Learning from Tesco
19 April 2022
What might we learn from Tesco’s recently announced annual results that has relevance for the hire industry – and indeed, for other industries?
The supermarket group reported that its performance was very strong with profits more than trebling. Similarly, many hire companies have also performed well over the last 12 months given the boom in construction activity.
Nevertheless, Tesco’s chief executive Ken Murphy warned that its margins will be under pressure in the year ahead due to rising inflation, saying that “the external environment has become more challenging in recent months.” And few would disagree with that.
He said that the priority is keeping the cost of the weekly shop in check, achieved by reducing Tesco’s own operating overheads and “working in close partnership with suppliers” to keep the prices it pays low.
However, as inflationary pressures affect all sectors of industry, there must surely be a limit as to how far margins throughout the supply chain can be cut. Indeed, hirers face the additional 'double whammy' of the red diesel rebate’s recent removal, resulting in higher fuel prices to pass on to many customers, not lower.
So what can be done if more challenging times lie ahead? Put at its simplest, the goal must be to win and retain customers while maintaining sensible margins.
One of Tesco’s major pluses is its Clubcard which gives holders discounts and special offers. In fact, it’s a fair bet that you have one yourself: astonishingly the card reaches now more than 20 million households, apparently. And some 9 million people use its digital app. All this gives tremendous insight into a customer’s preferences, buying behaviour and spend patterns.
One hire business that has operated a loyalty card for some years is Smiths Equipment Hire, and it works very well. “Although a trade card is an established method of building loyalty, it’s quite surprising how few hire companies offer one any more,” David Turner, Smiths’ marketing director tells me.
“We get a lot of sign-ups online at our website, where it is promoted prominently, and at the point of hire generally we tell customers about it. If they are a genuine trades person they are eligible for our Trade Card which gives them a discount on list prices.
“They send us an image of a company letterhead or business card with their application form, we do the appropriate checks and due diligence, and issue the card. Wherever they go within the Smiths business, they’ll get the same discounted rates which are standardised across all our depots, making it dead easy for everyone.”
Now, not everyone has the resources to operate a club card scheme, but there are other customer retention measures that can be implemented.
For example, in the same way that Tesco offers a budget Low Everyday Prices range of essentials alongside standard branded lines, some cost-conscious hire customers will appreciate the additional choice of a lower-price item, such as a less durable but still competent quality diamond blade for a short-term job.
Many hirers go out of their way to build close customer relationships. MD Tool Hire & Sales in Warrington is amongst those businesses offering biscuits, chocolate bars, tea and coffee at its reception area. This gives customers the opportunity to chat about anything from football to last night’s television; perhaps they’ll also mention their next job and discuss future equipment needs.
In a different vein, I well remember visiting Will Hire in Stourbridge years ago, and by the hot drinks machine there were racks of free vehicle stickers with humorous slogans - as well as the company’s contact details as a reminder.
And perhaps above all, customers value help and advice from knowledgeable staff to get the job done or to sort an emergency. One Stop Hire’s website prominently declares that “The answer’s Yes, now what’s the question”, and that all personnel have this instilled in them.
Adopting measures and attitudes like that might require training and hard work to implement, but will help keep customers coming back.
Finally, it was noteworthy that some business commentators suggested that Tesco wants to keep margins keen and competitive without entering into a significant price war that would do no-one any long-term favours.
However, one analyst gained the impression that if any of the supermarket chain’s competitors attempts to really slash prices, Tesco would flex its sizeable corporate muscles and “go nuclear”.
And nobody wants that, in any market.
● A future post will go on to consider how hire companies can defend fair rates without compromising standards.