular tablets and mobiles.
These are all great services meeting clear customer demands in today’s digital, connected world.
But there is a much broader benefit to Tesco.
All the evidence we have tells us that customers who shop across channels with Tesco spend more – interestingly both online and their core spend with Tesco in the shop, because it builds their emotional connection with the brand.
This loyalty is reinforced when we offer them additional products and services they wouldn’t have expected from Tesco.
These are services our customers and their families love. What they love is that we’re surprising them, by offering them a little thank you, from us to them, in their own homes.
And this is why – and our research backs up – that the more services a customer uses, the more likely they are to stay loyal customers to Tesco.
We aren’t just giving consumers access to content though. We see part of our role as being to democratise technology.
After all, I see one of the greatest achievements of supermarkets over many decades as having been to make products accessible which had previously been unattainable to the many.
In the past it might have been the avocado. Today’s avocado is the tablet computer.
I’m guessing in an urbane audience like this many people take tablet technology for granted. But let me tell you, outside the metropolitan bubble, it has remained inaccessible to many. Last summer we commissioned research which found that 70pc of families didn’t have access to tablet technology.
That was what prompted us to develop the Hudl.
It is our attempt to make tablet ownership accessible to all, creating a product comparable with the best in the market but at an affordable price.
We spent two years working on it and the reviews – and the sales – suggest that we were right to.
It sold out at Christmas and we are selling them as quickly as we can get them in stock – we’ve sold over 500,000 already.
But this is more than just a new product in the best traditions of Tesco. It’s also a driver of loyalty, a strengthener of the bond with our customers. The T button on the Hudl seamlessly connects the customer to the world of Tesco on their tablet, opening up a world of movies and music via Blinkbox, as well as our home shopping apps for groceries, clothing and even TVs.
It has served as a catapult for our online businesses, driving significant increases in traffic to Blinkbox movies and Blinkbox music. It has driven a ninefold increase in Blinkbox movies and a 5 times increase in Blinkbox music. And it will be an ideal device for consumers to read books from Blinkbox when that product launches shortly.
Our digital media businesses have had an energising effect on Tesco as a whole.
We have an app development centre in London’s Clerkenwell, with 40 dedicated colleagues working on maximising the benefit of the latest technologies for our customers.
They sit alongside the 800-strong team which runs Blinkbox and is continuing to develop the Blinkbox offer.
But these parts of the business are not kept at arms-length. Quite the opposite. We have brought digital skills into the heart of the business, and they are proving invaluable in helping us ensure Tesco is the leader in the multichannel era of retailing.
So for instance, Michael Comish, co-founder of Blinkbox, is now our Group Digital Officer, and playing a key role in our evolution as a business. Robin Terrell, one of Amazon’s first employees in the UK and the man who drove multichannel at John Lewis, is now our Group Multichannel Director.
To conclude, let me summarise how our digital entertainment businesses fit into the broader Tesco picture.
Our over-riding goal at Tesco is to become the leader in the multichannel era, serving the customer in whatever way suits them best.
Digital entertainment is one part of that. There are many other ways in which our team is working to deliver a seamless multichannel experience for our customers across all aspect of the business.
But it demonstrates how technology is now at the heart of what we do. It enables us to delight our customers, and differentiate ourselves from being seen as purely a traditional supermarket like some of our peers.
I have said before that those retail businesses which fail to evolve and differentiate themselves will not succeed in the second curve retail world.
We at Tesco are determined not to fall into that category – that’s why we are changing the way we work and focusing on innovations that will help us win in this new world.
I said at the start that in today’s consumer environment, bigger is not necessarily better.
And that’s true. But by building new products and services which can strengthen Tesco’s relationship with its customers, which surprise them and delight them, we can create a business which is greater than the sum of its parts.
Digital entertainment is at the heart of our drive to achieve that.
Thank you for listening.
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