27th January 2017

Blog Entry – 1st December 2016

Fork Handles? Four Candles?

Always start with a joke, they said. So, we will…

How do you make a small fortune in football?

Start with a big one…

This week we have doubled the volume in our library of reports given the recent addition of our economic critique of Tesco, one of the icon British brands of recent years.

Following the publication of this report, several retail analysts contacted vysyble to discuss some of our findings. In all cases, they remarked that retail and its analysts/researchers are generally driven by two measures i.e. like-for-like sales and market share. We, of course, asked about an economic return for shareholders. Evidently, ‘…that comes afterwards,’ they all said.

Roger Bell’s Tesco odyssey sees the group sailing from the heady days of the mid-1990s – where Britpop ruled, Damien Hirst rocked the art-world and the notion of a world banking crisis seemed so remote that nobody gave it a second thought – into the globalised world that we know today.  Back then, 9/11 was just a date in the diary and the internet was starting to weave its world-wide web. Roger’s longer-term examination of the company’s economic performance came initially at the suggestion of one of the group’s former senior officers, and it raises several searching questions about the group’s overseas expansion, product diversification if not the wider strategy process itself.

Although times have moved on, Tesco’s governing objective – what the management team really wants the strategy to deliver – remains in our view worryingly elusive.  Without a clear governing objective, there is no lens through which alternative strategies can be ranked and calibrated. Sadly, the group’s latest annual report appears to wander in the all-too-familiar fog of corporate speak with little indication about how the inevitable trade-offs that life brings forward will be managed. This, we think, offers a prescription for strategic drift and again, sadly, there is no shortage of “experts” willing to add to this confusion – often through vague and depressing notions of visioning which in turn could be construed as the corporate equivalent of hoping for the best.

At vysyble, we take the view of John Kay who is one of the more enlightened and searching commentators on economics and business strategy:

“Strategy is not planning, visioning or forecasting – all remnants of the belief that one can control the future by superior insight and superior will.  The modern subject of business strategy is a set of analytic techniques for understanding better, and so influencing, a company’s position in its actual and potential marketplace”

We believe that John Kay is right and accordingly Economic Profit, a metric which includes all the costs of doing business, is central to our journey of investigation into understanding the group’s position across its span of activities. Dave Lewis and his team at Tesco have a serious challenge on their hands and we do wish them well. The enormity of their challenge is highlighted in Roger Bell’s critique and the negative Economic Profit numbers contained therein will indeed be a surprise to many.