Tesco invests €70m in stores as growth returns to Ireland
New €31m store to open in Liffey Valley as CEO targets Express expansion
TESCO Ireland is investing €70m in its stores between this year and 2018, with €31m earmarked for a massive new shop in Liffey Valley.
In an interview with the Sunday Independent, Tesco Ireland chief executive Andrew Yaxley revealed that the company has embarked on the significant investment programme after returning the business to growth.
“You can only start to spend that investment when you’ve turned your core business around,” he said.
“It’s pointless building new stores or refitting stores when you haven’t fixed your core.”
“Testament to the fact we are moving forward on the journey is that we are going to spend €31m in Ireland developing a new shop,” he added.
The new ‘retail centre’ in Liffey Valley will comprise a 60,000 sq ft Tesco store with five ground-floor retail units, a first-floor cafe and a number of kiosk units. It will employ 150 people and open in May.
During 2017 the company upgraded the produce section in more than 107 stores reflecting a focus on fresh food. In addition, 57 stores had major revamps including produce, beer, wine and spirits, hardware, and customer service, with a further 40 due to take place in 2018.
Yaxley joined Tesco Ire- land in 2015 at a time when like-for-like sales were down 6.3pc. In October, Tesco Ireland reported a statutory like-for-like sales increase of 1.1pc and revenues of €1.23bn in the 26 weeks ending August 26.
In the second quarter likefor-like sales were up 2pc — its best quarter since its second quarter 2010.
The retail giant opened its first new shop in four years in Swords last May.
“The opening of a new store in Swords was one of my proudest moments,” said Yaxley. “It was the first store we’d opened in around four years. As retailers, we like to open up shops and Swords marked a turning point, that we’re back opening new stores.”
Tesco Ireland now has 149 shops employing 14,000 people.
Yaxley said that while Ireland is one of the most competitive markets in Europe, he would like to see more openings here, particularly of the smaller Tesco Express format, aimed at the convenience market.
Tesco also continues to invest in its grocery home shopping business, which is seeing significant growth.
It also operates 19 clickand-collect sites and this month opened its first clickand-collect site in Kilkenny.
WITH just over a week to go to Christmas, the car park in Stillorgan shopping Centre is packed and the newly revamped anchor Tesco store is doing a brisk trade. Andrew Yaxley, chief executive of Tesco Ireland, is braced for the intense few days ahead, with next Saturday set to be the busiest shopping day of the year for the chain.
As he does a walkabout of the shiny new store aisles, pointing out the ‘market style’ presentation of fruit and veg and user-friendly new fish area, Yaxley is clearly feeling upbeat about the business.
And with good reason. When he took over the Irish operation more than two-and-a-half years ago it was, as he says, “a declining business”. Now the group is in rude health, with the most recently reported quarter showing growth of 2.1pc, the highest level seen since 2010.
The first store in four years opened in Swords last summer. More new stores are on the way, including a €31m Liffey Valley shop which will open in May boasting five ground-floor units over 60,000 sq ft, a cafe and several kiosks.
While the 149 stores will be bustling with shoppers in the coming days, Tesco is also enjoying significant growth in its online shopping business. During Christmas week, Tesco’s grocery home shopping will make more than 30,000 deliveries, shipping 1.4 million products. “It’s huge,” says Yaxley.
After years of purse-tightening, all the consumer data points to a buoyant mood among shoppers although Yaxley says shopping habits have changed over the course of the recession.
“People have a bit more disposable income in their pockets,” he says, going on to point to some observations he made when working for Tesco in Central Europe. “When people go through a recession they learn to survive on less. And when there is a recovery that habit doesn’t change, so I think a lot of the shopping habits have stayed the same.”
One of these trends is a move away from the big weekly shop and a shift towards smaller, more frequent shopping trips.
“And a lot of treating. Maybe cautious on the core shop but then they like a treat whether it’s the €10 Finest meal deal or its a nice bottled of Finest wine,” he says, referencing Tesco’s upmarket range.
One of his achievements has been to drive up the sales of Tesco Ireland’s own labels. They had been 30pc of sales, and now account for more than 50pc.
Yaxley says that Tesco Ireland continues to be on a journey and regards the Irish market as tough.
“Ireland is one of the most competitive markets in Europe,” he says. “When you look at the population and the food retail square footage, Ireland is at least at saturation with food retail. “New store openings will slow down.” Yet he still has ambitions for the expansion of Tesco — particularly Tesco Express, a smaller store format. “It’s a great format; it’s the way customers want to shop. Customers love it, so absolutely we will be planning more Tesco Express stores in Ireland,” he says.
Born in Derbyshire, England, Yaxley spent his childhood living in different parts of the country thanks to his father’s role as a regional director in a financing company.
After studying business in North London Polytechnic, his first job was with Mars, the company which sells everything from confectionery to pet food. Soon after joining, Mars sought volunteers to establish the business in Russia. Yaxley then aged 26, was eager for an adventure. “Not many people can say they lived in Vladivostok for six months,” he says.
“I was there in ‘94/’95 just as the market was beginning to open up. It was like the Wild West, like nothing I have ever experienced but it was a great experience.”
The initial products introduced were chocolate bars.
“The Curtain had come down and people had never tried a Mars bar, a Snickers bar,” he says.
Given that the population mainly had only had access to boiled sweets before the market opened up, it is little surprise that Russians queued to try the new treats on offer.
He joined Tesco in 2001, holding several commercial director roles, including a five-year stint in Prague. Before joining Tesco Ireland he was managing director of Tesco’s London business which encompasses around 900 shops, and a turnover of £6.5bn, dwarfing the Irish business which has sales of around €2.5bn.
Yaxley’s wife Sinead is from Bray, Co Wicklow and so he says he jumped at the chance to head up the Irish operation. “To be honest with you, it was the greatest day when I told my wife. She had been out of Ireland 21 years. My three boys all have Irish passports, so they feel Irish anyway. So to actually come home was brilliant.”
But he was taking on quite a challenge at Tesco Ireland. While the wider group was reeling from an accounting scandal, Irish sales were on a downward spiral.
“If you look at our 2014/2015 numbers, our stat (sales figure) like-for-like was negative 6.3pc. We had a business that was declining.”
“Do I think we think we probably took our eye off the customer? Yes, we probably did. I think coming in with a fresh pair of eyes you sometimes see things that other people haven’t seen.”
The Irish business takes a very different ap- proach to that of the group. Walking through Stillorgan, he points to the many unique qualities of Irish shoppers, such as the fact that meat sales rank higher as a proportion of spending than for shoppers in other locations. “Irish customers are very different from the UK customers. Their preference, their shopping habits.”
Key to Yaxley’s approach has been simplifying the business.
“The Tesco Ireland business plan, which we’re in the third year of, we write it on a page and for me you’ve got to keep your business plan very simple that you can distil and talk to everybody in your business — and we’ve got 14,000 colleagues we’ve got to talk to.
“At the heart is our slogan, which is around serving Ireland’s shoppers a little better every day.”
The business plan centres on four pillars. The first is value and Tesco Ireland started that by introducing ‘staying down prices’, which offered low prices on hundreds of everyday items.
That has now morphed into ‘the 800’, which are products promising lower prices for at least three months.
This is a plan devised for Ireland and not replicated in the UK stores.
The second was around quality and the Tesco brand. The third was helpful and friendly service, the fourth was on the community, which has seen Tesco Ireland highlight its charity initiatives such as its community donations chosen by customers in local stores. It also supports Temple Street and FoodCloud.
Another one has been added to that — driving a competitive advantage such as with grocery home shopping.
“When you pull all that together, the bit we had to get refocused on is the customer — listen to the customer, the customer will tell you what they like and what they don’t like and you keep on doing more of what you like and less of what they don’t like.”
Yaxley also talks about how KPIs (key performance indicators) had become functional, focusing on categories such as waste, shrink (theft) and payroll. Now the focus is on customers’ views of the stores. “The truth is that without customers in our stores, you will never turn a business around.”
He said that a volume-led recovery has been a priority rather than growth solely in the value of sales. “Volume helps all your business; it helps with your transportation, your distribution, it helps everything. When you stop having volume growth, it’s really difficult.
“We are actually suffering deflation as a business because we invest in prices for customers but that generates volume which makes the whole dynamic of your business model very efficient.
“We make it simpler for stores so they can focus on delivering for customers.”
As well as home delivery, click and collect is also on the rise and the group has just launched the service in Kilkenny, the only county in the country where there is no Tesco store. “It’s going really well,” he says, Does online shopping and click and collect mean the need for bricks-and-mortar stores will peter out? He goes back to his ambition to grow open more Tesco Express stores.
“When I look at the growth sector as much as its online — and we pick from store and deliver to location — the convenience sector is in massive growth as well, which is our Tesco Express.”
Tesco also stripped back its ranges, pushing forward more Tesco brands. Yaxley says that the Irish group stocks Tesco ‘good, better and best’ ranges — good being ‘Everyday Value’ and the best being its award-winning Finest range. In addition to this it will stock a market leader and local Irish version. This means fewer brands of each items are stocked.
“We got to a stage where we were just adding cost and complexity for lines the customers didn’t want. That’s the real benefit of Clubcard. We’ve got over 800,000 Clubcard members, it’s a huge data base of information that helps direct us in terms of what customers want.”
While the last three quarters have been strong, Yaxley has a lot more to do at Tesco Ireland. “As a retailer certain elements you can change quite quickly — price and range being one. There are other things that take a bit longer.”
That includes the upgrade of stores and a format - which is now seen in Stillorgan - known as ‘the best store in town’ concept.
The process of upgrading the portfolio takes some time. “We’ve done 57 stores so far, 40 of them supermarkets and 17 Express. That takes time and capital investment. And you can only start to spend that investment when you’ve turned your core business around. You’ve got to secure your business understand it and make sure you’ve got a great base.”
He says he is “obsessed” with the idea of a team at work and that Ireland is leading the way for the group in its internal anonymous surveys measuring how staff view the business as a place to work.
Although many members of staff are clearly happy, there are some workers who have been forthright about their unhappiness, leading to strike action last February.
“We as any business need to change. We absolutely followed the process. The Labour Court made a recommendation and we came out and supported and, unfortunately, Mandate rejected a Labour Court recommendation. So that’s where it stands.”
He said that Tesco would now urge the union to accept the Labour Court recommendation.
Tesco is developing other sources of revenue and, at the end of October, it bought out its joint venture partner 3 from Tesco Mobile.
“We’re the first Tesco country to fully own a 100pc of the Tesco Mobile business,” says Yaxley. “It’s a massive opportunity, owning your own mobile phone a real opportunity of growth for us. We just see it as a growth engine.”
There is one big challenge on the horizon for a retailer in Ireland which is heavily focused on food — Britain’s decision to leave the EU.
“I think Brexit will impact on everybody,” says Yaxley. “At the moment we have to just keep focusing on the business. A lot of our proteins — that’s meat, chicken, poultry — are Irish,” he says.
“All of our fresh food, where possible, we source in Ireland. But there is no doubt that depending on what happens with people and tariffs, it will have an impact on businesses. Until we can see what that looks like, we have to keep going with business as usual.”
But business as usual is a concept that changes from day to day, an aspect of the job that Yaxley thrives on.
“Retailing is changing at such a fast pace and for us to deliver the experience that customers want, we’ve got to keep changing.”
‘The truth is that without customers in our stores you will never turn a business around’