Why Tesco PLC Doesn’t Understand Its Customers

Often the first thing you see walking into a supermarket is the display of daily newspapers. You can choose between the sobriety of The Times, revelations of establishment conspiracies in The Guardian, threats to your lifestyle in the Daily Mailor the latest celebrity scandal in The Sun.

But this democratic tradition of choosing the political and social slant of your newspaper is under threat from Tesco (LSE: TSCO). Buckling to pressure from campaign groups No More Page 3 and Child Eyes, which are concerned about children seeing graphic pictures and headlines, the supermarket plans to treat newspapers like tobacco. Front pages will be hidden, with only the mastheads remaining visible.

Frightening

It is a frightening development. Front pages sell newspapers and sensational stories sell more, a major scoop boosting circulation by tens of thousands. A diverse and free press underpins our democracy. Depressing newspaper sales and inhibiting choice will accelerate the demise of the industry and confine public discourse to the shrill clamour of the internet.

But the move also reveals something of the mindset of Tescos management. Apparently anxious to maintain its standing on the PR cocktail circuit, it lacks confidence that it knows its customers.

There is more than a superficial similarity with Labour MP Emily Thornberrys snobbish tweet of a house displaying a St. Georges Cross flag. Readers of The Sun are as alien to No More Page 3 and Child Eyes as white-van man is to Labours ruling Islington cabal though The Suns two million daily circulation is over ten times that of The Guardian.

Respect

Is Tescos lavish Cheshunt headquarters as remote from its customers as Westminster is from voters? Does the company lack respect for its working-class customers?

The supermarket undoubtedly gets far more business from Sun-reading, white-van driving, flag-flying C2s than it does from the metropolitan liberal elite, many of whom no doubt equally sneer at Tesco. Aldi and Lidl are fashionably cheap, the shabby-chic of supermarkets, but Tesco lacks the cachet of Waitrose, Ocado or Abel & Cole. Yet Tescos corporate management instinctively sided with the campaign groups rather than the core of its customer base.

Its an attitude that goes hand-in-hand with the recent delivery of a brand-new corporate jet, hastily put up for sale by new CEO Dave Lewis. It fits with the generous public-sector style final salary pensions enjoyed by Tescos employees: no doubt much appreciated by the companys lower-paid staff, but actually of most value to the corporate elite. Disgraced CEO Philip Clarke left with a pension-pot worth some 12m.

Smug

It underlines the scale of the cultural change that Mr Lewis must usher in, along with a new strategy and competitive spirit, before he can turn around Tescos fortunes.Tescos decline as an empire is a story of a smug, self-serving management taking its customers for granted. Much like Westminster, Id argue.

I hope that Tesco will now start to hear from those concerned about the plurality of the press. Much as I can sympathise with the awkwardness for parents of exposing toddlers to adult life around them, companies should not allow themselves to be used to side-step democratic debate.

Im holding fire on selling my shares. With its still-dominant market share, new management and the stock near its lowest for a decade, there is more risk on the upside than the downside. But how Mr Lewis demonstrates respect for his customers could prove a litmus test for the companys prospects.

Tony Reading owns shares in Tesco. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.