‘Tesco Law’ is dead. Well, it’s not breathing. Next week the struggling retail titan will unveil its blueprint for the future after issuing its first profit warning for 20 years. Investors are clamouring for retrenchment, with rejuvenation of the flagging UK retail business seen as an urgent priority. Leading shareholders want Tesco to scrap its ill-starred US ventures and retail banking arm.
Tesco ‘needs to think long and hard about what it wants to be’, Legal & General Investment Management, which owns 4%, told the Sunday Times. All of which surely makes it inconceivable that the company will announce further significant diversification - particularly into legal services, where the market is uncertain and the returns mightily difficult to forecast.
Of course, ‘Tesco Law’ was only ever a convenient shorthand for the reforms set in train by Sir David Clementi. Publicly, the retailer has never shown any interest in legal services, though it is equally inconceivable that privately it has not at least considered their potential.
Tesco’s travails are instructive in the context of alternative business structures, nevertheless. They show that simply grafting a ubiquitous and (hitherto) untarnished brand on to a suite of customer services entirely distinct from the core business is not as straightforward as one might suppose. If it were, Tesco would already dominate retail banking (a dubious privilege, admittedly).
Yet it is now nearly four years since Tesco paid £950m to buy out Royal Bank of Scotland's 50% stake in Tesco Bank - when ‘Fred the Shred’ Goodwin was still in his pomp. Customers are still waiting for the current accounts the grocer has been promising for years.
The UK’s supermarket sector may be dominated by four major chains, but it remains brutally competitive. In an environment where discretionary spending is being squeezed like never before, it’s hard to see that Asda, Sainsbury’s and Morrisons will want to divert a slice of their reserves to launching a legal services offer any time soon. Judging by the rate at which Sainsbury in particular is opening smaller outlets (I have two within 100 yards of my flat) it seems that the ongoing battle is presently being fought in the small convenience sector. And opening new shops is not cheap.
You will have spotted the flaw in my argument by now. What about the Co-op? Yes, it’s a relative minnow, but it is indisputably a grocery chain and wants to use an expanding retail network to build its legal services business.
But the Co-op is a very different beast. It’s the UK’s largest consumer mutual, owned by over 6 million people, with an enviable brand leverage at a time when the no-holds-barred Anglo-Saxon business model has fallen into disrepute. It has long had a diverse range of businesses, from doling out the ham salads at your auntie’s funeral to dispensing the drugs that failed to cure her through the UK’s third-biggest pharmacy chain.
And crucially, as a mutual, it is not under the same pressure as its quoted competitors to generate short-term gains for institutional shareholders. The Co-op can afford to play a long game.
This leads me to a prediction that may prove to be the worst since Gordon Brown declared an ‘end to boom and bust’. There is another diversified, giant, mutual retailer, that sells food through one of its subsidiaries, which has a brand every bit as appealing as the Co-op and could conceivably make real money from legal services.
Will ‘Tesco Law’ eventually be renamed ‘John Lewis Law’?
Paul Rogerson is Gazette editor-in-chief
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