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Changes in public affairs strategy are rare enough at the world's large multinational companies. Sometimes there are concerns that such actions will be interpreted as a sign of weakness or previous failure. They can also be perceived as an admission of uncertainty or a previous lack of direction. And when the company in question is as controversial and as ubiquitous a presence on UK high streets as Tesco, such dramatic changes are especially surprising.

So it was all the more unexpected when Tesco chief executive Sir Terry Leahy made a speech at the Work Foundation in London in May, outlining ten major changes that the company is making to the way it relates to its role in local communities.

'As Tesco has got better at satisfying the needs of many different groups, our customers have increasingly come to reflect UK society as a whole,' Sir Terry said during the speech.

'That means that what our customers tell us is a very good indication of what the UK itself is thinking,' he continued. 'They want businesses - including supermarkets - to be good neighbours in the communities they serve. And they want to be assured that businesses are responsible, fair and honest.'

He concluded: 'The battle to win customers in the 21st century will increasingly be fought not just on value, choice and convenience but on being good neighbours, being active in communities, seizing environmental challenges, and behaving responsibly, fairly and honestly.'

If Sir Terry was assessing the changing consumer mood as adroitly as his management team has in the past spotted opportunities for 24-hour opening, Tesco's move into convenience stories and its home shopping service, he will surely not have been surprised at the reaction he received.

Almost every week, the company - which controls more than 30 percent of the UK grocery market, with more than 2,000 stores, and has marched into towns and villages across the UK thanks to its push into the convenience store sector - faces unrelenting criticism from a number of environmental and community groups.

Tescopoly money

A year ago, various organisations including the National Group on Homeworking, the GMB trade union, War on Want, the New Economics Foundation, Friends of the Earth, Women Working Worldwide and the Small and Family Farms Alliance joined forces to establish the Tescopoly Alliance.

This campaign says it aims to 'highlight and challenge the negative impacts of Tesco's behaviour along its supply chains both in the UK and internationally, on small businesses, on communities and the environment.' It also advocates national and international legislation needed to curb the market power of all the major UK supermarkets. The Tescopoly.org website has even adapted Tesco's 'Every little helps' slogan to read 'Every little hurts'.

Tesco also faces regular campaigns against plans to open or extend supermarkets, and its reputation took a further battering last year when the building of one of its car parks over a railway line at Gerrards Cross, Buckinghamshire, led to months of commuter travel disruptions.

The Scottish city of Inverness was recently branded 'Tescotown', as an estimated 50p in every £1 spent there is believed to end up in its three Tesco stores. Last month, it emerged that the north Norfolk fishing port of Wells-nextthe- Sea is one of the few towns left in the UK that does not have a Tesco or any other supermarket chain.

The spectre that Tesco wants to avoid is the fate of US supermarket giant Wal-Mart, which is the biggest retailer in the world but has been nicknamed the 'Bully of Bentonville' because of the way it is perceived to act with suppliers and local communities.

Good neighbours

Sir Terry's new ten-point plan includes commitments to consult local communities on every new superstore Tesco plans from next year. The company also promises to be a quieter neighbour by making fewer and less noisy deliveries to Tesco Express convenience stores and blending shop fronts into their surroundings.

Tesco plans to sell more locally sourced products than any other retailer and introduce regional counters into stores. It also aims to double the amount customers recycle at stores by 2008 and make it easier for small suppliers to gain access to its stores.

In addition, Tesco is pledging to halve the average energy used in all its buildings by 2010 compared with 2000, make all carrier bags degradable and reduce carrier bag usage by 25 percent over the next two years. It will include nutritional labelling on all own-brand products by spring 2007, help educate parents about healthier food for their children and get 2 mn people running, cycling or walking in sponsored events leading up to the 2012 Olympics.

Tesco will also hold a major conference in partnership with the British Red Cross to discuss 'how businesses like Tesco can make a bigger and better contribution in communities and neighbourhoods'.

And in a very public about-face, Tesco recently pulled out of a high-profile campaign to extend Sunday trading hours. The company had been helping finance the Deregulate campaign, which aims to sweep away the rules that limit large shops to six hours of opening on a Sunday. Rival chains Sainsbury's and Marks & Spencer had refused to back the campaign.

Sir Terry's speech was greeted with scepticism. Some commentators pointed out that the new policies came just a day after the Office of Fair Trading referred the UK's £95 bn grocery industry to the Competition Commission for an investigation into whether supermarkets are abusing their market power.

The Association of Convenience Stores declined to comment on an individual retailer when asked about Tesco's new plan, but its chief executive David Rae stated that he believes the Competition Commission enquiry is 'just the start of the process'.

He says: 'There is a long way to go before we get the hard and fast outcomes that we believe are required, such as better ways of stopping predatory pricing and greater transparency in dealings between retailers and their suppliers.'

Tesco denies there is any connection between the competition inquiry and its new community policy, saying the planning for the change goes back several years.

Pulling it all together

Lucy Neville-Rolfe, Tesco's corporate and legal affairs director and company secretary, says: 'This is most significant. We have been working on this for some time and now we have made community policy an integral part of our business.

'We've changed the business planning model that we've been using for the last nine years - a steering wheel that has customers, finance, operations and people on it. We have added a community segment to it.

'Rather than being a public relations add-on, we are making the community an integral part of our business. There are two key strands to it: being a good neighbour, and being responsible, fair and honest.'

Neville-Rolfe says adding community relations to the steering wheel means that it becomes one of the criteria by which Tesco employees are measured and rewarded if they get it right. It makes the model a central part of the company's policy, she says.

'We have pulled it all together,' she adds. 'We have always been in communities, and society increasingly sees communities and the way you interact with them as being very important.

'We have realised that the best way we can respond to that is to make sure we are doing all we can for the communities in which we operate,' she continues. 'The way to do that is to make sure we have a business plan that will deliver this objective throughout the business.'

Neville-Rolfe says Tesco is looking to promote a greater level of engagement with its local communities by investing in areas that they care about. At the heart of the new community plan is a £100 mn environmental fund that is to be used for initiatives including powering stores with wind turbines, solar panels and geothermal power, and introducing gasification, which produces energy from waste food. Tesco points out that this is double the £50 mn investment to encourage the use of alternative energy that chancellor Gordon Brown announced in this year's budget.

The overall cost of the new policy to Tesco has not been disclosed, but Sir Terry has said it would be 'pretty substantive'.

CSR or PR?

Will Hutton, chief executive of the Work Foundation, has described the new measures as 'a big moment in the Tesco story'. He adds: 'Too often corporate responsibility has existed at the level of rhetoric, while employers have struggled to spell out how it will change the way business is done. It has thus become easy to paint it as 'pure spin'. Sir Terry has broken with this tradition with a series of substantial pledges.'

The New Economics Foundation, which has been critical of retailers creating 'clone towns', also welcomed Tesco's commitment to renewable energy.

The question is whether Tesco's investment and commitment will pay off. Tesco's phenomenal success in building a brand that accounts for £1 in every £7 spent in the UK has been based on anticipating societal trends such as working patterns that have increased the demand for prepared meals, late store openings and home deliveries. Tesco was early in introducing clothing and furnishings into its food stores and has had huge success in building brand loyalty with its Clubcard.

Maybe Tesco's new community policy shows that it has not lost its knack of identifying the zeitgeist, or 'spirit of the age'. After all, community affairs are national politics these days, with Conservative leader David Cameron espousing the view that businesses should be 'good neighbours'.

'These policies tap into the public mood,' says Neville- Rolfe. 'Society wants to be more locally minded, but it also wants convenience. We have moved into areas that other retailers would not go into. We went to the Seacroft estate in Leeds, which had been branded the most deprived housing estate in Europe. We believe in economic trickledown. If something is good for the community, we should see a good return. 

    Tesco's community shopping list

• Halve the average energy used in all Tesco buildings by 2010, compared with 2000
• Double the amount customers recycle at stores by 2008
• Make all carrier bags degradable from September and use 25 percent fewer bags over the next two years
• Put nutritional labelling on all own-brand products by spring 2007
• Help educate parents about healthier food for their children
• Get 2 mn people running, cycling or walking in sponsored events leading up to the 2012 Olympics Be a quieter neighbour by cutting the number of deliveries to Express convenience stores
• Consult more with local communities before building new stores from 2007
• Make it easier for small suppliers to gain access to Tesco
• Sell more local products than any other retailer and introduce regional counters into stores

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