Tesco/Booker deal highlights the need to evolve core businesses
A view from Helen Edwards

Tesco/Booker deal highlights the need to evolve core businesses

Tesco's proposed £3.9bn takeover of food wholesaler Booker is a reminder of the bittersweet relationship businesses can have with their own core.

It can feel like a weighty thing – this deep competence that goes back to the very foundation of a business, this inner commercial conscience beating away.

There will always be managers in any organisation with history and scale who yearn to escape those origins and seek prospects beyond the periphery. For these adventurers, the core takes care of itself in a sector the brand might already dominate. Where’s the growth potential in that?

The real opportunity is to be found in adjacent space or through a daring leap into something completely disconnected.

And then there are those who treat adventure with grave suspicion, who regard non-core activities as a distraction, the regrettable product of the flightiness that characterises leaders who underestimate the perils of neglecting the thing that defines you.

Tesco’s own vacillations over the years have seen its focus move through all points in relation to its core grocery origins. It has innovated within that core, with new store formats and online shopping. It has drifted into adjacent space – and back out again – with acquisitions and disposals of casual-dining chains.

It has leapt across to non-related sectors, with forays into banking, gardening and mobile, with mixed success. And it has exported its core – for the most part unprofitably – to the US, eastern Europe and Asia. So where does this latest move sit?

Well, it’s all about food, which, for Tesco, is about as fundamental as things get. It fits with the back-toroots strategy that has gained the approval of analysts.

But there’s a subtlety here, one hinted at in the reason given by Tesco chief executive Dave Lewis for "dreaming up" the deal with his opposite number at Booker: "We are following where the market is going." It’s one thing to move closer to your core. It takes a shrewd eye to perceive that the core itself is on the move, that the thing that defines you is being redefined by the consumer.

But as Lewis noted: "The consumer’s relationship with food is changing."

The trends have been there for a while. The UK "grab and go" market is worth £16bn and growth is accelerating. Thirty per cent of us now regularly buy our breakfast on the move. Takeaway-delivery company Deliveroo reports 25% month-on-month growth.

The question is how far-reaching this cultural shift will get. One of the most famous commercials of all time showed a group of Martians laughing uncontrollably at humans for making mashed potato by hand: "They peel them with their metal knives, they boil them for 20 of their minutes."

Maybe they’d fall over now observing the stupidity of humans home-cooking anything at all and washing up the plates in their metal dishwashers afterwards. Or of architects for designing kitchens in the first place.

Why bother? Perhaps we very soon won’t. We will all be as Manhattan is now, where nobody cooks at home or washes up. You bring it in, restaurant-quality, cooked and ready, and dump the plastic cutlery after.

In this ubiquitous "prepared foods" context, Booker, with its disseminated food-distribution network, is not just a natural fit for Tesco, it’s a lifeline. The moving core is a challenge for marketers.

This is a tectonic shift, deep and disguised, with the threat of earthquakes for the unprepared. Even businesses fetishistically focused on their core – in fact, perhaps on account of that very narrowness of view – can miss the signs. Think Kodak.

Some of it comes down to definition. Were Tesco to define its core business as "grocery" or "supermarkets", it would be constrained to play in that narrow space, reacting to micro consumer changes but facing the law of diminishing returns.

By thinking in terms of servicing "the consumer’s relationship with food", it allows for fluidity of response, fusing the mercurial forces of culture and macro consumer changes with its own historical expertise. We could all do worse than to revisit the description of our brand’s core activity, and to redefine it with enough specificity to be meaningful but enough vision to be supple in the face of change.

There is something about the word "core" that sounds inert. It’s not. It can move. And we need to be ready before it does.

Core theories

The term "core competence" was coined in 1990 by business academics CK Prahalad and Gary Hamel in their seminal Harvard Business Review article, The Core Competence of the Corporation. They defined it as "the collective learning in the organisation" that would lead to "competitive inimitability, extendibility across products and markets, and value to the consumer".

In 2003, Bain & Company executive Chris Zook built on the theory with Beyond the Core: Expand Your Market Without Abandoning Your Roots. Based on research into the growth patterns of thousands of companies, Zook advocated expansion strategies that put together combinations of "adjacency moves" – into areas distinct from, but related to, the core business.

In Grow the Core: How to Focus on Your Core Business for Brand Success (2013), brand consultant David Taylor argues that too many marketers seek growth by "stretching" into new categories, where failure rates are high because of the inevitable incursion into another brand’s well-defended core. He’s a consistent advocate of the strategy of "constantly refreshing" the core business.

For a reminder of the fundamentals, check out, https://hbr.org/video/5146717725001/the-explainer-core-competence

Helen Edwards is a former PPA business columnist of the year has a PhD in marketing, an MBA from London Business School and is a partner at Passion brand.
@helenedw

Topics