Introduction
First I will start with brief introduction of the firm I am writing about. Tesco is the largest food retailer in UK, operating around 2,318 stores worldwide. Tesco operates around 1,878 stores throughout the UK, and also operates stores in the rest of Europe and Asia. Tesco.com is a wholly-owned subsidiary offering a complete online service, including tescodirect.com and tesco.net. The company also offers a range of both online and offline personal finance services. Tesco is headquartered in Hertfordshire, UK. For the year ended February 2004 Tesco PLC achieved revenues that totaled ?33,557 million, an increase of 18.7% against the previous years revenues that were ?28,280 million.
History
This part I have divided into three main fraction: Grows; Marketing/management strategy and competition during each particular period of time. Competition is included here for the reason that I am strongly persuaded that it is the main driving force for any business.
Pre 1980
Grows
1995 Tesco overtook Sainsburys and became UK largest supermarket. In the 90s international expansion began: France (1992) Hungary (1994) Poland (1995) Czech Republic (1996) Slovakia (1996) Republic of Ireland (1997) Thailand (1998) South Korea (1999). Entering foreign markets in the first half of 90s was made mainly by purchasing already existing stores or joining the local retail leader. For example first stores in the Czech Republic were opened by buying US corporation Kmart’s operations in the country and converting them into Tesco stores. In 1997 expansion to Asia market began from acquiring 13 shops from CP Group in Thailand and formed Tesco Lotus. In 1999 By joining with Samsung entrance to South Korea market was achieved.
Marketing strategy
Tesco introduced the new superstore concept for Britain. After a few years from appearance (1968) superstore became very popular for its vide range of products at competitive price. In 1974 company introduced its first gas station which had lower price for petrol but was adjacent to Tesco superstore.
1980s
In May 1987 Tesco completed its hostile takeover of the Hillards chain of 40 supermarkets in the North of England for ?220 million
1990s
Grows
1995 Tesco overtook Sainsburys and became UK largest supermarket. In the 90s international expansion began: France (1992) Hungary (1994) Poland (1995) Czech Republic (1996) Slovakia (1996) Republic of Ireland (1997) Thailand (1998) South Korea (1999). Entering foreign markets in the first half of 90s was made mainly by purchasing already existing stores or joining the local retail leader. For example first stores in the Czech Republic were opened by buying US corporation Kmart’s operations in the country and converting them into Tesco stores. In 1997 expansion to Asia market began from acquiring 13 shops from CP Group in Thailand and formed Tesco Lotus. In 1999 By joining with Samsung entrance to South Korea market was achieved.
Marketing strategy
Tesco introduced a loyalty card, branded ‘Club card’, in 1995. This card was giving discount but what is more important it gave an opportunity to keep a hand on a pulse of customers need and to collect all necessary data for future planning?s. New goals were set: Expansion to foreign market, developing of a nonfood products selling. Tesco’s main advertising slogan appeared “Every little helps”. Its advertisements in print and on television mainly consist of product shots (or an appropriate image, such as a car when advertising petrol) against a white background, with a price or appropriate text, e.g. “Tesco Value”, superimposed on a red circle. On television, voiceovers are provided by recognizable actors and presenters, such as James Nesbitt, Jane Horrocks, Terry Wogan, Ray Winstone, Neil Morrissey, Martin Clunes, David Jason and Kathy Burke among others. In international expansion Tesco took to attention difference in tastes between different regions. While entering Central Europe market Tesco was instilling western standards of shopping by introducing large number of hypermarkets. Also very big attention was devoted to customers? needs usually it was represent in product line. In Czech Republic for example Tesco concentrated on providing Czech products in retail shops. In China, the locals preferred to buy live fish, turtles, meat and other popular products such as instant noodles, unlike in European countries. Tesco had to provide these in its hypermarkets to draw the Chinese customers. Similarly in Thailand, the customers spent a huge proportion of their income on fresh foods. To adapt to the shopping habits of the Thai customers, Tesco developed a fresh market hall – an area adjacent to the main store, wherein 14 local vendors sold a range of fresh fruits, vegetables, meat, ready-to-eat products and other local food products. This area was designed to provide the Thai customers with traditional and local atmosphere.
Competition
On 21 March 1997 Tesco announced the purchase of the retail arm of Associated British Foods which consisted of the Quinnsworth, Stewarts and Crazy Prices chains in the Republic of Ireland and Northern Ireland, as well as associated businesses for ?640 million. The deal was approved by the European Commission on 6 May 1997. This acquisition gave it both a major presence in the Republic of Ireland, and a larger presence in Northern Ireland than Sainsbury’s which had begun its move into the province in 1995. Tesco?s nonfood marked faced a huge competition level in GB from such giants like ASDA and Marks&Spenser. At the beginning of entrance to the Hungarian market main competition was represented by small family-run stores, which served immediate customer needs. The strategy against it was introducing more than 1000 its own label products at 20% cheaper price than branded ones. Later Auchan (fr), Metro (gr) and Cora (fr) entered Hungarian market and became the main competition.
2000s
Grows
In July 2001 it became involved in internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks. In 2002 Tesco purchased 13 HIT hypermarkets in Poland. It also made a major move into the UK convenience store market with its purchase of T&S Stores, owner of 870 convenience stores in the One Stop, Dillons and Day & Nite chains in the UK. In October 2003 it launched a UK telecoms division, comprising mobile and home phone services, to complement its existing Internet service provider business. In June 2003 Tesco purchased the C Two-Network in Japan. It also acquired a majority stake in Turkish supermarket chain Kipa. In January 2004 Tesco acquired Adminstore, owner of 45 Cullens, Europa, and Harts convenience stores, in and around London. In August 2004, it also launched a broadband service. In Thailand Tesco Lotus was a joint venture of the Charoen Pokphand Group and Tesco but facing criticism over the growth of hypermarkets. CP Group sold its Tesco Lotus shares in 2003. In late 2005 Tesco acquired the 21 remaining Safeway/BP stores after Morrisons dissolved the Safeway/BP partnership. In mid 2006 Tesco purchased an 80% stake in Casino’s Leader Price supermarkets in Poland. They will be rebranded into small Tesco stores.
Marketing/management strategy
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. In September 2005 Tesco announced that it was selling its operations in Taiwan to Carrefour and purchasing Carrefour’s stores in the Czech Republic and Slovakia. Both companies stated that they were concentrating their efforts in countries where they had strong market positions.
In May 2007 it was revealed that Tesco had moved the head office of its online operations to the tax haven of Switzerland. This allows it to sell CDs, DVDs and electronic games through its web site without charging VAT. In June 2008 the government announced that it was closing a tax loophole being used by Tesco. Tesco has made a commitment to corporate social responsibility, in the form of contributions of 1.87% in 2006 of its pre-tax profits to charities/local community organizations. Will Hutton, in his role as chief executive of The Work Foundation recently praised Tesco for leading the debate on corporate responsibility. In 1992 Tesco started a “computers for schools scheme”, offering computers in return for schools and hospitals getting vouchers from people who shopped at Tesco. Until 2004, ?92m of equipment went to these organizations. The scheme has been also implemented in Poland.”BITC – Tesco Computers for Schools”. Starting during the 2005/2006 association football season the company now sponsors the Tesco Cup, a football competition for young players throughout the UK. The cup now runs a boy’s competition at Under 13 level and two girl’s cups at Under 14 level and Under 16 level. Over 40,000 boys alone took part in the 2007/08 competitions.
Competition
In 2007 Tesco was placed under investigation by the UK Office of Fair Trading (OFT) for acting as part of a cartel of five supermarkets (Safeway, Tesco, Asda, Morrisons and Sainsburys) and a number of dairy companies to fix the price of milk, butter and cheese. In December 2007 Asda, Sainsburys and the former Safeway admitted that they acted covertly against the interests of consumers while publicly claiming that they were supporting 5,000 farmers recovering from the foot-and-mouth crisis. They were fined a total of ?116M. Tesco, which maintains that it was not a part of the cartel, is still under investigation by the OFT.
Strategic analysis
Industry analysis: PESTE. UK.
Political Factors
For employment legislations, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (7). Also to meet the demand from population categories such as students, working parents and senior citizens. Tesco understands that retailing has a great impact on jobs and people. Tesco employs large numbers of; student, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees.(6) However at Tesco, an overwhelming majority perceived no difference in the treatment of part-time and full-time employees.(7) Moreover In a span of six years, Tesco provided employment to over 2,000 unemployed and disadvantaged people, through its job guarantee scheme. Tesco focused on training and employing people who were single parents, older people and first-time workers.
Competition Commissions ruling and have been lobbying to boycott supermarkets and large food manufacturers and instead support small independent suppliers, processors and retailers at the expense of large supermarkets like Tesco.
Proposals from the European commission to clamp down on predatory pricing policies to prevent the selling of goods below cost price such as exist within France Germany, Ireland and Spain.
Furthermore, there are standards for nutrient descriptors such as light, reduced fat and low fat, set by governmental and European agencies like the European Food Authority (EFA)
Economical Factors
The UK food retailing market is mature and highly competitive and this market has been affected by negative inflation in the food sector. The saturation of domestic markets and the desire for growth have fuelled increasing globalisation in retailing through self-start, merger and acquisition and franchising. Poor land resources issue enhanced by government legislation on planning restrictions on out of town shopping facilities makes it difficult to expand into these locations Britain’s supermarkets are racing to open small high street stores to cash in on demand for convenience shopping in urban areas
Social/Cultural Factors
Demographic changes such as the aging population, an increase in female workers and a decline in home meal preparation mean that UK retailers are also focusing on added-value products and services. In addition, the focus is now towards; the own-label share of the business mix, the supply chain and other operational improvements, which can drive costs out of the business. National retailers are increasingly reticent to take on new suppliers.
The UK is experiencing a trend towards healthier food, as well as implying a strong growing awareness of environmental friendly packaging. However, since the 21st century there has been an increasing consumer preference for quality products with good tastes. The UK population is also becoming more and more experimental within their eating habits. In the past years a trend towards the desire of exotic fruits, fish, etc. may be noted.
Technological Factors
Changes in retailing methods as such clothes sales via the Internet is now a common place in retailing. Paperless operation, the management and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the business. As Sweden is at the forefront of technological advancement with national companies like Ericsson, Tesco would enjoy the comprehensive logistic and distribution channels already in place.
Environmental Factors
In 2003, there has been increased pressure on many companies and managers to acknowledge their responsibility to society, and act in a way which benefits society overall. The major societal issue threatening food retailers has been environmental issues, a key area for companies to act in a socially responsible way. Hence, by recognizing this trend within the broad ethical stance, Tesco’s corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance.
Graiser and Scott state that in 2003 the government has intended to launch a new strategy for sustainable consumption and production to cut waste, reduce consumption of resources and minimise environmental damage. The latest legislation created a new tax on advertising highly processed and fatty foods. The so-called fat tax’ directly affected the Tesco product ranges that have subsequently been adapted, affecting relationships with both suppliers and customers.
Porter’s Five Forces
Threat of New Entrants
The UK grocery market is primary dominated by few competitors, including four major brands of Tesco, Asda, Sainsbury’s and Safeway that possess a market share of 70% and small chains of Somerfield, Waitrose and Budgens with a further 10%. Over the last 30 years the grocery market has been transformed into the supermarket-dominated business. This powerful force had a great impact on the small traditional shops, such as butchers, bakers and etc. Hence, nowadays it possesses a strong barrier for new companies who desire to enter the grocery market. For instance, it becomes rather difficult for new entrants to raise sufficient capital because of large fixed costs and highly developed supply chains. This is also evident in huge investments done by large chains, such as Tesco, in advanced technology for checkouts and stock control systems that impact new entrants and the existing ones. Other barriers include economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) achieved by Tesco and Asda seen in their aggressive operational tactics in product development, promotional activity and better distribution.
Bargaining Power of Suppliers
This force represents the power of suppliers that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets. Therefore, this consolidates further leading positions of stores like Tesco and Asda in negotiating better promotional prices from suppliers that small individual chains are unable to match. In return, UK based suppliers are also threatened by the growing ability of large retailers to source their products from abroad at cheaper deals. The relationship with sellers can have similar effects in constraining the strategic freedom of the company and in influencing its margins. The forces of competitive rivalry have reduced the profit margins for supermarket chains and suppliers.
Bargaining Power of Customers
Tesco’s famous loyalty card – Clubcard remains the most successful customer retention strategy that significantly increases the profitability of Tesco’s business. In meeting customer needs, customizing service, ensure low prices, better choices, constant flow of in-store promotions enables brands like Tesco to control and retain their customer base. In recent years a crucial change in food retailing has occurred due to a large demand of consumers doing the majority of their shopping in supermarkets that shows a greater need for supermarkets to sell non-food items. It has also provided supermarkets with a new strategic expansion into new markets of banking, pharmacies, etc. Consumers also have become more aware of the issues surrounding fairer trade and the influence of western consumers on the expectations and aspirations of Third World producers. Ecologically benign and ethically sound production of consumer produce such as tea, coffee and cocoa is viable, and such products are now widely available at the majority of large chains.
Threat of Substitutes
In the grocery industry this can be seen in the form of product-for-product or the substitute of need and is further weakened by new trends, such as the way small chains of convenience stores are emerging in the industry. In this case Tesco, Asda and Sainsbury’s are trying to acquire existing small-scale operations and opening Metro and Express stores in local towns and city centres.
Bargaining Power of Competitors
The grocery environment has seen a very significant growth in the size and market dominance of the larger players, with greater store size, increased retailer concentration, and the utilisation of a range of formats, which are now prominent characteristics of the sector. As it was mentioned above, the purchasing power of the food-retailing industry is concentrated in the hands of a relatively small number of retail buyers. Operating in a mature, flat market where growth is difficult (a driver of the diversification into non-food areas), and consumers are increasingly demanding and sophisticated, large chains as Tesco are accruing large amounts of consumer information that can be used to communicate with the consumer. This highly competitive market has fostered an accelerated level of development, resulting in a situation in which UK grocery retailers have had to be innovative to maintain and build market share. Such innovation can be seen in the development of a range of trading formats, in response to changes in consumer behaviour. The dominant market leaders have responded by refocusing on price and value, whilst reinforcing the added value elements of their service.
Corporate Social Responsibility Initiatives
Mission statement : Creating value for customers, to earn their lifetime loyalty.
Tesco’s corporate responsibility efforts were reflected in its day to day activities, with its focus on recycling, use of organics, use of energy and water, as well as its charity and community initiatives. Tesco’s CSR strategy was “to earn the trust of our customers by acting responsibly in the communities where we operate, by maximizing the benefits we bring and working to minimize any negative impacts.”The company published ‘Corporate Social Responsibility Review’ every year, with details of the company’s CSR approach, implementation and policies.
A Corporate Responsibility committee was established in 2001; it comprised of cross functional executives, who met four times a year to look into the matters of CSR at Tesco. The committee was headed by the Director, Group Corporate Affairs. The committee came out with its first CSR report in 2001. Tesco’s Steering Wheel framework was used to measure its achievement of CSR key performance indicators (KPI), which formed a part of the operations quadrant, in the ‘responsible and safe’ segment. CSR was made a part of the Tesco steering wheel in order to ensure that corporate responsibility formed a part of the day-to-day activities of the company. Due to its size and scale of operations, Tesco was able to influence society at large in many ways, by encouraging its employees and customers to become socially responsible. The company adopted several initiatives to fulfill its responsibility to society. These included charity, fund raising for a cause and promoting education. Tesco was of the view that it had a major role to play in promoting health food among its customers and strove to make health food available at affordable prices. These efforts were not limited to the UK but extended to other countries in which Tesco operated.
In 1992 Tesco started a “computers for schools scheme”, offering computers in return for schools and hospitals getting vouchers from people who shopped at Tesco. Until 2004, ?92 million of equipment went to these organizations. The scheme has been also implemented in Poland. Starting during the 2005/2006 football season the company now sponsors the Tesco Cup, a football competition for young players throughout the UK. The cup now runs a boy’s competition at Under 13 level and two girl’s cups at Under 14 level and Under 16 level. Over 40,000 boys alone took part in the 2007/08 competitions.
Tesco gave at least 1% of its pretax profit to charity, in the form of donations, employee time and gifts. In the fiscal 2004-05, Tesco’s total charity contributions stood at ?21,762,931. Tesco Charity Trust provided grants of ?878,556 to local and national charities in the UK…
Though Tesco claimed to be an environmentally and socially responsible corporate citizen, many non-governmental organizations and industry analysts criticized the company’s practices. For instance, according to Friends of the Earth, Tesco distributed 1.4 billion plastic bags in 2004, which ended up in landfill. In the UK, only 7% of plastic bags were recycled and the company continued using more and more plastic bags