Tesco plc Roland Smith Lecture

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					 Tesco plc | Roland Smith Lecture


06/02/2008 - Roland Smith Lecture
                                                Roland Smith Lecture

          A force for good in society: supermarkets and sustainable consumption

                               SIR TERRY LEAHY – CHIEF EXECUTIVE, TESCO

                                                  5th February, 2008

                                               Check against delivery

Introduction

Thank you, Vice-Chancellor, for inviting me to speak here tonight. I’d like to begin by
congratulating you on all that has been happening at Lancaster University – now one of the
UK’s top ten universities for research.

And I’d like to say what an honour it is to be asked to give the Sir Roland Smith lecture.

Roland Smith pioneered marketing as a discipline in this country. His acute mind, his depth of
vision, his grasp of facts – here was a man who knew how to ask the right questions, and the
importance of making things simple.

I know because I was taught by him. I learnt a great deal from his wise words – all except for
his support for Manchester United, which, as an Everton supporter, I could never understand.

This evening I want to talk to you about something that Roland Smith would certainly
understand. I want to talk about the power of consumers, and why I believe the consumer is a
force for good in society, an engine for growth and sustainability.

Picture for a moment the modern high street. The brands, the shop windows, the bustle.
People who are after a new jacket, a new pair of shoes for a child, or simply out doing the
weekly shopping trip.

By making millions of transactions, those consumers are exerting power. They are shaping our
economy, our society, our world.

And now this power, the power of the consumer, gives us a lever to address one of the
greatest challenges of our time: climate change.


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The Consumer and Climate Change

I’m sure you all know the scale of the threat. Failure to act now will cost future generations
dear.

On current projections, we’re going to miss all the government’s targets.

So urgent action is needed.

According to the CBI, to achieve emissions targets by 2030, we would need changes of the
following order of magnitude: 15 million homes fitted with better insulation; electrical products
would need to be 30 per cent more efficient; new cars would need to be 40 per cent more
efficient.

We would need approximately 3,000 wind farms – and a massive shift in power towards
renewables or nuclear.

So we have to up our pace.

But by acting today, we will save money in the future. For every £1 we spend now on tackling
climate change, we may save our children anywhere between £5 and £20 at today’s prices.

Companies like Tesco face a barrage of scepticism and cynicism when we talk about climate
change.

We’re told Tesco should not be involved in this subject because big businesses are causing the
problem.

That the solution lies with governments.

Or that the answer lies in consuming less.

I think that approach is wrong.

Over 30 million shop with Tesco each week. We have a team of 450,000 people around the
world. Thousands of companies supply us with goods.

Our aim is to use that power to cut the harmful activities that cause climate change – and
above all, to cut carbon emissions.

Sustainable consumption – the ability to consume while protecting the environment, not

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damaging it – is possible.

But only if you understand that consumers – and suppliers of products and services – are part
of the solution to climate change.

Consumers control over 60% of direct emissions of greenhouse gases – and even more
indirectly, through what they buy and other choices.

In the retail sector, up to 90 per cent of emissions come from the supply chain, not direct
retail operations.

So imagine what a force for change consumers could be.

Demanding more green products; driving competition between businesses to produce greener
products; rewarding businesses which have reduced their carbon footprint; and giving
politicians the confidence and mandate to act.

If this happened, the green movement would become a mass movement in green
consumption.

The consumer, far from being the source of the problem, needs to become part of the solution.

Of course governments have a role. They can set targets, and make sure that taxes and
regulations are geared to the challenges of the digital and renewable age, not the age of coal
and steel.

But if people feel bullied into going green, they will see red. They won’t change. And everyone
will suffer.

Instead, we must go with the grain of human nature. If we help people to cut carbon, they
will go green. And in so doing they will reward businesses that have gone green.

So consumers are a vital link in this virtuous circle.

If the 30 million people who shop with us each week around the world chose to buy green
products, just imagine the impact.

This would be true collective action: millions of people who, through their own unique,
individual actions, would be working towards a common, shared goal of protecting the
environment. The green movement would become a mass movement in green consumption.



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Is this a pipe dream? Of course not.

The power of the consumer has already delivered untold benefits to society.

The benefits of competition

Think back a generation, to the days when you often had to scurry between shops in the rain,
lugging your shopping.

When fresh vegetables and fruit were anything but fresh, and usually bruised.

When convenience food was usually frozen or came in a tin.


Luxury then was a bottle of wine that didn’t taste like anti-freeze – but probably cost a mint. It
was a crisp apple – if you could find one. It was the ability for a mum on a tight budget to
give her family a joint of roast beef on Sunday, and not worry about the cost.

Good food – fresh, healthy food. Choice. Good service. These things were the preserve of
those with money, those who could afford to pay extra.

Thankfully, this world has disappeared. Why?

For a multitude of reasons. But I believe there is one reason above all others why that world
has gone: we trusted consumers, put our faith in competition, opened up markets, and
uncorked enterprise.

And the result is what you see today. Whether it is food or clothes, TVs or shoes, our high
streets thrive thanks to our faith in consumers, and our trust in competition.

94% of us have access to supermarkets of three or more different fascia within 15 minutes of
where we live.

That choice means customers are shopping around more. In a four week period, customers on
average use three different supermarkets. And the value of consumers switching from one
supermarket to another is now worth over £10 billion a year.

This is the market in which we operate.

Around 20 million customers shop with us each week in the UK. But they could go elsewhere.
Keeping their custom is like a political party trying to retain voters’ support. The difference is,


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we are fighting a general election every day.

And in retailing, just as in politics, fortunes ebb and flow.

Back in the 1980s, Tesco was not in that good shape. A tobacco company thought of buying
us but didn’t – apparently because they thought it would be bad for their image.

We turned the company around by listening to consumers – and we’ve never stopped listening
to them.

We set ourselves a clear core purpose: to create value for customers to earn their lifetime
loyalty. And all that we did was guided by two values: “no one tries harder for customers”,
and “treat people how we like to be treated”.

It sounds simple, doesn’t it?

But delivering this promise each day, in every store, demands unstinting attention to detail, to
logistics, to planning. Each of our staff – be they in Birmingham or Budapest – needs to know
how they can help us deliver what consumers want. And it is that focus which has turned
Tesco into what you see today.

Delivering for consumers

The rise of the consumer has provoked debate about the effects of competition and the role of
supermarkets.

In that debate, people need to decide whose side are they on.

Let’s start with prices.

Competition has benefited customers. The Office of Fair Trading estimates that falling grocery
prices saved consumers £3 billion in just three years – 2004 to 2006.

In the case of Tesco, I can announce tonight that our overall prices have fallen by almost 30
per cent in real terms since 1997.

Just think what that means for families living on tight budgets.

It means that Tesco has saved the typical household £4,954 on their shopping bills since
1997.



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Rail fares, petrol, the council tax, the TV licence fee – they’ve all gone up.

But we have been keeping the prices down. In tougher economic times, we’ll continue to do
everything we can to save customers money. As we often say, “Every little helps”.

And as we’ve kept prices down, we’ve widened choice.

Large supermarkets now stock over 40,000 products.

It’s not unusual for us to add up to 8,000 new lines in just one year.

On average, each of our superstores stocks almost 1,000 types of fresh fruit and vegetables.
That’s double ten years ago.

The sheer scale of choice is almost taken for granted.

But ask anyone who lived through the last war, and can remember rationing, what they think
of that choice, and I suspect that the answer will be something along lines of “awe inspiring”
and “unbelievable”.

And think of the consequences.

Healthier eating for a start.

We’ve made fruit and veg more affordable. Our Value range now covers 90 lines – including
fruits such as mangoes and kiwis.

Each month, a million customers now buy from our extensive Wholefood range. Sales of fresh
produce rose by over 10 per cent in just one year.

And then there is the non-food sector. We now sell books, jeans, CDs, DVDs. We offer
financial services like insurance.

Yes, Tesco has shaken these markets up. And that’s a good thing too. For the beneficiaries are
consumers, the people whose side I am on.

And who are those customers? From all walks of life – but many are on low incomes. Until
relatively recently, they could not enjoy the choice now on offer. Either it didn’t exist, or they
couldn’t afford it.

Giving them that choice is, I believe, something of which we can be proud. Surely a society in

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which more people can afford quality food and products is a society that is progressing?

Supermarkets, social mobility and society

Supermarkets have become a lever of social change, a source of social mobility. Not just in
giving people more choice in what they buy, but in providing more jobs.

In the case of Tesco, we have created on average one new job every 20 minutes for the last
10 years. That’s over 260,000 jobs created since 1997 – and over 126,000 of them in this
country.

And in some deprived areas, Tesco has been a hub for regeneration.

Lone parents, older people made redundant from declining industries, young people without
qualifications: these are the people who can benefit when a new Tesco opens.

Overall, almost 4,000 long term unemployed have benefited from our Regeneration stores –
several hundred of them in the North West.

I’d like to think that we have given these people, and their families, dignity and hope.

Dignity – the sense that they are more responsible for their lives, and not reliant on the state.

And hope – that life for them, and their families, will get better.

For Tesco is often the only company in an area offering large-scale flexible working at decent
wages, training opportunities and a defined benefit pension scheme.

150,000 of our staff are on that pension scheme.

And 165,000 have a stake in the company itself, through shares and share incentive schemes.

Last Friday was a good day for 51,000 of those employees. They became entitled to share
£174 million when their Save as You Earn schemes matured.

These statistics sound dry. But behind each one are individuals and their families, benefiting
thanks to hard work, dedication and commitment. People able to buy a new car, go on a
holiday, save up to buy a home.

Tesco is a company that wants to reward and retain its employees. This year, we will appoint
over 3,000 new managers in the UK, and we want over 80 per cent of them to be internal

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appointments.

This is social mobility – where progress is determined not on who you are, but on how well
you do.

Supermarkets and the economy

But the benefits of growing supermarket are not limited to the supermarket itself.

As I said, we added 8,000 new product lines in one year alone. That’s 8,000 orders for other
companies, each one a hub of employment and wealth creation.

We rely on those suppliers and distributors to deliver the choices and products our customers
want.

So the next time you walk through a supermarket – whichever supermarket, although I hope it
is Tesco – think of the people whose livelihoods depend on us selling the products they
produce.

Not just the hundreds of thousands of people we employ, but the millions of people that our
suppliers employ, which has turned supermarkets in a major cog of the British economy.

But even if you do not shop in a supermarket, you are benefiting from our success.

In the last ten years, Tesco has paid £3.5 billion in tax to the Government.

That’s enough to build more than 160 new secondary schools[1].

As we grow, Britain shares in our success.

And that is the point. Better quality food at affordable prices. More choice. More jobs. A
dynamo for growth in the economy as a whole. And a massive source of revenue for public
services.

Our success is a shared success. Shared with our company and shareholders, with the
communities we serve, with Britain as a whole.

Supermarkets and social responsibility

And with that success comes responsibility – a responsibility to help those communities, and
the country as a whole, to tackle the challenges we face.

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Better housing, higher standards in schools, lower crime – these are aspirations we share, not
just because they are good for society as a whole, but because they are good for business
too.

Tesco is not a charity. We are not an arm of the state. But we recognise that strong and safe
communities are not just better places to live in, but are better places to do business in.

Our commitment to acting responsibly goes well beyond giving 1 per cent of our pre tax
profits to charities and good causes, either as donations or help in kind.

It is hardwired into our business strategy.

For example, in Deysbrook in Liverpool, we are proposing building a community sports hall as
part of our application to extend the store. It will have football pitches and areas for mother
and toddler groups.

This investment makes sense for us. In return for being able to extend our store, we put
something back into the local community, hopefully improving people’s quality of life.

The same can be said for the countless developments we – and other supermarkets – have
completed, where we have built a store and paid for new affordable housing or community
facilities to be built nearby.

That investment is well worth it. Communities benefit from a new source of jobs, a new source
of business, new community facilities and a new Tesco.

Tesco benefits from a new store.

And none of that would be possible without the consumer – the person who is driving this
change, and making it possible for us to invest in the first place.

Building a mass green movement: sustainable consumption

And so now the time has come to harness the power of consumer to tackle climate change.

To make that happen, we need to go with the grain of what consumers tell us.

I believe that many people grapple with two competing mindsets.

In the red corner is the mindset of the modern consumer. A mind that values price, quality but
also convenience, mobility, independence. It’s the mind of someone who shops around for the

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best deal, but also wants the latest mobile phone, who enjoys German beer or New Zealand
wine, and, yes, enjoys flying to Europe on a mini-break.

In the green corner is the mindset of the responsible citizen. A mind that recognises the threat
that climate change poses not just to the world but to their children. It’s the mind of someone
who wants to play a part in protecting the environment and cutting emissions.

These two mindsets are not incompatible.

At Tesco, many of our customers tell us that they want to do their bit to fight climate change:
but high prices, lack of information and apathy stand in their way.

So our task is to remove those barriers.

To tell you how we are doing that would take several hours. So here are some brief highlights.

On price, we halved the price of energy efficient light bulbs – and sales have quadrupled as a
result.

We’ve saved over one billion carrier bags.

We’re making it easier for people to go green. Recycling units at dozens of our stores sort
plastic, metal and glass for you. And we’ve opened a new store in Cardiff, where we are
offering over 250 green products, so we can understand what customers want.

Working with academics and experts, we will develop new ways to encourage customers to
buy green products and services, and new technologies to deliver low carbon lifestyles.

And we want to give consumers information.

With the Carbon Trust, we’re beginning the search for a universally accepted and commonly
understood measure of the carbon footprint of every product we sell. Customers will be able
to compare their carbon footprints as easily as they can compare their price or nutritional
profile.

I believe this will be a critical step forward.

Consider what happened when we introduced nutritional labelling.

Nutritional labelling was introduced because consumers were becoming more health conscious.



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Within weeks, sales of products with low salt and fat content rose, while sales of less healthy
alternatives fell.

And now other manufacturers are following suit, developing healthier snack foods with lower
saturated fat.

If customers are given more information about products’ carbon footprints, I believe their
behaviour and choices will change – and the supply chain will have to change too.

As suppliers cut their emissions, the bloodstream of the entire supply chain will begin to turn
green.

And that is a critical point.

Our work to deliver sustainable consumption is not some add-on extra. Our aim is to create a
mass movement in green consumption.

Cutting carbon emissions is now locked into our business strategy.

We’ve measured the carbon footprint of Tesco’s own operations, and set ourselves tough
targets to cut it – like cutting emissions from our existing stores and distribution centres by at
least 50 per cent by 2020.

We’ll achieve this by changing almost every aspect of how we work.

Some are small things – like our Energy Champions in every store, encouraging colleagues to
save power.

Other steps are much larger. For example, we’re using canals to transport stock and battery
powered vans to make home deliveries.

And we’re developing a new Environmental Format for all new stores, so they have on average
half the carbon footprint of a store built in 2006.

How will we achieve that? By using sustainable materials in the stores’ construction, using
renewable energy to power them, and by being energy efficient in how they operate.

Our first Environmental Express store at Hinckley, for example, will use new refrigeration,
natural light and low carbon construction materials.

Just think of the benefits. These stores are designed for convenience, and especially for


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shoppers who come by foot, saving on emissions.

Their construction and operation will be energy efficient, again, saving on emissions.

And, in future, I hope more and more of what they sell, and what people buy, will have a low
carbon footprint – both in its production and transportation. Again, lower emissions.

So the shop, the products, the means by which people and goods arrive and leave the shop –
everything will have lower emissions. Those are the steps to make green consumption a reality.

Taken together these steps, some small, some large, are already having a big impact.

Last year we cut emissions in our distribution network by around 20 per cent.

This year we’ll meet our target to halve the average energy use in our UK buildings– two years
early. The amount of energy we use in existing buildings will be half that used in 2000.

And here’s the critical point: we’re achieving this while Tesco grows.

The naysayers are wrong: being green does not mean sacrificing growth. Far from it. The two
can go hand in hand. And the two must go hand in hand if we are to confront this challenge.

Our relationship with consumers is a vehicle to drive change. We can turn the green
movement into a mass movement – not something out of reach to all but the affluent, or out
of mind to all but the activists.

The consumer: a force for good

Which brings me back to where I began: the consumer is a force for good in society.

There is always a divide in society between those who trust people, and those who say people
cannot be trusted.

Well, I put my trust in people, in consumers.

Consumers fuel our economy, creating jobs, investment, tax revenue.

And if, like me, you believe that consumers want the best not just for themselves and their
families, but also for the wider community, you will see why they are a force for good.

And, in the debate about supermarkets, you will stand with me on the side of the consumer.

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Supermarkets are their creation. We prosper and grow by delivering what they want. That is
our role in society. And our success is a shared success, one that benefits all.



[1] NAO report: ‘The Academies Programme’, Feb 2007

http://www.nao.org.uk/publications/nao_reports/06-07/0607254.pdf




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