News Analysis: Tesco's PR battle to stay at the top

Company secretary and group corporate affairs director Lucy Neville-Rolfe talks to Richard Cann about what drives Tesco, the UK's leading supermarket, forward.

Tesco, it seems, can do little wrong. More often than not in recent weeks, it has topped PRWeek's Reputation Monitor of national press coverage, compiled by Thomson Intermedia.

The relentless rise of one of Britain's biggest business success stories continued last week with the announcement of pre-tax profits of £1.6bn for the supermarket giant in the 53 weeks to 28 February. Sales were up 16.3 per cent to £26.9bn in the UK, where it has a 27 per cent share of the market. Moreover, Tesco's non-food business is growing at an incredible rate, making big inroads into the retail of CDs, DVDs, books, white goods and electrical appliances as well as financial services and telecoms.

Tesco has sailed through unscathed during a potentially difficult period over the last four years, according to Morgan Stanley analyst Ben Britz: 'It has survived the resurgence of Asda, the distraction of the bidding for Safeway and two Competition Commission inquiries.'

Celebrating success

'In Britain people are not always good at celebrating success,' says Tesco company secretary and group corporate affairs director Lucy Neville-Rolfe. Illustrating the public's loyalty has been the absence of criticism about the size of the profit given that most of its income is generated directly from their purses.

'Only 3.5p in the pound is profit so it is down to volume of sales as this is not a high margin business, and I think this is well understood,' says Neville-Rolfe. 'People judge us by what happens when they enter our stores.' A second £70m price-cutting campaign within three months was also announced just days before the profit announcement.

Tesco has attempted to protect its reputation with a CSR programme that has seen it sponsor Cancer UK's Race For Life which raised £17.5m and provided more than £84m of equipment in its Computers for Schools programme.

'CSR is important because we are in the community. We touch so many people,' says Neville-Rolfe. Communicating this is vital given the criticism Tesco's growth attracts for driving out smaller stores.

However, the Consumers' Association (CA) gave Tesco's latest profit announcement a ringing endorsement, issuing a statement that read: 'The convenience sector should recognise the threat of a strong competitor and meet it by focusing on what consumers want.'

A CA spokesman adds: 'The largest supermarkets have a tiny share of the convenience store market, which is still dominated by single operators and small chains, and the strong competition in this sector can only be to the benefit of consumers.'

Consumers sit at the heart of Tesco's comms strategy, says Neville-Rolfe: 'We have a strong customer focus, so we don't jut talk to the City. We try to make the story interesting for the consumer'. She points to the fact that the recent announcement that Tesco sells more baby care products than Boots and Mothercare combined was a consumer issue rather than purely a business story. But such stories are a double-edged sword.

Retailers such as Boots and WH Smith are feeling the strain as Tesco has marched into non-food territories with great success. It has already faced two Competition Commission inquiries in recent years and its movements are constantly monitored by the CA and the National Consumer Council (NCC).

NCC acting head of corporate and public affairs Diane Gaston says Tesco's success reflects consumer satisfaction and trust: 'We have a strong remit to represent lower income earners who get hit by decreased competition but Tesco is still doing very well on price.

'We have slight concerns and are keeping a watchful eye. But we are generally supportive of Tesco moving into areas such as financial services because competition keeps people on their toes.'

While Tesco has generally managed to keep watchdogs and regulators on side, it does have plenty of critics. Friends of the Earth campaigner Sandra Bell says Tesco's focus on the customer means that its profits have been made at the expense of suppliers, farmers and small shopkeepers, a tactic that could come back to hurt the retailer's reputation in the long term.

'Tesco should absorb more of (supplier costs) in its profits,' says Bell.

She adds that consumers are driven not just by price and are becoming increasingly concerned by the manner in which services and products are delivered, even at the supplier stage. 'Sainsbury's has been struggling, as well as big high street names like Boots and WH Smith,' she says. 'Consumers would be very concerned about the threat to competition.'

Tesco's expansion however is set to continue after it announced plans in January to raise £1.5bn to increase its presence both in the UK and overseas, where it operates in 11 countries and intends to open 51 hypermarkets and 51 other stores in the next year. It also remains at the top of investors' lists, indicating a ceiling has not yet been reached.

Morgan Stanley increased its forecast for 2005 on the basis that 2004 results were ahead of expectations, says Britz. He adds that Tesco remains its preferred stock in UK food retail, but warns that although its expenditure on its stores is set to rise by six per cent this year, it plans to create 14 per cent less space than last year. The average size of new stores is also set to fall significantly.

Neville-Rolfe believes Tesco can build on its position without jeopardising its reputation: 'There is more opportunity to grow, which is why we raised the extra money this year.'

The bigger they get, the harder they fall? As Tesco's appetite for domination shows no sign of abating, the stakes in upholding its reputation will continue to rise.

TESCO'S COMMUNICATIONS STRUCTURE

Seven people, including external comms manager Jonathan Church, run Tesco's UK comms team, responsible for all comms across its services and business units including investor relations, CSR, and government affairs.

Although Tesco uses Beechey Morgan for fashion and beauty product work and Maitland for some investor relations, Church, who reports to company secretary and group corporate affairs director Lucy Neville-Rolfe, says it did not replace consumer agency Wonderful PR after they parted ways after six years last November. 'We have our fingers in a lot of different pies because we have so many stories to tell,' says Church.

Tesco's approach is very centralised despite the broad range of services and PR disciplines required, with only its financial business having a standalone press office. Neville-Rolfe says: 'The volume of interest Tesco attracts requires collaboration and trust within the team to ensure consistency across our services.' Accessibility to the media is also key and Neville-Rolfe says CEO Sir Terry Leahy and Tesco Mobile CEO Andy Dewhurst are constantly talking to journalists.

Neville-Rolfe.

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