OVERVIEW OF TESCO PLC
Tesco plc is a British-based international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share with profits exceeding £3 billion. In 2008, Tesco became the world's fourth largest retailer, the first movement among the top five since 2003. Currently the third largest retailer based on revenue, Tesco is second only to Wal-Mart in terms of profit, having surpassed Carrefour in 2009. Originally specialising in food and drink, it has diversified into areas such as clothing, consumer electronics, financial services, telecoms; home, health and car insurance; dental plans, retailing and renting DVDs, CDs, music downloads, Internet services, and software.
FORMATION
Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall in the East End of London. The Tesco brand first appeared in 1924. The name came about after Jack Cohen bought a shipment of tea from T.E. Stockwell. He made new labels using the first three letters of the supplier's name (TES), and the first two letters of his surname (CO), forming the word "TESCO".
The first Tesco store was opened in 1929 in Burnt Oak, Edgware, Middlesex. Tesco floated on the London Stock Exchange in 1947 as Tesco Stores (Holdings) Limited. The first self service store opened in St Albans in 1951 (still operational in 2008 as a Metro), and the first supermarket in Maldon in 1956.
During the 1950s and the 1960s Tesco grew organically, but also through acquisitions until it owned more than 800 stores. The company purchased 70 Williamsons stores (1957), 200 Harrow Stores outlets (1959), 212 Irwins stores (1960), 97 Charles Phillips stores (1964) and the Victor Value chain (1968) (sold to Bejam in 1986).
Tesco in 2000-2007:
2007 • Tesco opens Fresh & Easy in the United States
2006 • Tesco Direct launches
2005 • Tesco exits the Taiwanese market in an asset swap deal with Carrefour involving stores and operations in the Czech Republic
• Tesco Homeplus launches
• Tesco announces annual profits of £2 billion
2004 • Tesco enters China
• Tesco launches own-brand Fairtrade range
• Tesco Broadband is launched
• Tesco.com becomes first major British supermarket to enter music download market
2003 • Tesco enters Turkey
• Tesco enters Japan
2002 • Tesco enters Malaysia
• Tesco offers ‘Free-From’ products, designed for customers with special dietary needs
2001 • Tesco launches ‘Customer Champions’ in many stores and implements a new labour scheduler to further improve service for customers
• Tesco becomes the leading organic retailer in the UK
• Tesco reaches £1 billion price cuts in total
2000 • Tesco.com is launched
PURPOSE OF TESCO
Core purpose of Tesco is "to create value for customers to earn their lifetime loyalty."They deliver this through their values--"No one tries harder for customers" and "Treat people how they like to be treated."
VALUES OF TESCO
Tesco’s success depends on people: the people who shop with us and the people who work with us.
If Tesco’s customers like what they offer, people are more likely to come back and shop with us again. If the Tesco team find what they do rewarding, they are more likely to go that extra mile to help their customers.
This is expressed as their values:
No-one tries harder for customers:
• Understand customers.
• Be first to meet their needs.
• Act responsibly for their communities.
Treat people as they like to be treated:
• Work as a team.
• Trust and respect each other.
• Listen, support and say thank you.
• Share knowledge and experience.
• ...so they can enjoy their work.
They regularly ask their customers and their staff what they can do to make shopping with them and working with them that little bit better.
TESCO plc describe its “Every Little Helps strategy” as follows :
MAJOR PRODUCTS AND SERVICES
Tesco is the largest food retailer in UK, operating around 3,451 stores worldwide. Its
products and services include:
Store types:
Extra
Superstore
Metro
Express
Tesco.com
Store offerings:
Food Retail
Non-Food Retail
Petrol Stations
Home Living Range
Tesco Personal Finance:
Life Insurance
Pet Insurance
Home Insurance
Travel Insurance
Motor Insurance
Savings Accounts
Personal Loans
Secure Investment Bonds
Online Mortgage Finder
STRATEGY OF TESCO PLC.
Giving cardholders discount in exchange for their name, address and other personal information.
Tailor promotions to individual shoppers and figure out quickly how new initiative are working.
The company quickly expanded the rollout, because the ethnic foods in neighborhoods with many Indians and Pakistanis were also popular with affluent white customers.
The data driven strategy.
Tesco lowered the price of value Brand margarine.
To analyze customer data for the retailer, Tesco owned majority of the research farm Dun humby.
Refined retailer strategy by dividing 2306 stores in Britain in four sizes.
Develop first line for customer who weren’t buy wine, cheese and fruit.
Customer receive a point for every pound they spend which they can use for future purchase or miles in frequent flier programs.
With the help of Dunnhumby, Tesco classifies shoppers in six segments.
Tesco’s growth is based on their five-part strategy:
• core UK business;
• non-food;
• international;
• retail services; and
• community.
At the heart of their business is the customer. Their core purpose is to create value for customers to earn their lifetime loyalty. Their values, which underpin everything they do, are to be first for customers and to treat people how they like to be treated.
Tesco’s 'Steering Wheel' or balanced scorecard gives them the tools to deliver their strategy for growth. As well as customers, Tesco must also consider the impact of their decisions on their people, their operations, finance and the community. They have adopted this approach in each of the countries in which they operate. They all have different challenges and opportunities but in each they believe in the power of the consumer to drive positive change. Their Community Plans are aimed at realizing this potential.
Tesco have continued to make good progress with their strategy, which has delivered pleasing growth in challenging times, and which they believe will both sustain the business through the downturn and also position the Group well for when the economic environment improves. The strategy has five elements:
be an international retailer
maintain a strong core UK business
be as strong in non-food as in food
develop retailing services
and put community at the heart of what they do
Core UK
Tesco’s core UK business is significant within the group, with over 280,000 employees and over 2,100 stores. Around 75% of group sales and profits come from the UK business.
Growth in the UK business comes from new space, extensions to existing stores and a multi-format approach. Sales of non-food, which forms another key part of their strategy, also contribute to the overall UK growth picture.
Community
Making Corporate Responsibility integral to their business is essential in applying their values as a responsible business. They believe it is also an opportunity for growth.
Tesco’s core purpose is to create value for customers to earn their lifetime loyalty. Their values, which underpin everything they do, are that no-one tries harder for customers and to treat people how they like to be treated.
Tesco’s Steering Wheel or balanced scorecard gives them the tools to deliver their strategy. As well as customers, they must also consider the impact of their decisions on the community, on their people, on finance and on operations. This therefore ensures that in all the decisions they make they take into account impacts on the community.
Tesco have adopted this approach in each of the countries in which they operate. They all have different challenges and opportunities, but in each they believe in the power of the consumer to drive positive change. Business also has an enormous role to play, and they believe that it is by being successful that business can make the biggest contribution. It is efficient businesses that can invest in deprived areas from which other companies have retreated. It is successful businesses that understand the needs of their customers – including low income customers and those with specific needs. It is growing businesses that can bring new jobs and careers to those who do not have them. And it is strong businesses that will prove that the challenge of climate change will be met through innovation and growth.
The plans developed, in the UK and by each of their international businesses, to deliver their corporate responsibility objectives are called the Community Plan. The Community Plan in each country is based around their community promises; actively supporting local communities; buying and selling their products responsibly; caring for the environment; giving customers healthy choices and good jobs for local people; and will reflect the needs of the local communities they serve.
Non-food
Tesco’s strategy aims to be as strong in non-food as in food. This means offering the same great quality, range, price and service for their customers as they do in their food business.
Tesco’s widest range of non-food can be seen in Extra stores and Homeplus, including electricals, home entertainment, clothing, health and beauty, stationery, cookshop and soft furnishings, and seasonal goods such as barbecues and garden furniture in the summer. Some of their stores also have opticians and over 240 have pharmacies
In 2006 they launched Tesco Direct , a new online and catalogue non-food offer, with over 11,000 products available online. Next day delivery is standard for small items with a unique two-hour delivery window. To find out more visit www.tesco.com/direct. Customers also have a delivery to store option so they can pick up their order from their local store.
Retailing Services
All their customers are different, and their needs are continually changing. That’s why they continue to offer more than one way to shop.
International
Since the mid-90s, they have been investing in new markets overseas, seeking out new opportunities for growth and ways of generating long term returns for shareholders. Today the Group operates in 12 markets outside the UK, in Europe, Asia and North America. Over 160,000 employees work in their international businesses, serving over 28 million customers and generating £13.8 billion sales and over £700 million profit. Over half of their selling space is now outside the UK.
TESCO’S INTERNATIONAL STRATEGY
The full emergence of international retailing is not something that will happen overnight - it requires a long term approach.
With more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:
1. Be flexible - each market is unique and requires a different approach.
In Japan, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don't meet the needs of local customers, so Tesco's entry into the Japanese market was through the acquisition of a discount supermarket operator.
2. Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff.
In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, their Rama IV store in Bangkok tries to meet local customers' expectations.
3. Maintain focus - they understand that customers want great service, great choice and great value. To become established as the leading local brand is a long term effort and is not about planting flags in map.
4. Use multi-formats - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout.
Their experience of trading a mix of stores means they can now move to multi-format quicker and they have recently opened Express stores in Hungary and the Czech Republic.
5. Develop capability - it's not about scale, it's about skill - so they make sure they have capability through people, processes and systems.
They believe that investing in their people is the right way to live their values and brings sound business benefits, too. Developing individuals at every level means that they have home-grown managers who understand their culture and can effectively develop their business.
6. Build brands - brands enable the building of important lasting relationships with customers.
In China, their first Tesco branded store called Tesco Legou opened in February 2007 and they have now completed re-branding of all stores.
STORES
Tesco's UK stores are divided into six formats, differentiated by size and the range of products sold. These are shown below;
Tesco Extra
Tesco Extra, Southport, England
Tesco Extra stores are larger, mainly out-of-town hypermarkets that stock nearly all of Tesco's product ranges. The first Extra opened in 1997. The 100th store opened in the 2004/05 financial year (specifically opening 29 November 2004, located on the Newport Road in Stafford, Staffordshire). The number of these is now being increased by about 20 a year, mainly by conversions from the second category. The largest store by floor space is Tesco Extra in Pitsea,Basildon with floorspace of 11,600 m2 (125,000 sq ft). Newer Tesco Extra stores are usually on two floors, with the ground floor for mainly food and the first floor for clothing, electronics and entertainment. Most Tesco Extra stores have a café. However, the new Manchester Gorton store, which opened in October 2008, has all sales on one floor, with a cafe on the upper balcony.
Tesco superstores
Tesco superstores are standard large supermarkets, stocking groceries and a much smaller range of non-food goods than Extra stores; they are referred to as "superstores" for convenience, but this word does not appear on the shops. A new store in Liverpool is the first to use the branding 'Tesco Superstore'
Tesco Metro
Tesco Metro, Manchester city centre, England on New Year's Eve 2007
Tesco Metro stores are sized between Tesco superstores and Tesco Express stores. They are mainly located in city centres, the inner city and on the high streets of small towns such as Rowlands Gill, Nelson and Cleveleys. Typical size is 1,100 m² (12,000 sq ft). The first Tesco Metro was opened in Covent Garden, London in 1992. Since then all Tesco branches that have a high street format including those which opened before the Covent Garden branch have been subsequently rebranded from Tesco to Tesco Metro probably to give an identity to the Tesco high street sub brand. The Tesco store in Devizes was the last store to finish rebranding, in September 2006. The store had not been renovated for over 20 years.
Tesco Express
Tesco Express stores are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to small store size, and the neccesity to maximize revenue per square foot) alongside everyday essentials. They are found in busy city centre districts, small shopping precincts in residential areas, small towns and on Esso petrol station forecourts. There were 827 stores at 23 February 2008 year end. Each store has a typical size of 190 m² (2,100 sq ft) - this makes them exempt from the Sunday Trading Regulations as they are under 260 m².
One Stop
One Stop stores are the only category which does not include the word Tesco in its name. These are the very smallest stores. They were part of the T&S Stores business but, unlike many which have been converted to Tesco Express, these will keep their old name. However, some have Tesco Personal Finance branded cash machines. There are more than 500 of them. One Stop Stores also work on a different pricing and offers system to the other Tesco stores, and generally have later opening hours than all except the 24-hour Tesco stores. Typical size 125 m² (1,350 ft²).
Tesco Homeplus
Tesco Homeplus is not Tesco's first non-food only venture in the UK. Until the late 1990s/early 2000s there were several non-food Tesco stores around the country including Scarborough and Yate. Although not in a warehouse style format, the stores were located on high streets and shopping centres, they did stock similar items to Homeplus stores. In both cases this was because in another part of the shopping centre was a Tesco Superstore which stocked food items only.
In May 2005 Tesco announced a trial non-food only format near Manchester and Aberdeen, and the first store opened in October 2005:
A further 5 stores opened before it stopped being a trial, and there is now a plan to open many more stores.
Current : Stores offer all of Tesco's ranges except food in warehouse-style units in retail parks. Tesco is using this format because only 20% of its customers have access to a Tesco Extra, and the company is restricted in how many of its superstores it can convert into Extras and how quickly it can do so. Large units for non-food retailing are much more readily available.
There are currently 10 Homeplus stores nationwide. The newest Homeplus store opened in Nottingham in Nov 2008. It like Bristol Cribbs featured an order and collect desk, where you can pick up items from the Tesco Direct book there and then with no wait.
Future : 4 more are due to open in the first half of '09 at sites around the country. All of these will feature the Order and Collect desk where customers can purchase and collect most items straightaway.
DISTRIBUTION
In common with most other large retailers, Tesco draws goods from suppliers into regional distribution centres, for preparation and onward delivery to stores. Tesco is extending this logistic practice to cover collection from suppliers (factory gate pricing) and the input to suppliers, in a drive to reduce costs and improve reliability. RFID technology is taking an increasing role in the distribution process.
Road
In 2007 Tesco was facing national disruption to its distribution network after a dispute with drivers at its distribution depot in Livingston, Scotland. In response to fears over increasing road congestion, fuel prices, and concern over its carbon footprint, Tesco is switching some of its supply chain to alternative modes, detailed below.
Rail
Tesco has been transporting goods by rail since 2006 using its distribution partner the Eddie Stobart Group. Volumes are set to increase in 2007 with new routes.
Canal
In October 2007 Tesco started using the Manchester Ship Canal to transport wine from Liverpool to a Manchester distribution facility. Combined with sea transport from the south coast where the wine was previously offloaded, this new mode replaces road journeys from the south coast to Manchester.
TOP COMPETITORS
The following companies are the major competitors of Tesco PLC:
ASDA Group Limited
BP Plc
Wal-mart
Carrefour
Metro AG
Kroger
Marks and Spencer Group plc
Royal Dutch/Shell Group
Safeway Inc.
Safeway plc
Somerfield
SPAR Handels-Aktiengesellschaft
The Boots Group PLC
Wm Morrison Supermarkets PLC
Booker Cash & Carry Limited
ALDI Group
The Carphone Warehouse Group PLC
John Lewis Partnership plc
INTERNATIONAL OPERATION
Tesco's international expansion strategy has responded to the need to be sensitive to local expectations in other countries by entering into joint ventures with local partners, such as Samsung Group in South Korea (Samsung-Tesco Home plus), and Charoen Pokphand in Thailand (Tesco Lotus), appointing a very high proportion of local personnel to management positions. It also makes small acquisitions as part of its strategy for example, in its 2005/2006 financial year it made acquisitions in South Korea, one in Poland and one in Japan. Tesco recently announced plans to invest an initial £60m ($115m) to open a wholesale cash-and-carry business based in Mumbai, India. Tesco's new wholesale operation will also supply the Tata Star Bazaar stores. Overseas companies are only allowed to open wholesale, licence or franchise arrangements. If the legislation were to change, Tesco announced they would open their own consumer retail business.
Country Name Started Trading Number of Store Number of Staff
U.S.A 2007 53 669
Ireland 1997 100 12474
U.K 1924 2115 280373
Czech Republic 1996 96 12886
Poland 1996 301 24870
Hungary 1995 123 19163
Slovakia 1996 60 8519
Turkey 2003 66 5705
China 2004 56 17571
South Korea 1999 137 12641
Japan 2003 125 3604
Thailand 1998 476 35269
Malaysia 2002 20 8045
India Tesco source over 170 million worth of products from india and have sourcing office in Delhi, Bangalore and Tripura.
SWOT ANALYSIS
Tesco PLC is a major food retailer that operates primarily in the United Kingdom. The company operates 2,291 supermarkets, superstores and convenience stores in the United Kingdom, the rest of Europe and Asia. The company also offers financial products, such as insurance and banking services, as well as electrical appliances and telecommunication products.
Strengths Opportunities
Increasing market share
Insurance
Tesco online
Brand value
UK market leadership reinforced Non-food retail
Health and beauty
Further international growth
Weaknesses Threats
Reliance upon the UK market
Debt reduction
Signs point to serial acquisitions UK structural change could spark a price war
Overseas returns could fall
Wal-Mart/Asda challenge
International expansion
STRATEGIC BENEFITS
The club card has helped boost Tesco’s market share in groceries to 31%, nearly double the 16% help by Wall Marts Asda chain.
39 successful stores in corea.
Tesco’s sales jumped 17% to $79 billion in the year ended, and net income rose 17% to $2.96 billion.
FINANCIAL POSITION
UK market share
Graph Showing Market Share of Tesco
According to TNS Worldpanel, Tesco's share of the UK grocery market in the 12 weeks to 10 August 2008 was 31.6%, up 0.3% on 12 weeks to 13 July 2008. The business' market share has been rising monthly since its recent low of 30.9% in March 2008. Across all categories, over £1 in every £7 (14.3%) of UK retail sales is spent at Tesco. Tesco also operates overseas, and non-UK revenue for the year to 24 February 2007 was up 18% on 25 February 2006
Supermarket Consumer
Spend (£000s) Market Share
August 2008 +/- from
July 2008
Tesco 6,351,531 31.6% ▲ 0.3%
Asda 3,410,431 17.0% ▲ 0.1%
Sainsbury's 3,175,543 15.9% ▲ 0.1%
Morrisons 2,233,137 11.1% ▼ 0.2%
THE RECESSION AND FOOD RETAIL
First, with unemployment rising, and people concerned about their incomes falling, obviously the pressure is on price more than ever. For example, we are now Britain’s Biggest Discounter – the clearest possible demonstration of our strategy to follow consumers. Sales in our discount and value ranges are up by 65 per cent on the year. Now, a quarter of all our customers’ shopping baskets and trolleys include something from this range – which shows that customers see this range as offering great value.
Prices have been cut while inflation has been subsiding – which brings second observation about the recession. Commodity prices are down over 50 per cent from their peak, and the price of a barrel of oil is down by about a hundred dollars from the giddy height it reached last year. These lower prices need to be fed into the supply chain, and passed on to consumers who are under growing financial pressure. Tesco want to ensure that all their suppliers understand this, which is why they are going to great lengths to talk to them about the new pressures that consumers are under. This adjustment affects our entire industry. It will be difficult for some, but it is critical if consumers are to be given what they want. Think of the alternative: keeping prices as they are, and hoping against hope that consumers on tight incomes will buy our goods.
Third observation relates to climate change, to healthy eating, to local produce. Some say that in a recession all these things are luxuries, or that consumers no longer care about protecting the environment, eating healthily or buying local goods. All that matters is saving money.
TESCO: GROWTH IN TOUGH TIMES
CONCLUSION
In the UK, their core business will continue to compete effectively and there is still plenty of growth to come. Non-food will grow faster than food as new space comes on stream, as they develop global sourcing and their global non-food capability. Retailing services wil continue to grow as they follow the customer into new areas of expenditure like e commerce and Tesco Personal Finance. Their international businesses will achieve real scale. By 2002 they will have 45% of their selling space outside the UK and from emerging markets they will have turnover of £5bn. Overall, they are on track to deliver the demanding targets they have set ourselves and they are looking to expand into other countries in the longer term. Their strategy has already taken them to double-digit growth in the first half and there is a strong momentum in Tesco that is moving them from being purely a domestic player to an international retailer of real scale.
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