TRUE INSIGHTS: Innovation is the key to improved retail performance

Friday 15 April, 2016


In the run-up to the future of retail and consumer conference R:evolution, TrueStart explores innovation in retail today.

Although retail is sometimes regarded as a staid industry – Napoleon was not offering an admiring assessment of England’s commercial prowess when he referred to a “nation of shopkeepers” – the reality is that the unceasing battle for competitive edge has created an environment in which innovation is essential to success.

Historical analysis of UK grocery confirms that this has been the case for decades.

One perspective on the rise (and partial fall) of Tesco as the UK’s pre-eminent supermarket chain is that its fortunes have been closely linked to its appetite for innovation.

At its swashbuckling best – broadly from 1995 to 2005 – Tesco was a highly productive font of new business practices, services and products.

Clubcard, introduced in 1995, revolutionised the way in which Tesco was managed and, in doing so, was one of the most important influences on the UK retail industry in the past 30 years.

Other developments, including the launch of tiered private-label ranges (culminating in the introduction of Tesco Finest in 1998), expansion into financial services (1997), format development (the first Extra was opened in 1997, One Stop was acquired in 2002), and the pioneering establishment of Tesco.com as an online grocery platform (2000) were less seismically important but provide evidence that Tesco possessed a zeal for innovation in its most rampant period of growth.

It is far harder to discern landmarks of product, service, format or business process in Tesco’s recent history and this belies a corporate culture which had lost sight of the importance of risk-taking business development activity.

Changing behaviour

Rapid changes in consumer behaviour have intensified the need for retailers to enhance their propositions and processes.

Meanwhile the advent of online retailing has simultaneously created opportunities, disturbed long-established industry mores, such as the supremacy of retail square footage in determining market power, and dramatically lowered barriers to entry for new operators.

It is tempting, in this context, to consider innovation in terms of grandiose developments which utterly transform markets.

The rise of online retail, explosion in social media interaction and important societal/demographic shifts all encourage this ‘big bang’ approach to innovation, which can be daunting for established operators and new entrants alike.

Change is not, however, always as dramatic as this interpretation suggests. Even the internet has been, in some cases, something of a slow burn.

It is 16 years since Tesco launched its online grocery service, a period in which all the major grocers have launched their own variants and new entrants – notably Ocado – have joined the fray.

Yet online grocery penetration in the UK today is still only around 5%. For context of the pace of change this implies, 16 years before the launch of its online operation Tesco had only just introduced computerised checkouts.

Innovation, frequently, is incremental and success is delivered via the ‘accumulation of small advantages’.

Retailers such as John Lewis and Screwfix demonstrate that ‘heritage’ operators are just as capable of winning in the online age as new businesses.

This process of perpetual, gradual improvement has gained credence since the success of Team GB’s cycling squad in London 2012, but was first developed in chess in the 19th century.

Innovation was thriving in Napoleonic times and securing a sustainable source of it remains as important to the “nation of shopkeepers” as ever.

Mike Tattersall is head of retail and strategic partnerships at TrueStart

On May 11, TrueStart will be hosting its annual future of retail and consumer conference R:evolution, where international influencers such as Mike Jones (initial backer of Dollar Shave Club) and Allison Johnson (responsible for the launch of the iPhone and iPad as vice-president of marketing communications at Apple) will join industry masters such as Ben Lewis (CEO River Island), Marc Allera (CEO EE) and Kris Engskov (president Starbucks EMEA). R:evolution is an invitation-only event. To learn more please check www.truestart.co.uk or contact enquiries@truestart.co.uk