Terry Leahy, Tesco's chief executive since 1997, oversees the UK's top supermarket chain and the world's leading on-line home shopping business. In Leahy's own words, Tesco attempts to pursue a 'virtuous circle' by strengthening its supply chain and focusing on customer relations and human resources development.
Elsevier Food International, Vol. 6, Number 3, September 2003
Steve Foster

For the last six years, Sir Terry Leahy has been at the helm of one of the world's top food retailers. In the UK, Tesco easily outpaces its rivals with annual sales in excess of £25 billion. Leahy, who rose from marketing executive to CEO in almost two decades at Tesco, was also recently elected as co-chair of ECR Europe, a frontline position that somehow contradicts Leahy's attempts to maintain a low media profile.

Sir Terry Leahy, 47, completed his education at St. Edwards College in Liverpool and the Manchester Institute of Science and Technology. Leahy joined Tesco in 1979 as marketing executive and rose through the ranks in the 1980s having served as marketing manager and director. He was appointed commercial director Fresh Foods in 1986 and joined the board of Tesco in 1992 as marketing director. In 1995, Leahy was appointed deputy managing director and succeeded Lord MacLaurin as CEO in 1997. Leahy is also the current co-chair of ECR Europe together with Danone CEO Franck Riboud.

You are not known for joining committees or for sitting in on industry bodies either in the UK or internationally, so why have you made an exception to become co-chair of ECR Europe?
"Well, I was asked, which is usually how these things start! Normally I would not do this sort of thing. I am well known as being famously focussed on Tesco. I do not have outside directorships. The only things I do outside of Tesco are I am chancellor of UMIST [Manchester], my old university, and I am on the regeneration board in Liverpool, where I come from. The reason I made an exception is one, the subject was important for the industry and two, 1 had always been personally very interested and committed to it as a young man growing up in retailing. I could see the benefits that it was already bringing to Tesco and to the industry so I felt I should play my part in pushing it along."

Is greater collaboration between retailers and suppliers one of the key benefits of ECR?
"When I was growing up in buying there was a generation of managers at each other's throats so it has come a long way, but it can go a lot further."

How much further? Until it reaches the consumer?
"The reason we do all this is that people enjoy shopping more as a result, it is as simple as that. If they enjoy shopping more then they spend more because they get more value, and that fits very closely to Tesco's approach to business, which is to focus the company relentlessly around the customer, and try to ensure that we create benefit for customers, and in return expect them to become loyal to us over time."

So what other benefits does a retailer like Tesco get out of ECR?
"We get a bigger market share of new product launches than we did before. We have much beller working relationships with manufacturers than we had before and this has increased our sales - so it is not just a feel-good factor. The good thing about ECR is that it does not actually cost too much to do it. It's mainly about using the resources you've got differently so the return on investment is actually very good and, of course, that's the holy grail for any business - 'How can I do something that is not only good for business but delivers a high return on investment?' "

One resource that ECR Europe appears to be developing is widening the knowledge base of the benefits of ECR to frontline managers at the stores? How key is that?
"I think this is key because the body of knowledge contained within ECR is quite considerable, but ours is a huge industry. Measured in European terms, the consumer goods industry and the retail industry employ millions of people and tens of thousands of managers. So it needs to be more than about a few converts. It needs to be trained into and educated into a whole generation of frontline managers working side by side with manufacturers, and just give them the tool kits and processes about a better way, a collaborative way of working together."

A lot of it isn't rocket science is it?
"Absolutely not, but if you are a young person you need the chance even if it's a week's programme or a four-week programme - to sit down and just learn those steps and see the benefit of it and the difference it makes. When we do that, it will make a really noticeable difference because in the years ahead you will have a whole professional generation that just approaches these things differently."

Another bane of retailers is the so-called 'last 50 yards' where it can prove as expensive to move goods from the back of the store to the shelves as transporting them from distribution centres, factories and fields. What are the challenges to overcoming the last 50 yards and what are Tesco's solutions?
"UK supermarkets have a bigger challenge than many, and because of high property costs and planning controls, UK supermarkets are much busier than the world average. Typically, the sales per square foot are six times higher than in the US. You can imagine the extra challenges that it poses to maintaining good availability over a wide range of products without spending a fortune doing it. Tesco is a world leader at providing solutions to that challenge. The approach that we have taken is a philosophy of continuous replenishment at one touch and in the jargon 'everything flows'. We try to avoid situations where you get big pockets of stock. Many of the products we sell in our stores are delivered twice a day. That means the stock arrives exactly when you want it to, and on the shelf because there is space on the shelf. Tesco is trading well at the moment and I am certain that one of the reasons behind that is the success of our continuous replenishment programmes."

What about information exchanges?
"We actually want to get a wider use of information exchanges and if we can drive for that I think that will make a big difference. It is possible that we get to a common window on the supply chain whereby the retailer, the manufacturer and even the farmer see the same thing happening in real time on the computer screen. They can see the products leaving the store and they know what they have to do: they have to manufacture more; they have to cut more lettuce, or whatever."

Turning to Tesco's international business strategy, would it be true to say that Tesco's strategy of growing on the international stage on a slow but sure basis - as opposed to the rapid acquisition strategies of some of your international competitors - is now proving to be the correct strategy in the light of current economic conditions around the world?
"Well it is winning. We are being successful and it is arguably the most successful international strategy. We have entered ten countries, are profitable in the first eight and we are market leaders in the first five."

How does this strategy manifest itself?
"When you look at our strategy, we are focussed on a limited number of markets so that we really concentrate on building up a good network of stores. We spend more capital per country than others to do that, and we get the reward of getting to market leadership first. And also we are able to behave in those markets like Tesco. In other words we get to market leadership, we focus on the customer, we build our good network of stores and try to go on a virtuous circle of big volume coming in, getting economy of scale from that, and investing that back into the customer offer.
ECR is the body of know-how that you apply in order to use that virtuous circle of improving the customer offer and getting competitive edge. Tesco in its step-change programme last year [2002], which is our in-house term for ECR, saved £230 million. We chose to invest the majority of that into our customer offer. That was real money and that is big numbers and, of course, if you are improving your customer offer relative to other people by that amount, that makes you very competitive. It's no accident therefore that Tesco's performance over the years in the market, relative to others, has been really strong. Now we're using that same approach in those international markets and it's working and if you take Hungary, for example, we're clear market leader and we're being very successful in the whole of the central European region. We have twice as many hypermarkets as the next largest retailer. And in Thailand, we are clear market leader."

Tesco is clearly a world leader in profitable on-line shopping through Tesco.com. How does the bricks and mortar business benefit the dot com business?
"Tesco.com benefits from all the strengths of Tesco. The most important thing being the name, and the ability to mine the customer database and the entire store network and all the supply chain experience, because all that product goes through the same supply chain. People cannot believe we have been able to do it but the way we have been able to do it is the same incremental improvement in the business model. We are way out in front and we are years ahead of the competition and we are getting more and more popular."

Are there any updates on the work Tesco is doing with Safeway in the United States?
"There are no updates but it's a very good relationship, they're good retailers and we've put our know-how in with our dot com system and it's rolling out steadily in the US."