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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. (5)
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.
The Tesco brand first appeared in 1924. Name was formed by using the first three letters of the supplier's name (TES), and the first two letters of a brand creator surname ((CO) Jack Cohen), forming the word "TESCO". 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). (3)
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
1995 Tesco overtook Sainsbury 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. (3)(1)
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 plannings. 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. (1) 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. (2) 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.
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. Tescos 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.
In July 2001 it became involved in internet grocery retailing in the USA when it obtained a 35% stake in Grocery Works. 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, Europe, 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. (3; 1)
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. (1)
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. (3) 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.
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. (3)
Industry analysis: PESTE. UK.
Because of employment legalization reasons, the state encourages big firms to be a representation of different kind of labor demand, starting from part time, lower-paid local jobs till higher-paid and centrally-located jobs. (7) This includes hiring students, disabled and elderly workers, who are paid lower rates but for the reason of a typically high staff turnover, these workers offer a higher level of devotion and therefore represent desirable labor supply.
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. (8)
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)
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 globalization 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. (6)
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. (9)
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 logistics and distribution channels already in place.
Starting from 2003, an increase in pressure on large companies and managers in UK may be observed, main motivation of a government is to make them be more aware of their responsibility to society, and act in a way which benefits society overall. For the food retailing the biggest issue is environmental, the main area for them to act in the socially responsible way. Therefore by recognizing this drift movement, 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. (6)
In 2003 the UK government has launched a strategy for environmentally friendly consumption and manufacturing in order of cutting waste, reducing expenditure of resources and diminishing environmental damage. One of the legislation was a creating of a tax on highly processed and fatty foods advertising. The so-called fat tax' directly affected the Tesco product ranges that have subsequently been adapted, affecting relationships with both suppliers and customers. (9)
Porter's Five Forces
Threat of New Entrants
The grocery market of United Kingdom is crucially dominated by a small number of competitors, among them such brand names as Tesco, Asda, Sainsbury's and Safeway that hold a market share of 70% and small chains of Somerfield, Waitrose and Budgens with a another 10%. Starting from 80th the grocery retailing system has been represented mainly supermarket business. This powerful force had a great impact on the small traditional shops, such as butchers, bakers and etc. Therefore in nowadays it can be treated as a huge blockade for the companies who are willing to to enter this market. As an example, two reasons can be stated: necessity of a 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 factors can be economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) which is highly developed by Tesco and Asda due to their promotional activity, aggressive operational tactics in product development, and better distribution.
Bargaining Power of Suppliers
These representatives of a supply side are usually influenced by key grocery chains and are under a constant pressure of losing their business to the large supermarkets. As a result, it enhances a strong enough as it is positions of dominant stores like Tesco and Asda in negotiating better promotional prices from suppliers, that small individual chains are unable to match. 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.
Moreover UK based suppliers are vulnerable to the ability of big retailers to source their products abroad at a cheaper price.
Bargaining Power of Customers
Tesco's famous loyalty card - Club card 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 retailers market environment can be characterized as dominated by large players with significant grows, increasing store size, emergent retailer concentration, and the utilization of a range of formats, which are now important characteristics of the sector. As it was already stated, almost all purchasing power of the food retailing industry is concentrated in the relatively small number of retail buyers. Besides market can be described as mature operating, where grows is difficult and it serves as a driver to diversification into non-food areas, moreover, consumers are more and more demanding and sophisticated, big players like Tesco are constantly accruing large amounts of consumer information that can be used to predict and fulfill their changing preferences. This highly competitive market currently is in the position where advanced technology and innovations are required for maintaining and building market share. Such innovation can be seen in the development of a range of trading formats, in response to changes in consumer behavior. The dominant market leaders have responded by refocusing on price and value, whilst reinforcing the added value elements of their service. (8, 4, 6)
Corporate Social Responsibility Initiatives
Mission statement: Creating value for customers, to earn their lifetime loyalty.
Tesco's corporate responsibility work is reflected in its everyday activities, mainly focusing on use of organics, recycling, use of energy and waterand in addition 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." (10) The company is publishing 'Corporate Social Responsibility Report' every year, with details of the company's CSR approach, implementation and policies. Usually it consists of such element as Environment, Community, Suppliers and ethical trading, Customers, choice and health and People.
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 plays a big role in strategy decision making of Tesco due to its wish to ensure that corporate responsibility creates a component 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. (11)
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. (3) 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... (3)
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. (11)
1. "Tesco: The British Supermarket Chains Global Expansion Strategies ICFAI Business School; Case development centre
2. "Supermarket Wars" Andrew Seth and Geoffrey Randall
6. Ivoryresearch.com "Strategic Management of TESCO supermarket: PESTEL analysis, Porter's 5 Forces analysis, Critical success factors, SWOT Analysis, VALUE CHAIN analysis, TESCO'S strategic options, Core Competences & Cultural Web."
7. "Part-time Workers in the Multiple Retail Sector Small Change from Employment Protection Legislation?" Alison Balchin
9. Marivic Butod "Strategic Analysis of Morrison, Asda and Tesco" July 20, 2009
10.'Tesco Corporate Social Responsibility Report 2009'
11. ttp://www.icmrindia.org "Tesco's Corporate Social Responsibility Initiatives"