Tesco boss Sir Terry Leahy says that a fall in food and energy prices along with lower interest rates is stoking-up consumer confidence.
He told a conference of leading retailers and consultants that the high stree market remains "very fluid" but suggested that ther is a sign of more demand.
Liverpool-born Sir Terry reckons that retailers can best ride-out and even thrive in the recession by focusing on value products like Tesco's Market Choice and Value range.
Tesco reported record pre-tax profits of £2.8bn in April, after launching a new range of discount brands and upgrading its Clubcard customer loyalty scheme.
Sir Terry refused to predict when the downturn would end, but sayd retailers must keep pace with trends such as a focus on green issues and healthy options.
Sir Terry said: "All of us are grappling with the toughest trading conditions in our lives.
"In the past few months, the world has been turned upside down. In such tumultuous times it's easy to lose sight of simple truths and become confused.
"We all face the same challenge: what should we do to survive and prosper?
"My answer is a simple one, and one of hope. Now, more than ever, we must be the consumer’s champion. Deliver for the customer, and you will survive.
"It is the same answer I would give in the good times, but it’s even more important that we retailers abide by it in a recession.
"Consumers drive businesses and economies forward. In a free market, consumers reward initiative and provide incentives for people to innovate, create, produce. Each transaction, each bleep at the checkout, is a message to a business to produce more of that product - and helps to shape a trend.
"Find a business that responds to those signals, and you have found a successful company.
"Find a business that has plans created on the basis of abstract theories and assumptions, not on what consumers say and think, and you have found a bankruptcy waiting to happen.
"Just as businesses which ignore consumers are bound to fail, so too are economies.
"Think back to the planned economies, where bureaucrats decided on what and how much to produce. Consumers were given a choice - it was "take it or leave it. And the result was economic stagnation and collapse.
"So when I say 'follow the customer', I am talking not just about a business strategy, but an economic approach.
"Consumers are agents of change and growth. Economies where businesses are allowed to respond to consumer demand, to innovate, create and change, are those that will grow and prosper.
"What can we learn from the recession of the 1990s? What do those lessons mean for us today? And how should retailers prepare for the recovery?
"It was in the recession of the 90s that Tesco forged the strategy we have followed ever since.
"Those years were bleak times for the economy, and for Tesco.
"Losing customers to our rivals, there was a sense that we’d lost our sense of direction and, worse, our identity. Reactive and defensive, we responded to our competitors, and judged ourselves according to their performance.
"The change we needed was much deeper than a new process here and a revamped operation there. We had to answer some basic questions: what was Tesco’s core purpose, our values, our mission?
"Answering that demanded what the philosopher Bertrand Russell called the painful necessity of thought.
"But our answer was clear: our core purpose was 'to deliver value for customers to earn their lifetime loyalty'.
"No mention of products, no reference to the bottom line or market share, but a clear focus on people - our customers.
"Meanwhile, we asked two hundred thousand consumers what they wanted from Tesco. We looked at how their behaviour was changing, and what the future held.
"And, as a result of all this thinking, we innovated, changed and took risks. We recognised that consumers wanted value, so we developed new Value lines.
"At the same time, we realised that consumers needed help to meet aspirations that would outlast the recession.
"They wanted more organic food, new CDs and TVs, for example. They wanted shopping to be convenient and hassle-free - and good, easy to prepare food.
"So there was no magic silver bullet, no new-fangled business theory - just a series of improvements that we rolled out to deliver for the consumer, and earn loyalty: one in front cut-the-queues initiatives, new formats, Clubcard, a move into new markets like non-food.
"Did we have a new Strategy Department to dream this up? No - we actually scrapped the strategy department, as I believe the customer is the most reliable guide for the future.
"Did we change one bit of the business at a time? No - we developed a balanced scorecard approach, the Tesco steering wheel, to drive change through the whole business, so everyone was doing their bit to deliver for consumers.
"Did we make the business more complicated as a result? No - quite the reverse. We used change as an opportunity to introduce a new culture of simplicity - simple processes that are easy to learn, quick to complete and cost less money.
"Thanks to this approach, Tesco did not simply weather the storm, but was well placed to benefit when recovery came. And the lessons we learnt then we have never forgotten, but are etched on our minds.
"First, stick to the strategy of listening to customers. Never deviate from it, but accept that it means constantly changing tactics - in other words, how and what you deliver for consumers.
"Second, and consequently, nothing is sacred. Question everything - especially things which people tell you 'can’t be changed'.
"Third, loyalty has a price. It may demand short term pain - such as investing in lower prices - but it delivers medium and long term gain.
"Finally, hold your nerve. Following the consumer means spotting trends and taking risks, not waiting for your competitors to move first.
"So much for the 1990s: fast forward to today. Once again, consumers have radically altered how they shop and what they buy. And once again, the search for value is paramount. Across Europe and Asia, customers see value as 'premium quality at a better price'.
"To get that quality, they are bargain hunting more; shopping locally so as to save money on fuel or transport; planning to avoid waste.
"People still want convenience, but it is trumped by value. For example, more people are willing to cook from scratch, and less willing to pay for goods - such as grated or sliced cheese - when they feel they can do the job themselves.
"And consumers are still treating themselves so long as the treat delivers value - which these days might mean cooking a great meal at home, not going out.
"At Tesco, qwe’ve introduced more tiers of goods, with our new Discount brands here in the UK and internationally.
"We have developed sub-brands in food and non-food - in bakery, household cleaning products, Italian food and health and beauty.
"We’ve launched a new Clubcard loyalty drive, the biggest change to the scheme since its launch in 1995. We’ve introduced a 'real baskets' price check, that compares the price of products that people actually buy.
"We’ve cut the price of men’s suits to £25. We’ve even brought back the humble British pork hock, as customers look for ways to eat for less.
"I could go on, but that gives you a flavour of what I mean when I say 'change to deliver value and to reward loyalty'.
"And those changes, especially on price, are not just designed for the short term. Change must be sustainable, not a 'here today, gone tomorrow' offer.
"And that means you must improve your productivity, do more for less, and cut out unnecessary costs.
"The speed of such change tests businesses of all sizes. At Tesco we have never forgotten our past and heritage, as a small stall in the East End of London. So while Tesco has grown up to be a large business, our heart and our mind is still that of a small one.
"That mindset means I know and share concerns about the impact that regulation and taxes have on all retailers. More paperwork to fill in means less time spent on delivering for customers. More taxes mean less to spend on investing for customers - be it on innovation, price or jobs.
"I businesses are encouraged to innovate and create new products to meet consumer demands, we get into a virtuous circle of companies being rewarded with new custom, investing more and creating more jobs.
"Tesco is creating 11,000 jobs this year - evidence that retail can help power us out of recession. But this can only happen more widely if government doesn’t add more to the burden of regulation and taxes.
"Politicians and policy makers need to understand that talk of helping recovery has to be matched with deeds.
"As we change, so should regulators and politicians change their approach and attitude to us. And in this case that means doing less, not more, regulating and taxing."
And Sir Terry stressed that ultimately the consumer will decide when the recovery is here.
He said: "The consumer will guide us to recovery - but we need to be prepared for that recovery when it comes.
"I am not going to try to predict the length of recession. The situation in the high street is very fluid at the moment.
"Confidence is slowly seeping back, helped by lower interest rates, energy and fuel deflation, and of course falling food prices.
"But clouds remain - the darkest being unemployment. So we need to remain flexible, not bound by plans based on economic forecasts.
"One thing we can plan for is that, when the recovery comes, long term challenges and trends will come back into focus. The challenges are well known - climate change, a rising population, the pressure on natural resources, ageing population.
"Each of these will have an impact on our lives and businesses. We will need to be green to grow. We will need to use resources more carefully and efficiently.
"Technologies that once were unfashionable and politically unacceptable - be they nuclear power or GM crops - may come back into vogue.
"As countries grow and become richer, what they buy and eat will change - meat consumption, for example, is expected to rise.
"And as the number of old people grows - the number of people aged over 60 will quadruple to 2 billion by 2050 - new markets and services will grow.
"We need to keep an eagle eye on these trends, which will change not just the retail sector and how we operate, but what consumers demand.
"Consumers’ desire to go green - which has not disappeared - will re-emerge with even greater prominence. Even during the recession, consumers have remained concerned about the environment, but need more help in doing something about it.
"Unsurprisingly, they have responded to our efforts to make green goods cheaper, and to give more information about how to cut carbon. As consumers become still more 'green aware', I think that they will reward companies that are green and offer green products and services.
"Related to the green agenda is another trend: local. People want fresh, local produce: they see it as a hallmark of quality, a greener option.
"After that, health and wellbeing. The wish to look and feel good, and to live a long, healthy life is so natural you may think it hardly merits a mention, but it is now hardwired into all consumers, and is likely to grow as people live longer.
"And then there is another lifestyle issue: convenience. In today’s hectic, 24/7 world, time is money: when people have more money, they are willing to spend some of it to save time. Some of the lines that have dropped off during the recession, as people moved into buying staples and cooking from scratch, may pick up again. Meanwhile, having found the internet is a source of bargains during the recession, retailers will need to continue to offer great online services to a growing body of people, young and old, rich and poor.
"Finally, there are international opportunities. The roar of China and India may be a little less loud today, but don’t expect that to last. Given they are home to almost 40 per cent of the world’s population, their potential is huge. No retailer or supplier can ignore it - and competition - that lurks in those markets.
"All of these trends spell change to not just how we do business, but for the entire supply chain. And the change needs to start now, so that companies are well placed for the upturn when it comes.
"Companies that prepare for these trends, while delivering for consumers today, will prosper as the economy strengthens. But they will have achieved something else: they will have won customers’ loyalty.
"Loyalty is a precious, rare commodity. It is hard to earn, but all too easy to lose. Loyalty is built on trust - trust that a person or organisation is on your side, not just today, but through thick and thin.
"To earn someone’s loyalty, you have to make sacrifices and changes that can be painful, can cost money in the short term, and often require a new attitude and frame of mind. You must reward people who remain loyal - and never take their loyalty for granted.
"Now, in hard times, consumers want proof that businesses are battling for them. That does not mean simply cutting prices - it means delivering value. Do your level best to help the consumer, to show them you understand that every little helps, and they will reward you with their loyalty - not just today, but when recovery comes."
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