Every little helps to fill the till at Tesco’s

Published on 25 November, 2007. In a rare interview, Tesco’s Irish boss Tony Keohane tells John Reynolds how the shopping behemoth plans to grow even bigger.

AS THE country frets over the economic slowdown, last week saw Tesco Ireland seize the opportunity to remind us that “every little helps”.With 98 stores here, selling ever more items to go with the weekly shop, it’s worth €2.5bn to the Irish economy.

Roughly €1 in every €4 we spend on groceries lands in its tills, which ring up €87 sales every second of the day — seven days a week, 52 weeks a year. Some 13,000 people currently work directly for the store and a further 13,853 people who are employed at its various suppliers depend on the company’s business.

Tesco Ireland’s chief executive Tony Keohane runs a tight retail operation. As the boss of a world-beating brand’s business, both he and his director of corporate affairs, Dermot Breen, who sits in during our interview, maintain a polished but persuasive attitude.

A board member of the company since 1997, and with extensive retail experience here and in the UK, Keohane took over from Gordon Fryett last year after a long stint as Quinnsworth’s operations director before filling a similar role with Tesco that year.

He is keener to get on with opening new stores than to give interviews at his office, hidden away above Dun Laoghaire shopping centre.

From this headquarters, the supermarket giant aims to open “six or seven new stores a year, for the foreseeable future”.

“We’re keen to open more Tesco Express stores by shaking out opportunities,” Keohane says. Agents who introduce someone sitting on a suitable chunk of land can pocket €10,000 if it builds a store there. There’s no specific target, but he likes “parts of the country that could do with more competition, communities that could benefit from Tesco being there.”

The company has a 26 per cent industry lead here at the moment, fighting Dunnes Stores, which has 24.5 per cent and the Musgraves Centra and Super Valu chains, which have a 22 per cent slice of the estimated €12bn grocery retail pie.

Analysts estimate the Tesco tills rang up sales of €2.72bn here last year. With an overall UK operating margin of 5.7 per cent, that would put its Irish profits at about €155m.

Despite current economic woes, “there’s no call for pessimism. We should be cautiously optimistic and customer confidence is still high.”

Higher food prices are also hitting our pockets. “The downward pressure on them has changed in some areas. We will be impacted, but we’ll question every increase presented to us,” Keohane adds.

Not everyone sees the company as a consumer champion. Regulators in Britain, where it has a market share of 31 per cent, investigated the company earlier this year and raised concerns that Tesco owned a huge landbank — 80 per cent of all sites owned by supermarkets.

Although the company also came under fire following allegations that it pressurises suppliers to drop their prices, the regulator’s inquiry came to the somewhat contradictory conclusion that the UK needed more supermarkets.

The company hasn’t finished growing its Irish empire yet either. Kilkenny is now the only county here without one of its stores, “although we’re currently looking at plans there,” Keohane admits.

“This business is not about landbanking, it’s about getting stores opened as quickly as we can. There was a bit of hype in the UK around these issues,” he says dismissively.

He deflects any criticism that Tesco might be killing off smaller shops on our main streets. “In Castlepollard, Co Westmeath, for example, the local council is happy to see us in there to help revitalise the town. Shops have always come and gone. If you’ve got a bad customer offer, you’re going to close at some stage,” he argues.

Keohane also denies that the company pressurises its suppliers here in Ireland. “We have proper commercial relationships. They work with us to get products on the shelves here in Ireland, which is a great platform for them to enter other markets.

“Our discussions are robust at times. Yes. It’s a partnership with respect for each other. But sometimes you will have a good commercial conversation, where there’s some healthy tension.”

Perhaps “every little helps” doesn’t always apply to its suppliers?

Apart from Britain, Tesco has overtaken France to become the biggest export market for Irish produce.

Having risen 86.4 per cent in the past five years, last year we exported €654.8m worth of Irish food and other products to its stores outside Ireland.

“Ireland’s a different market to the UK,” he argues, adding “although in terms of sales, Irish consumers are not highly unique.”

Tesco’s fashion range is popular and non-food products, such as toasters, televisions, PCs, CDs and DVDs, now account for 25 per cent of sales and are a key driver of profit growth. There’s more cash to be made selling these than on tins of beans and boxes of corn flakes.

Internet shopping is growing by 25 per cent a year and organic products and sales of “health and well-being” items are growing by 35 per cent a year.

It’s also capitalising on the trend to become greener. Shoppers earn extra points for buying anything in its expanding range of eco-products, for example.

“We’re also installing lighting sensors and efficient lighting. We’re learning from the UK, and looking at reducing packaging and energy consumption.”

IBEC group Retail Ireland, which Keohane chairs, is also looking at the issue.

Tesco is also looking into stores with solar panels and wind turbines on the roof, and it’s planning to build a store from recycled steel and wood. Its suppliers will also have to step up to the mark.

“They have some capability to tackle their carbon footprint, but it will be a joint effort,” he suggests. “The UK has a head start, but the company is taking its own steps to calculate its carbon footprint. However, it would be desirable to have an EU or global standard for calculating it.”

Policy-makers, take note.

Green convictions don’t extend to a reluctance to sell petrol, however. It’s a market in which the firm punches above its weight. With less than one per cent of stations — 12 out of 1,500 — it has five per cent of the petrol market.

“We might have 15 filling stations by the end of 2008,” Keohane reveals, adding: “We’ve just opened one in Claremorris and petrol prices have dropped throughout the area.”

Presumably he has similar hopes for Tesco Mobile, which was launched earlier this month in a €15m joint venture with O2.

“We’re in our third week and we’re already ahead of our target. We’ve learned that a straightforward, transparent and simple pricing structure for calls is popular with our customers.”

Despite a saturated market — with 103 mobiles for every 100 people — the firm is confident it can take a slice of the market: over one million customers are on its UK mobile network.

Although British stores offer services from broadband to property sales and online legal services, its Irish ambitions are more modest.

“We will look at a broadband offering here in time,” he concedes. There are no plans — yet — to stray onto the patches of our estate agents and solicitors.

Declining to mention his own pay and stash of Tesco shares, like any chief executive he is keen to emphasise the success of the strong Dublin team who back him.

Employees — about 10 per cent of whom are non-national — can “be a part-owner of the business”. About a third of the workforce here are in its share scheme.”Over the last five years they’ve risen by 80 to 100 per cent,” he says.

All in all, it’s not a bad added incentive for any shelf-stacker with ambitions to sit in their manager’s chair one day.

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