Tesco: “Customer” runs through Tesco's long results statement from like a word through a stick of Blackpool rock. The grocer that goes on growing is obsessed with finding out what its customers want, and then trying to give it to them.
Tesco demonstrates how to create shareholder value by focusing on something else. It already dominates the UK high street, and takes 1,700 pounds a year from the average British household. But the only limits it can see to its share of the nation's spending power are those imposed by planning restrictions on new stores.
From dominance in grocery, it has marched into electricals, mobile telecoms, toys and clothing. The ambition to make a billion pounds a year from retail banking looks eminently achievable, without buying any of the branch networks up for sale by rescued UK banks. Rather, it promises a novelty in this industry, current accounts which suit the customer rather than the bank. Tesco is now in 13 other countries, and its market share is first or second in seven of them. China is close to break-even, and even the hardest nut of all, the United States, shows signs of starting to crack.
The international drive allows innovation to be exported. The Clubcard loyalty scheme has outgrown the UK and Tesco. The subsidiary that runs it now reaches 350 million consumers round the world. Tesco has an old-fashioned view that you don’t want debt round your neck. Borrowing will fall further this year, helped by a policy of selling the UK stores and leasing them back cheaply — it pays the equivalent of 4.9 percent interest rate, almost as low as government debt. The proceeds are used to fund expansion overseas. With so much going right, surely something must go wrong. The United States may deteriorate; the UK may not recover as CEO Terry Leahy expects; the question of his successor may damage the impressive board unity; the business may falter under the complexity of offering so many products in so many markets. One day, some or all of this may happen, but there’s no sign of trouble today.