Tesco became Britain’s biggest retailer by cutting costs to the bone, and that applies as much to store refits as pineapples. Katie Puckett met the development director who makes sure none of its £1.8bn construction budget gets wasted
If you’re working for Tony Vasishta, kiss your lie-ins goodbye. Tesco’s development director starts early and he’ll make sure you do too. “I often get into my car at 10 past six in the morning and I forget it’s not a sensible time to call people. The number of times I’ve pushed in the number and I have to hit cancel because it’s too early …”
The other week he set a personal record: “I got in my car and phoned one of our contractors and started talking about work. He said ‘Tony, do you realise its 5.15am?’”
You don’t get to be the UK’s biggest retailer by sleeping on the job. Tesco’s bosses know it is low prices that lure 30 million people through its checkouts every week and it keeps a gimlet-eye on cost in every aspect of its supply chain, including construction.
This year Tesco will spend £1.8bn on store development, wringing out every last penny to squeeze margins and boost sales. Vasishta says he’s always looking at new firms, though few make the grade and not everyone wants to work in such a price-conscious regime.
Vasishta joined Tesco from Boots The Chemist six months ago, and already he has been absorbed into the 24/7 culture. “I’ve always worked this hard, but the difference here is that everyone around me works as hard,” he says. This year Tesco will open 2.2 million ft² of new store space. Vasishta says he has “tens if not hundreds” of developments on site at any one time and expects to do even more next year.
Battle for the high street
Tesco’s assault on the UK’s high streets and retail parks is continuing, despite an inquiry by the Competition Commission, the second into the supermarket sector in a decade. It is looking at the aggressive expansion of the big four – Tesco, Asda, Sainsbury’s and Morrisons – of which Tesco is by far the biggest. Wherever it submits a planning application for a new store, fierce protests from residents and local retailers follow.
Vasishta isn’t involved in expansion strategies or planning disputes – he just builds and refurbishes the stores. “The big things on my agenda are minimising disruption to trading stores, the speed of construction and driving costs down. We task ourselves with reducing our building costs every year. That’s a hard thing to do, with inflation and the price of steel going up.”
Neither is he bothered by Tesco’s reputation for bullying its suppliers. “I honestly don’t believe we do. We’re demanding, I wouldn’t pretend that we’re not. We’re obsessed with delivering the best service for customers, and that means the best prices. The only way of doing that is to get the best prices from our suppliers. But people have a choice, they can work with us or choose not to and every company I come across wants to.”
So far, the retailer has met its targets through innovations developed with its contractors. According to Vasishta, many were suggested by the firms. No stone is left unturned: “If I look at a trolley bay in a car park, we might reduce the number of panels, lower the height or standardise the colours. Every change can have a cost implication.”
Tesco is increasingly using off-site construction to speed up projects and cut disruption and, most importantly of course, cost. It uses e-tendering to buy materials, which is unpopular with suppliers because of the stark attention to price. But Vasishta denies that’s the only consideration. “It’s good because it gets everyone down to their best price within a few minutes. After that, you can look at quality, speed, relationships.”
Every little helps
One of Vasishta’s latest projects is to standardise prices for works under £2-3m. “Because the scope of those works is fairly limited, there’s no reason why we can’t have a standardised rate card for most of the items. We’re tendering the schedules and then we’ll standardise them.” He also wants to get main contractors fitting shelving.
Vasishta says Tesco is the most customer-obsessed of all the retailers he has worked for in his 12 years in the sector, which includes stints with TK Maxx and Woolworths as well as Boots. He puts its success down to constantly listening to what customers want. Vasishta himself loves shopping – he has dozens of pairs of shoes – and is clearly a retail natural. It turns out he used to have a market stall in London’s East End.
The Kensington store we’re in today is coming to the end of a £3m refit by Styles & Wood. During our photoshoot, he helps a customer select a ripe pineapple, invites curious children to join him and fields criticism of the refit from a customer who can’t find what he’s looking for. “We’re not finished yet – is there anything you can’t find?” he asks, but the man has stomped off.
“That’s part of the challenge of trying to keep everybody happy all the time,” he notes philosophically, before returning to his usual upbeat tone. “At least he noticed we’d done something. Hopefully in a very short space of time, he’ll feel as passionate about the new layout as he did about the old one.”
Vasishta wants construction firms that are as concerned about their 30 million indirect clients as he is. If they’re not, sales figures show the difference. During projects, he examines them weekly at least and daily when there’s disruption to customers.
As the Competition Commission inquiry proceeds, Tesco’s place in the community is the target of a PR campaign. Like Asda and Sainsbury’s, it is trying to convince detractors that it’s a force for good. In May, chief executive Sir Terry Leahy announced a 10-point plan that included greater consultation with communities, halving the energy used in stores by 2010 and a £100m fund to develop sustainable energy sources.
It has already unveiled two eco-prototypes, one in Diss, Norfolk, opened last November with windmills out front; and in May, a follow-up in Swansea that uses natural light, combined heating and power plants and photovoltaic cells. Both use one-third of the energy of a normal store and Tesco will keep “tweaking” the technology to improve further.
It has planned a third store built from “recyclable” materials in Aylesham in Norfolk, but the planners weren’t keen on the timber cladding. “They wanted brick and tile so it looked the same as the other buildings,” says Vasishta. “The important thing is that we listen to customers and make buildings work with their environment.”
Whatever it does, Vasishta says Tesco has become “the Marmite of British retailing”: loved and loathed in equal measure. But he’s not worried. “If we keep on doing the things customers want, we will be okay. Nobody makes light of the competition inquiry, but it doesn’t detract from our day jobs because we don’t believe we’ve done anything wrong. We’re an easy target, but we fight fair.”
Tesco at a glance
Tesco will spend £1.8bn on construction in 2006. It opened 2 million ft² of store space last year and will add 2.2 million ft2 this year, much of it on new mezzanine levels within existing stores. There will be a further increase in 2007.
This year it will open 140 stores, mostly of the Express convenience type, but there will also be 25 Extras superstores, some new build, some expansions of existing stores.
Who it works with
Tesco has frameworks for contractors and consultants. Its “G5” main contractors – Costain, Barr, Taylor Woodrow, RG Carter and Kier – pick up the bulk of the work, which is projects worth more than £5-6m.
It also works with a number of smaller fit-out contractors including Styles & Wood, Pearce, Dudleys and Britannia Construction. Vasishta says he looks for new firms all the time.
Cost consultants include Gleeds, Faithful + Gould, Turner & Townsend and Bucknall Austin.
Tesco generally uses design-and-build contracts or a variety of other methods.
“We probably need to get a bit cleverer on some of that. It depends on the size of the project. We’re building an enormous distribution centre in Scotland using a traditional two-stage tender and we’ll complete most of the design before we start on site. When you’ve got the time to do that, it’s a real luxury. But we rarely have the time. Usually we’d run with D&B.”
Vasishta has a design and implementation team of 50 staff, with another 30 external project managers seconded from its contractors. He reports to Neil Sachdev, Tesco’s property director.
What Vasishta wants
What do you look for in a construction firm?
Price, commitment, passion. You’ve got to have a really great attitude to customers and be prepared to help. If I’m standing around and someone asks me a question, I’m not going to say ‘I’m the development director, I don’t do onions’. Lots of companies want to come and work for Tesco because they know we do a lot of work, but they’ve got to be able to demonstrate a retail pedigree.
How can firms without retail experience break into the market?
If they’re able to demonstrate a real desire, either by employing people with retail experience or by working with companies that do. In some stores we’ve brought companies on for a smaller projects to begin with; they don’t all start doing big fit-outs.
How serious are you about sustainability?
Wherever we’re building a new store, we’ll consider using renewable energy or sustainable materials. We can’t afford to make stores unfeasible in terms of cost but we are looking hard at how we move materials, where we source them from and how recyclable they are. We’re working on using timber frame in a couple of buildings. But the government needs to be joined-up about this. They say they have a commitment to renewable energy, but the planning authorities are not very comfortable with large windmills, and small windmills generate almost no usable energy.
To find out more about the big four retailers’ construction plans, go to the archive section