Former Tesco director Christine Cross shares her views on the changing face of retail.
Tell us about your time at Tesco and how it has subsequently influenced your career?
I began my career as an academic specialising in the food industry and had always been interested in exploring a more commercial career, so when I was approached by Tesco I seized the opportunity.
I went on to become a director and was subsequently involved in the development of the company’s private label brand, the establishment of its non-food business, international direct sourcing, and latterly, global business development and M&A strategy. As a result of the fantastic experience I gained I now have a mixture of advisory and non-executive roles with a range of global food and non-food retail and FMCG (fast moving consumer goods) businesses.
How do you choose which companies to work with?
I get involved where I feel I can make a real difference and where I fully understand the business and have empathy with it. For instance, I wouldn’t join the board of a financial services company because I simply don’t know enough about that industry and, importantly, wouldn’t be able to spot if something was going wrong. With a retail business I can lift up the bonnet of the car and understand fully what is wrong with the engine.
I also look to work with open-minded chairmen and boards which are prepared to embrace change when they need to. Some boards think they have a winning formula and so fail to look forward enough. But that winning formula will not last forever, and they will often act when it is too late.
What you see time and again is a company reaching a particular inflexion point and it’s at that point that the board has to act. You can only add value if you are allowed to make an impact and constructively challenge management and board colleagues.
Do you think enough companies have the right mix of non-executives on their boards?
Chairmen and chief executives are always very keen to ensure they have a full mix of skills on their boards which is understandable. But what is not stipulated is that non-execs have to have good knowledge of the particular sector that the company operates in. In my view this is where things can fall down.
How do you advise a board when a company reaches its ‘inflexion point’?
You have got to use all your experience and think about what specific moves the company needs to make. It’s rather like a Rubix Cube where you have to make particular moves in a particular order to get the right result. You have to constantly ask yourself whether there is anything you have missed. You should always have a healthy paranoia and think about what could throw you off course.
It is about understanding which levers to pull in order to pre-empt potential difficulties, and being alive to trends both at home and abroad.
For instance, the Western food retail market has been through a period of huge change with the effects of deflation as well as the rise of discount supermarkets and online shopping. If you take the big four supermarkets in the UK they simply have too much real estate, too many stores, and too many people working in them. They have already passed their inflexion point.
What are the biggest challenges around e-commerce today?
Making money! There are still not many profitable pure-play e-commerce companies, and how you drive through that e-commerce investment into net profit remains key. Firstly, companies need to ensure they have a single view of their customers across all channels so that they don’t differentiate between a shopper who goes into a store and one who shops online. Secondly, they need to fully grasp the consequences of e-commerce on stock handling. The consensus now is that you have to have a single stock pool which deals with both online and offline orders.
The picture for online grocery can be more confusing. I think this market will definitely continue to rise, and the growing footprint of the likes of Amazon Fresh is certain to have a disruptive impact. But if you take the UK as an example, then online shopping still only accounts for around 8% of food sales compared to nearer 20% with non-food. I think it will take some time for online grocery sales to match store sales.
What other trends are you seeing through your wide variety of roles?
A fascinating dynamic is the extent to which physical and pure-play online retailers will start to come together more.
I personally think there will be quite a lot of M&A between both sides as they figure out to what degree they should be working together. It might not be a buyout on either side, it could be something a bit more creative such as a joint venture or partnership. But both sides need to think about how they can leverage each other’s strengths.
Good businesses want their products to be as accessible on as many platforms as possible. Put simply, the more clicks online the more footfall that could be pulled into your store. As long as you can align the online and retail selling price, and ensure product presentation in either does not damage your brand, there is no limit as to where you can sell your product.
In which case, is there anything stopping global brands going direct to consumers?
This has been the subject of speculation for some time now and I would be surprised if the conversations are not already taking place. In theory, there is nothing to stop the owners of big brands coming together and providing their own effective ‘marketplace’ or ‘shopping basket’ direct to the customer. If you take grocery you could imagine how this might work.
Companies come together and say “let’s put together a branded grocery business and deliver direct to customers”. After all, they know exactly who their customers are and what they buy each week.
Finally, what advice would you have for brands looking to build global propositions?
In the past a company might have been happy with some opportunistic flag planting, opening a store abroad and then working with a franchise partner. It is a little harder to do that now. Quite a few well-known companies have had their fingers burnt by going along this path, while also finding that having a franchise partner can pose logistical issues if you then want to start selling direct online.
As such, in most markets it is becoming harder to build global propositions. Instead, companies are using capital light ways of testing their business overseas such as through targeted social media campaigns to accelerate the brand, and only investing significant capital when they are absolutely sure that the business is gaining traction. We saw a lot of companies rush abroad to catch the e-commerce wave but there has been a bit of a pull-back of late. Brands are looking at different ways of entering markets.