Driver of hard bargains

 

THE FRIDAY INTERVIEW: Tony Keohane, chief executive Tesco Ireland:IT’S TUESDAY lunchtime and there’s a nice buzz in the newly refurbished Tesco store in Dún Laoghaire’s Bloomfield centre. Tesco Ireland chief executive Tony Keohane hovers quietly at customer service before taking me on a tour of the store.

Tesco Bloomfields has just had a €2.5 million face-lift. Its wide aisles are gleaming; bowls of olives and a range of cheeses are there to tempt; and an impressive butcher counter offers succulent cuts of meat. A big sign over the meat station screams the fact that all of the beef is Irish Angus.

“This is going down very well with customers,” Keohane says.

Being Tesco’s boss in Ireland is something of a double-edged sword. On the one hand, Keohane is the head of Ireland’s biggest private-sector employer with more than 14,000 staff. Last week it announced another 522 jobs as it adds to its 130-strong chain of stores. Staff last year enjoyed a €10 million profit share. It buys over €2 billion worth of Irish food annually and all its milk and beef are sourced locally. This week, it added 35 suppliers to its list of local producers.

Tesco is also the biggest grocery retailer here, with a 27.9 per cent share and, if you accept Keohane’s word, it is delivering the cheapest prices to consumers. Earlier this year, Tesco cut 1,000 prices to much fanfare. In the midst of the worst recession in living memory, Keohane should be a hero right now.

But he’s not and that’s only partly due to the fact he likes to fly below the radar. The price promotions have been discredited, with The Irish Times, among others, highlighting how the prices of many products were increased in advance of being brought down.

Some local suppliers complain of strong-arm tactics by Tesco and of having to pay to secure shelf space. Independent retailers, meanwhile, see Tesco as a retail juggernaut intent on destroying all in its way and on sucking the life out of rural towns.

Tesco’s planning applications here are usually followed by objections by RGData, the umbrella group for independent traders.

Like it or not, many Irish people resent the presence of Britain’s biggest supermarket chain on our high streets. It’s an uncomfortable truth. Keohane bats away these criticisms but accepts that not everyone in Ireland loves Tesco. He concedes Tesco bungled its price promotion. It admitted the prices of about 250 of the 1,000 products had risen earlier in the year before then being reduced.

“We did reduce 1,000 prices but, unfortunately, at the same time some commodity price rises did come through, which meant that the message of our price reductions didn’t get out as well as we would have wished,” he says, over a cuppa in a neighbouring cafe. “But it has got out now. We are significantly cheaper than our main competitors at the moment right across the range.”

Nevertheless, a view persists among the bar stoolers that the price promotions were a cod. “That’s untrue. I don’t think that would stand up to the people who shop in Tesco with us every week. They wouldn’t stick with us.”

On seeking financial support from suppliers for space on Tesco’s shelves – something in the headlines in 2009 – Keohane is crystal clear. “Hello money is illegal. If anybody has any evidence of illegality in Tesco, give me a call or call the gardaí.”

He acknowledges that Tesco has “tough negotiations” with suppliers but says this is only to secure the best deal for consumers.

“The people who do business with Tesco are, by and large, satisfied with the way we do business with them. I don’t hear complaints.”

Perhaps that’s because suppliers are fearful of losing the business. “That’s just nonsense. Suppliers are professional businesses and, if they have something to say, they will say it.

“You should listen to customers not to competitors or some elements of the supply base,” he later adds with a smile.

Fair point. Yet Tesco’s first-quarter financial figures showed like-for-like sales declined by 3.9 per cent in Ireland.

Is Tesco losing its touch?

“Prices are down. Our transactions are up. It’s people choosing to spend less reflecting less money in their purses. Our business is still in growth, [because] that number doesn’t reflect our new shops. So we’re pleased with that.”

Tesco had 11 extra shops in its Irish network in the first quarter of the current year compared with the previous period. Like other grocery retailers in Ireland, Tesco doesn’t publish its profit figure but whispers of profiteering abound. Last year, UK stockbroker Shore Capital estimated Tesco’s Irish profit margin at 7.2 per cent – bettered only by South Korea within its global network. That is about €200 million a year in real money. In 2009, a leaked internal business plan said Tesco was aiming to record a tasty gross profit margin here of 9 per cent.

“Em, as you know, we don’t discuss our profitability in Ireland because nobody else does,” he says, predictably. However, he does offer one nugget. “Our return on capital in Ireland is less than in the UK.”

Really? What’s the number?

“I’m not giving you a figure. Hah, hah.”

Keohane sits on the UK board of Tesco and its new chief, Richard Brasher, is his boss.

Is near-bankrupt Ireland Inc a harder sell now to his colleagues in Britain?

“It is a harder sell for me in the board in terms of capital for Ireland,” he concedes. But he says Tesco will continue to expand. He argues Ireland is not overshopped – for groceries, at least.

“There is a need for caution but I still think there are plenty of opportunities for Tesco because there are locations where we can add new stores or refresh the estate. There’s still growth to be had.”

He cites Kilkenny – the only county where Tesco is not present in the Republic – west Cork and south Dublin as locations where it could add stores. Does Keohane feel that Tesco gets a bad rap from the press?

“I don’t think so. When you are the agent of change . . . no, that’s too severe,” he says, as I my jaw drops. “You trapped me on that one. Can you soften that a bit. We bring change to the marketplace.”

Keohane is well able to handle himself. The grocery trade is a bear pit. Only the fittest survive and he clearly had big elbows as he made his way up a crowded ladder at Tesco.

Retail is all he has known. He went to work for the now defunct British retailer Woolworths as an 18-year-old after his Leaving Cert. “My family did well putting me through secondary school and then it was up to me after that.”

His father worked as a general operative at Irish Steel in Cobh. “He worked long and hard. I worked there during the summer. [It was] tough, I didn’t want to follow dad.”

Keohane returned to Ireland to join Irish supermarket chain Quinnsworth, which was bought by Tesco in 1997. “I love it,” he says. “It’s one of the few industries you can join where there’s a step ladder for most people to go to the next level and as high as you want. There’s help along the way. That facility benefited me enormously.”

Born and bred in Cork, Keohane is a card-carrying Rebel, fervently supporting Cork’s GAA teams and Munster rugby.

He is usually up at 6am. The job involves long hours and travelling. His downtime is spent with his family and he likes to have an occasional “crash day . . . to let the system recover”. This usually involves sports on TV.

At 57, Keohane is just three years from the retirement checkout. Will this be his last full-time role? “I never say never to anything. But I would expect I would see out this job. If I go at 60, I will do other things but hardly in a full-time role.”

On the Record

Name: Tony Keohane

Age: 57

Family: Married, three children

Lives: Blackrock

Hobbies: Golf and walking. “I used to jog but now it’s walking.”

Something you might expect:He buys his groceries in Tesco “but I visit every other shop”.

Something to surprise:“I played in the Carrigaline Pipe Band when I was a kid.”