Company Overview On Tesco Business Essay


Tesco started off as a grocery stall set up in east London and owned by Jack Cohen in 1919 and 10 years later they opened its first store in Burnt Oak. In 1947 TESCO's stocks were traded on the stock market and between the 1950-60's Tesco's grew organically until it owned 800 stores. In May 1987 Tesco completed a hostile takeover of the Halliards chain of 40 supermarkets. In 1994 Tesco fought Sainsbury's for the Control of 57 William Low stores. On the 21st March 1997 Tesco purchased the retail arm of Associated British Foods, later that year Tesco forged an alliance with ESSO the petrol filling station. Tesco obtained a 35% stake in Groceryworks through internet grocery retailing in the USA and in 2003 Tesco launched mobile phone & landline services to compliment their internet service. 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 including Sainsbury's. Tesco's annual turnover at the end of 2009 stood at £53,440.40m and had pre-tax profits of £2,906.23m. The Return on Capital Employed (ROCE) tells us how much profit Tesco has earned from their investments that their shareholders have made to the company, Tesco ROCE is 11.86% which is 3.88% lower than in 2005 and this shows that Tesco is effectively earning around 12% on their shareholders investments.(see appendix B,C)

Sainsbury's History & Performance

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In 1869 Sainsbury's was founded by John James Sainsbury's & His Wife, thirteen years later they started selling their own brand products. In 1896 Sainsbury's first store was opened on Drury Lane. During world war one Sainsbury's started recruiting women. In 1946 they started training schools for their colleagues in Blackfriars. Four years later the first self service store opened. In 1970 Sainsbury's stores introduced the first bakery, fresh fish counter, petrol station, & coffee shops. In 1975 the first Savacentre opened expanding into non- food products. In 1989 the first carrier bag was produced made from recycles materials and two years later the penny back scheme was launched to encourage carrier bag reuse. In 2000 Bell & Jackson, who sell Homebase products, joined Sainsbury's and in 2005 the ‘try something new' scheme was launched. Sainsbury's revenue at the end of 2009 stood at £20,383m with operating supermarket profits of £616m. Sainsbury's profits stood at £289m in the first quarter of 2009 (see appendix D)


There are many factors that influence the way retailers are managed and perform. This report will give a greater insight into the elements that apply to both Tesco's and Sainsbury's. The factors that manipulate these retails relate to the macro and micro environment, its retail location, image, positioning, reputation, store design, product assortment, the use of its own brands, retail promotion, customer service and the customer loyalty schemes offered.

The Retail Environment: Macro and Micro

The retail environment is in essence the retail market. Factors of the retail environment are broken down and analysed internally and externally. The term used to analyse the internal factors of the retail environment is known as the Micro-Environment, and the term used to analyse the external retail environment is the Marco-Environment.

The Micro-Environment present factors within an organisation or that have direct connection to an organisation that can affect its performance and decision making practices. The most commonly known factors of the micro environment are the stakeholders of a business, which are generally made up of competitors, customers, employees, suppliers, the media, shareholders, and the general public. The most popular method used to actually analyse the micro-environment is through the marketing mix which involves the product, price, place, and promotion within a business.

The Macro-Environment consists of factors that may influence an organisation externally. This is usually outside of the control of corporations. Examples of factors that may influence a business are changes in interest rates, changes in cultural trends and tastes, more competitors in surrounding areas as well as greater regulations or changes to government laws. A popular method used to analyse the macro-environment is through a PESTLE analysis which stands for political, environmental, sociological, technological, legal, and ethical issues.

TESCO's & Sainsbury's Micro Environment

In recent times, Tesco have taken steps to expand the number and range of stores available from hypermarkets right down to Tesco metro stores and the location of these store is important when consider achieving maximum awareness which can be perceive through sales figures. The likely hood that prices will also fall in the run up to Christmas this year as it did last year are high as the UK has not yet recovered from the economic downturn. Tesco's not only promote their store through television adverts or posters but provide a shopping experience to encourage customer to return with the reassurance that Tesco helps save customers money with their slogan ‘every little helps'

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Sainsbury's products are high end positioned and are in turn perceived by consumers as being high quality goods. Similarly to Tesco, Sainsbury's has a number of stores which all vary in size from hypermarkets to Sainsbury's local, as well as this, Sainsbury's has an online presence but this has not been promoted as extensively as their store campaigns.

Despite this, Sainsbury's have lowered their prices to coincide with the level of UK disposable income of consumers which corresponds with the current economic climate. The impression customers have of Sainsbury's is that are trying to encourage the general public to try new things and cook more food which include their 5 a day, all of which can be achieved on a small budget. There was recently a huge campaign to try something new with Jamie Oliver (a celebrity chef) being the face of cheap healthy eating with the family, an example of this was the ‘feed the family for a fiver' advert.

TESCO's & Sainsbury's Macro Environment

There are coinciding issues politically and economically within Tesco concerning the recent increase in unemployment due to the downward turn in the world economy, which has had an impact on sales. Despite this, the online technology used to improve consumers shopping experience has been a major factor in the company's recent success. With a social increase of migrant workers from Eastern Europe there have been demands for European products. This change has been raising concerns about the current UK environmental, and the lack of local produce in stores, as this leads to increases in the need for more transport links and journeys; to help address this issue Tesco now use fossil fuel for transporting and are putting in place practices to help reduce their carbon footprint.

Although, Sainsbury's and Tesco's are at an advantage politically as the Government plans to decrease the rate of corporation tax from 30% to 28%, which will save sizeable companies like these significant sums of money. Despite this, economical concerns for the global food crisis are rapidly increasing and have increased food prices all over the world, which will result in rising purchasing costs of Sainsbury's goods. Socially the government have emphasised the promotion of healthy eating due to the increasing level of obesity within the UK. Sainsbury's have a legal obligation to abide by the increasing number of packaging and labelling policies which are an additional financial burden on the company. Just like Tesco there have been a lot of emphases for western companies to help the environment by reducing their carbon footprint and increasing energy efficiency.

Retail location

When it comes down to retail location when going to each store we discovered that most Sainsbury's and Tesco stores are near underground and train stations. This is a strategic plan both companies have applied because having their store near public transport brings in a large amount of money to the stores during peak travelling times.

The main factors of a retail chain such as Sainsbury's and Tesco have to apply when choosing the most ideal area to open a store are to complete a search which will identify areas that have potential for new outlets, then to find the best sites available within the area and predict the store turnover that may be attained from the specific area and finally to examine the detailed features of the chosen site that will have a major contribution to the potential store performance.

Sainsbury's and Tesco location decision making plans are crucial and effective, this is because they are high up in the chain of leading retail stores in the UK and have high figures within regard to their annual profits, choosing the right location is a vital part of the companies retail marketing strategies. Both retail giants have in-depth checklists that have specific factors which aids in the decision making when it's time to choose the location to where they will be opening. An example of this is that most Sainsbury's and Tesco stores are based near the main types of transport available to potential customers, such as train and undergrounds. This fulfils the factors mentioned above; because by putting all ideas, theories and development plans together both companies saw more benefits in the chosen locations. The locations chosen provide constant business whether it's travelling workers that stop to purchase their products or families going for their general shopping.

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When planning the location of the company stores a wide range of economic, environmental and social issues are discussed. There are many advantages and disadvantages to both Sainsbury's and Tesco when taken these issues into consideration. The economic benefits to both companies are that they are able to offer low prices to their customers, they are more prone to meet demands in the growth area and are able to hire new employees from each area the company has a store based in. the main disadvantages are that the companies would have to cover additional infrastructure costs such as the roads on their site, additional land for the petrol stations etc., with the big name companies opening in the area brings a threat to other traders and put their business in jeopardy. The environmental issues advantages are that there is a reduction of overcrowding in the centers' in the area since both companies cover most products that potential and existing customers may want ranging from food to home appliances, and customers are able to enjoy shopping in a safe and comfortable environment because there is less chance of crowding and accidents compared to markets or a small store. The main problem is that due to both companies having large car parks and petrol stations there is a high percentage of air pollution within the area. Finally the social issues have the personal factors of shopping which are mainly connected to customers enjoying their shopping experience such as a wider range of products to choose from whether its other brand or own brand products the company offers, more efficient shopping because of the wide range of products on offer and from research gather it is shown it is favored by customers to have multiple choices and a comfortable environment to shop in. the main disadvantage is that customers have a lower chance of socialising than they would in a smaller shop and big stores are perceived to ‘isolate elderly and immobile customers' due to the fact there aren't specific employees to aid for those particular customers.

Retail Image, Positioning & Reputation

Within the UK, Tesco has a greater level of awareness compared to its rival Sainsbury's and both these businesses know that retail image, positioning and reputation play an important part in how its business operates.

Retail image is the perception that the general public and consumers have of an organisation, whether through a personal experience of not. Burt, 2007 suggests that ‘for most customers the key contact point with a retail organisation is the store - it is through their experiences of the store and the interactions that take place within the store that customers build relationships, and form their perceptions of a retailer' pg 5.

There have been many attempts made to classify and measure the factors that contribute to store image. Martineau's, 1958 review identifies four core attributes which are layout and architecture, symbols and colour, advertising, and sales personnel; Lindquist built on this in 1974 and categorized the following nine elements: merchandise, service, clientele, physical facilities, convenience, promotion, store atmosphere, institutional factors, and post-transaction satisfaction (cited Burt,2000:436). In 1991, David Aaker devised a conceptual framework for measuring customer-based brand equity (Atilgan, 2005:238) these were brand awareness, brand association, perceived quality and brand loyalty.

Retail positioning ‘is important because it is the means by which goods/services can be differentiated from one another' giving customers a reason to buy one rather than another (Baines, 2008:251). Brand reputation is the widespread belief that a business or its brand has particular characteristics.


Tesco's presently stands as being the leading supermarket distribution chain in Britain, having a market share of 30.7% in August 2009. Tesco's target market is people who have a lower middle class income which accounts for the majority of the UK population, but is specifically targeted at women particularly those with young children, and Tesco has been successful in penetrating this market, as Mitchell, 1998 indicated that 28% of Tesco customers are in this social band, followed by 21% of skilled working class people, then 19% of upper & middle class people, Pg 313. Mitchell, 1998 et al stated the attributes related to quality, time & convenience, and value.

The correlation was strongest with attributes relating to quality aspects of shopping within the quality factor for Tesco consumers; ‘Primary-loyal Tesco customers perceive Tesco as a more up-market store, where they can have an enjoyable shopping experience and buy various fresh foods and speciality goods' (Mitchell,1998:314). Whereas, 11% of Tesco consumers where grouped as being secondary loyal consumers and their perceptions if Tesco varied. The majority of these consumers thought highly of the stores image and quality aspects, followed ‘by being good value for money and subsequently being convenient with mentions of quick checkouts, ease of shopping and spaciousness facilitate time saving' (Mitchell, 1998:134).

Tesco's brand has been successfully built up around the modest slogan ‘every little helps', which has aided it position so that it does not alienate anyone, so caters for all. This position is great for Tesco expansion as they begin to introduce more ethnic foods in their UK stores.


Sainsbury's was the best performing of the leading supermarkets for the 12 weeks ending April 19, 2009, with a growth rate of 8.1 percent. This lifted its share 16.1 percent a year ago to 16.3 percent.

Sainsbury's is the most established supermarket between the two. Sainsbury's brand has a strong resonance with the UK public. The brand has strong link to expand into the home furnishings sector and through their alliance with Homebase, Sainsbury's brand strength is evident, as Homebase customers can collect Sainsbury's clubcard points from their purchases.

Sainsbury's has launched a zero waste programme, which by the end of the year will see Sainsbury's stop sending any waste to landfills, instead Sainsbury's stores throughout the UK will be sending their unsold waste food to (unspecified) biomass plants.

Sainsbury's brand is positioned in the upper end of the market, as they emphasise the quality of their products through advertising and branding. The branding of Sainsbury's products has allowed them to charge premium rates for their products which opens the opportunity for Sainsbury's to extend into high margin areas like home furnishings as mentioned earlier.

Store Design
Product Assortment
Own brands
Retail Promotion

Promotion is the communication between an organisation and its audience. ‘Marketing communication is a management process through which an organisation attempts to engage with its various audiences. By understanding an audience's communications environment, organisations seek to develop and present messages for its identified stakeholder groups, before evaluating and acting upon the responses and by conveying messages that are of significant value, audiences are encouraged to offer attitudinal and behaviour responses' (Fill, 2005; cited Baines, fill, page, 2008:445).

The aim of retail promotion is to: differentiate, reinforce, inform, and persuade, this is also known as DRIP. In order for an organisation to differentiate themselves they must create images that brands can be told apart and positioned to encourage positive attitudes towards the brand and purchasing decisions; The reinforcement occurs when an organisation reminds and reassures their customers of the benefits of the products/services they had purchased; Informing potential customers is one of the most common methods of marketing communication, as this makes then aware of an organisations products/services and retail image; the final aim of retail promotion is to persuade current and potential customers to choose one organisations products/services over their competitors.

TESCO's and Sainsbury's promotion methods

As Tesco's and Sainsbury's are in the same market and have a similar target audience, their marketing techniques are very similar. Both these companies advertise though their shopping websites, television adverts as well as through direct selling to their clubcard holders, as well as this, both these companies spend the same amount on advertising (retail management slides, page 14).

Both Sainsbury's and Tesco television adverts are generally information based, as their messages have a ‘slice if life' element which means that they ‘use people who are similar to their target audience and are presented in scenes to which the target audience can readily associate and understand' Baines, 2008:448, but include aspects of humour to grab the attention or viewers, stimulate interest, which puts audiences in a positive mood as well as music which both these companies use to help tell between the brands.

Both these businesses want to successfully implement the hierarchy of effects within their market and in store. The stages of the hierarchy of effects are:

When Tesco's and Sainsbury's promote products in store it is usually designed to influence existing shoppers by encouraging impulse purchases, they often use several methods some of which are:

* Point of Sales (POS) displays which are usually banners and posters that are used in store to promote products. As both these companies are in the food retail industry they often offer free samples of their products in stores, rather like a try before you by opportunity for customers.(Lines,2006:208)

* Personal Selling is a more expensive but effective method of promoting, as this involves informing existing and potential customers about products, an example of this is Tesco's sending their clubcard customers vouchers that are addressed to them making the connection more personal. (Dransfield, 2004:94)

* In store sales promotions main purpose is to create the initial surge of demand to persuade shops to stock a newly launched products, these stores use these short term incentives to encourage a purchase, through free offers, sampling and selling, competitions and self-liquidators.

When Tesco's and Sainsbury's promote their products in their market the aim is to reinforce the company's corporate message, several methods are often used some of which are:

* Advertising, which is a paid for communication through different modes of media such as television, newspapers and radio. As mentioned earlier both these companies use television to communicate.

* A good example of Sales Promotion being used is in recent Tesco's television adverts defending their brand against a competitive attack from their rivals ASDA.

* Direct marketing, is targeted directly at the markets consumers though direct mailings, door to door selling, or leafleting.

* Sponsorship which is where funds are provided in return for prominent displays of the sponsor's name. Something similar to this can be seen in Homebase stores, as there are many Sainsbury's banners promoting the fact that customers can use their Sainsbury's clubcard here, indicating a clear connection between the two companies.

* Public Relations (PR) is the process of obtaining favourable publicity via the editorial columns of press media, or in television or radio broadcasts.
Customer Service

To provide the best service possible to the customers and to cater for all the customer queries. The services can range from telephone services, online services or help desk services. Sainsbury's and Tesco have vast amounts of ways to provide services to their customers, online shopping is the main service provide which entitles their customers to be able to shop from the comfort of their homes.

Other forms of customer service are warranties offered on the electrical items that the companies sell and insurance for specific items. Tesco recently added mobile phones to a large list of what is offered to the customers, from that they have also released Tesco Mobile, this is their version of a mobile company in which they sell pay as you go phones and also pay monthly lines as a part of their services. They offer insurance on cars, homes, travel, life etc. Compared to Sainsbury's Tesco offer a lot more services so are more capable of covering more of their customers' needs.

The four step sequence for customer service are: 1) Listen to requirements 2) Design appropriate services and set monitoring standards 3) Deliver/ perform the service properly 4) Ensure the performance matches the promises made to customers.

Both companies incorporate these steps by carrying out market research to identify what the customers' needs and wants may be. This could range from insurance, warranties, help-lines and much more. After that process the company have to evaluate the results of the research to be able to develop and design an appropriate service to offer to their customers, once these have been completed the company would also have to set a monitoring standards requirements to identify what standards/ level the services should be offered. Once that's been completed it is then time for the company to introduce the new service to the customers
Customer Loyalty Scheme

Customer loyalty is where retailing companies provide ways to retain and provide benefits for the customers who have shown a loyalty to their stores. This is also a way to show that their loyalty to the business is valued; it is also a way to help ensure that the customers return by offering incentives for gaining points from purchases.

In the UK Sainsbury's Nectar Loyalty Card has taken a large increase in how many customers those are in possession of the card. The popularity of this scheme has recorded over 1 million people getting the card in the last 12 months making the Nectar Loyalty Scheme the largest and most popular scheme in Britain, tallying the figure to 16.8 million people using the card across the country. These figures have proven that there are officially more holders of Sainsbury's Nectar Card than Tesco Club Card and Boots Advantage Card.

To increase further loyalty in the company, Sainsbury's introduced a scheme to their customers last year September called ‘coupon at till' initiative. This was Sainsbury's biggest investment in loyalty since the launch of the Nectar Card, this scheme rewards customers with money-off coupons for hundreds of branded and Sainsbury's own brand products. ‘The Nectar card database is used extensively as part of this scheme - the historical data on customers' shopping choices ensure that coupons are specifically targeted at what Sainsbury's Nectar card holders actually buy.'(

Tesco Club Card was released for the same reasons the Nectar Card for Sainsbury's was released. It has similar qualities as the Nectar Card but it's down to the company to convince their customers to remain loyal. When reviewing the company results it shows it was a success, it states by using the Club Cards Tesco generated more than £100 million incremental sales every year and has more than 10 million members. (