Yesterday was the fifth time this year that I’ve been undercharged in the local Tesco Express because of staff error. Now Tesco may only be 68 pence worse off because of it but if you factor in the other five times a couple of which have cost them over a pound then it’s around £5 they’ve lost so far this year.
Given I shop there are least once a week, or around 50 times a year, they’re loosing, on average, roughly 10 pence of pure profit per visit due to mistakes made by their checkout staff. It doesn’t seem like a lot until you consider that it takes roughly a minute to scan my items and take payment from my credit card each time I shop with them and that means that over the year it’s nearly one hours worth of staff time.
If during that hour they are loosing 10 pence worth of profit per minute then staff errors cost roughly £6 per hour in lost profit. Which might not sound a lot but if you consider they have over 261,000 of which maybe 100,000 are on the checkout 20 hours per week then thats a potential yearly loss of £12 Million of pure profit or the same as an increase in turnover of £210.5 Million (based on a trading margin of 5.7% as quoted here ).
Which made me wonder if they would be better off paying more for better staff than the minimum wage that they seem to offer. For example if the added £4 per hour to their pay but got better staff who didn’t loose them £6 per hour profit the Tesco would still be £2 per hour better off.
It’s not just the lost profit from errors however, better paid (and better trained) staff should offer better customer service, better trained and more motivated staff might well increase sales too - after all by training their staff to ask “do you want fries with that” McDonalds added a considerable amount of profit to their bottom line. Yet not once have I witnessed a member of Tesco’s staff try to upsell or cross sell.
Sure Tesco have a much more complicated offering than McDonalds but I’ve no doubt that a lot of Tesco Express customer are buying the same goods and could be upsold more even if it’s just a promotion of the week.
Finally I keep noticing that the stands at the checkout which should contain impulse buy type goods - aka chocolate bars - are more often than not empty. This is a prime opportunity for increasing the average sales value as I stare at these products while in line, while you scan my good and while I pay and more often than not I buy something (my wife loves chocolate) or at least I would buy something if the shelf wasn’t empty. Again poorly motivated staff, obviously including the manager.
While I doubt Tesco will take much notice of this, you the small business owner that wants to compete with Tesco can and should so ask yourself would it be a good idea for your business to be paying more for better staff?
Perhaps I should see this a business opportunity for myself as a business consultant - helping Tesco get retailing right, what do you think?
This blog is about business opportunities and ideas that I spot, think of or hear about and think are useful and interesting. It is intended to provide ideas and inspriation for you to help you find the right business idea for you to then grow it into a successful business.
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There are a number of errors in your theory. Firstly the errors you mention are more likely to be system errors as opposed to staff errors. Secondly, Tesco pay all their staff well over minimum wage. Thirdly, Tescos policy of very low staff cost (as a percentage of turnover) compared with the rest of the industry, is more likely to be the root cause of your dissatisfaction with this individual branch.
And fourthly if you are proposing to increase the pay of Tesco staff by £4 per hour, even if they only work 20 hours per week on average you are increasing their costs by over a billion pounds!!!
I think you need to get a little retailing experience (rather than shopping experience) before you try to teach Tesco, our most successfull retailer, how to get retailing right!
Rob,
I’m not sure I follow your argument as you claim that Tesco pays well over the minimum wage but then claim they have a policy of very low staff costs. The two seem rather contradictory to me.
I was suggesting paying the checkout staff more, not all their staff. Even so I am suggesting that if more motivated staff would increase Tesco’s profit by £6 then they could possibly pay £4 per hour more giving a net increase on profits of £2 per hour per member of the checkout staff. The numbers are not necessarily precise and are used as an illustration.
To actually find precise numbers would require them to undertake the kind of studies that Fredrick Taylor proposed in his book Scientific Management.
While there is no doubt that Tesco is a highly successful retailer it would be naive to suggest that they are perfect, or even that a small dedicated retailer could not compete successfully against them.
John,
There are two ways of keeping staff costs down. You either improve productivity and thereby employ fewer staff, or you pay lower wages. Tesco are employing the former method which leads to lower salary costs as a percentage of turnover.
If you are proposing to increase the hourly rate of just checkout staff you will still be increasing labour costs hugely as I would suggest about half the staff in a typical store are checkout staff.
How would you sell the 66% pay rise for checkout staff to the rest of the store team? and how would it affect their morale? No doubt a checkout operator on £10 an hour (or £19500 a year pro rata) would be earning more than their supervisors and probably as much as some of their managers.
And do you believe that the pay increase would reduce errors through improved morale, or by eventually
attracting better candidates?
Additionally, I’m not sure how, other than failing to scan an item, your checkout errors are caused by the checkout staff, as reductions and offers are pre-loaded and the operator simply scans the product.
I’m not suggesting Tesco are perfect, and there are many smaller businesses competing with them very successfully.
I just felt that your solution to the problems you have encountered are based on your bad experience from one store and your argument assumes that all errors are in the customers favour, and I doubt that is the case!
Regards,
Rob
Rob,
I think you’ve rather missed the point of the article which is that overall cheap staff may cost a business more than more expensive staff.
I only mention Tesco as it’s easier to explain an issue such as this using an example or a story. As such the numbers are there to illustrate the point, not as a precise prescription for Tesco (or any other business) to follow.
I’d like to address a couple of your points however; I very much doubt that Tesco’s staff are more productive than those of Sainbury’s or Asda, but if they are I’d love to hear details.
Yes these are problems in a local store, but the point it not whether it’s a good or bad Tesco store, or even whether it’s a Tesco or local independant store, the point is that poor staff are hurting the business.
Regards, John
John,
No I haven’t missed your point. I understand what you are trying to say although your mutterings about your local store and missing sweets at the checkout may have put me off the scent!
Personally, I dont believe paying more will make a deal of difference. If you take the example of a road sweeper, if you increased the hourly rate from £5.52 (Minimum wage) to £7.52, I don’t believe you will get cleaner roads. My experience tells me that applicants make a judgement about the job role and responsibilities and at the same time look at the salary.
By advertising for a road sweeper on a better salary, you will simply get other road sweepers applying for the job as opposed to a more skilled worker attracted to the extra pay.
For example, if a street cleaning supervisor saw the above job advertised offering the same money to be a cleaner rather than a street cleaners supervisor, do you think they would apply? I dont think they would.
I think the key is managing the productivity rather than paying more.
Finally, going back to Tesco for a moment. I dont think their staff are necassarily more productive, but i believe their procedures are. One small example, (you did ask for details!) next time you visit Tesco, look at the Heinz Beans - Tesco use dollies which hold about 100 tins a piece, and are rolled into place, whereas their competitors still put the tins on the shelf one at a time. The same goes for Coca Cola /Tea/ and other fast moving products. How many man hours a year do you think that saves them?
Finally, as you say ‘poor staff are hurting the business’ you are probably right, poor staff will hurt any business. However, poor recruitment and poor training and motivation are the root cause, if you get those three factors right, pay becomes much less important.
Regards,
Rob
Rob,
Thanks for sharing your opinion. The relevance of pay to motivation has been argued about by managers and academics for over a hundred years and will be argued for many years to come I’m sure.
Do you have any more examples of Tesco’s procedures, if so I’d be interested in details?
Regards, John
John,
I won’t have time to reply fully ’till Wednesday. Let me know what sort of detail you would be interested in and I will try to help.
Regards,
Rob
Rob,
I hope that this blog will help people start and run a successful business. Understanding what Tesco does that small businesses could emulate and adapt can will benefit my readers, so if you’ve got experience or expertise that you’re willing to share I and I believe the readers would love to hear it so we can learn from it.
If you’d prefer you’d be welcome to write it as a guest post.
John,
I’d be pleased to offer my experience. I don’t claim to be an expert, though I do have over 20 years retail management experience and have spent 5 years at Tesco. I came upon your site by accident and posted because I (not for the first time) found myself compelled to defend a much misunderstood retailer!
Tesco are great at what they do and though not perfect there are plenty of their practises which could be used effectively by small businesses.
I’ll prepare something and post it tomorrow.
Regards,
Rob
Rob,
Great I’ll look forward to it.
Have you read my other post about Tesco? You’ll find them here: http://www.businessopportunitiesandideas.co.uk/?s=tesco
Regards, John