Tesco
plc is a United Kingdom-based international supermarket chain. It is the
largest British retailer, both by global sales and by domestic market share,
and the fourth largest retailer in the world behind Wal-Mart of the United
States, Carrefour of France, and The Home Depot of the United States.
Originally
specializing in food,
it has moved into areas
such as
clothes,
consumer electronics, consumer
financial services, selling
and renting DVDs,
compact discs and music
downloads, internet service
and consumer telecoms.
Facts
and figures
Tesco's
revenue
for the
52 weeks
to 25 February
2006 was
38.259 billion.
In 2006
it adjusted
the accounting
date for
its non-UK
and Ireland
operations,
and including
60 weeks
of non-UK
and Ireland
operations
revenue
was 39.454
billion.
Group profit
before tax
was 2.210
billion
for the
52 week
period and
2.235 billion
including
60 weeks
of non-UK
and Ireland
turnover.
According
to
TNS Superpanel
Tesco's
share of
the UK grocery
market in
the 12 weeks
to 18 June
2006 was
31.4%. Across
all categories,
over 1 in
every 8
of UK retail
sales is
spent at
Tesco. Tesco
also operates
overseas,
and non-UK
revenue
for the
year to
25 February
2006 was
23% of total
revenue.
Formation
Tesco started
as a one-man
business
in London's
East End.
Tesco was
founded
by Jack
Cohen, son
of a Polish
Jewish tailor.
He sold
groceries
in the markets
of the East
End from
1919.
The Tesco
brand first
appeared
in 1924.
The name
derived
after Jack
Cohen bought
a large
shipment
of tea from
T.E.
Stockwell
(formerly
Messrs Torring
and Stockwell
of Mincing
Lane), he
made new
labels by
using the
first three
letters
of the supplier's
name and
the first
two letters
of his surname
forming
the word "TESCO".
The first
Tesco store
was opened
in 1929
in Burnt
Oak, Edgware,
London.
Post-war
development
The firm
was floated
on the London
Stock Exchange
on 23 December
1947.
The first
Tesco self-service
store opened
in 1948
in
St Albans
and is still
trading
in 2006
as a
Tesco Metro
store.
The first
Tesco supermarket
was opened
in 1956
in a converted
cinema in
Maldon, Essex.
Tesco's first "superstore" was opened in 1968 in Crawley, West Sussex. The
group began selling petrol in 1974 and its annual turnover reached one billion
pounds in 1979. Also In 1975 Tesco opened one of its first Hypermarkets in Irlam.
The first Hypermarket under the "Extra" name opened in 1997.
Incentives
and price-cuts
The founder, Jack Cohen, was an enthusiastic advocate of trading stamps as an
inducement for shoppers to patronise his stores: he signed up to Green Shield
Stamps in 1963, and became one of the company's largest clients. But Cohen was a
fan of pile it high and sell it cheap, and in the mid-70s Tesco faced many cost
problems associated with not properly integrating its purchased chains of
stores. When the firm overstretched itself buying the Victor Value stores chain,
management consultants were called in to sort out the mess. In 1977 Tesco
launched Operation Checkout, an across the board price cutting campaign aimed at
countering the threat from the new breed of discounters such as Kwik Save. A key
decision was to abandon Green Shield stamps, thus saving some 20m a year and
helping to finance price reductions. Other traders didn't like it and attempted
to sue Tesco for breaching the retail price maintenance law, but Cohen wasn't
charged and the law was eventually abolished.
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Expansion
In 1994, the company took over the Scottish supermarket chain William Low.
Tesco successfully fought off Sainsbury's for control of the Dundee-based firm,
which operated 57 stores north of the border, paving the way for Tesco to expand
its weak presence in Scotland. To the present day, Tesco has based its Scottish
headquarters at the former Wm. Low offices in Dundee. From small beginnings in
Scotland - Inverness was recently branded as "Tescotown", since an estimated 50p
in every 1 spent on food is believed to be spent in the three Tesco stores
within the city. (Nationally, it is estimated that 1 in every 8 is the
proportion spent) It introduced a loyalty card branded 'Clubcard' in 1995 and
later an Internet shopping service. During the 1990s it expanded into Central
Europe, Ireland and East Asia. In July 2001 it became involved in internet
grocery retailing in the USA when it obtained a 35% stake in GroceryWorks. In
October 2003 it launched a UK telecoms division, comprising of mobile and home
phone services, to complement its existing internet service provider business.
In August 2004, it also launched a broadband service.
Tesco's principal acquisitions,
in addition to opening its
own stores, include the
following chains: 1968:
Victor Value, England
(sold to
Bejam in
1986)
1987:
Hillards, North
of England
1994:
William Low,
Scotland
1997:
Quinnsworth, Stewarts and Crazy Prices stores, Republic of Ireland and
Northern Ireland, from Associated British Foods
2002: 13 HIT hypermarkets
in
Poland
2002: T & S
Stores, owner of 870
convenience stores in
the One Stop and Day &
Nite chains in the UK.
2003: C Two-Network
in
Japan,
2003: A majority
stake in
Turkish supermarket
chain
Kipa.
2004: Adminstore,
owner of 45 Cullens,
Europa, and Harts convenience
stores, in and around
London.
Lotus in
Thailand
late 2005: 21 remaining
Safeway/bP
stores, after
Morrisons (the new
owners of Safeway plc,
the British supermarket
chain) dissolved the
Safeway/bP partnership
mid 2006: An 80%
stake in Casino's Leader
Price supermarkets in
Poland. They will be
rebranded into small
Tesco stores (either
under the sign of Tesco
or introducing to Poland
a new brand - probably
Tesco Metro)
In the late 1990s, the
typeface of the logo was
changed to the current one
shown on the top of the
page with stripe reflections
underneath the typefaces
as Tesco used them on their
carrier bags.
Tesco's growth over the last two or three
decades has involved a transformation of
its strategy and image. Its initial success
was based on the "Pile it high, sell
it cheap" approach of the founder Jack
Cohen. The disadvantage of this was that
the stores had a poor image with middle-class
customers. In the late 1970s Tesco's brand
image was so negative that consultants advised
the company to change the name of its stores.
It did not accept this advice, yet by early
2005 it was the largest retailer in the
United Kingdom, with a 29.0% share of the
grocery market according to retail analysts
TNS Superpanel, compared to the 16.8% share
of
ASDA and 15.6% share of third-placed
Sainsbury's, which had been the market
leader until it was overtaken by Tesco in
1995. Key reasons for this success include:
- An "inclusive offer".
This phrase is used by Tesco to describe
its aspiration to appeal to upper, medium
and low income customers in the same
stores. According to Citigroup retail
analyst David McCarthy, "They've
pulled off a trick that I'm not aware
of any other retailer achieving. That
is to appeal to all segments of the
market" .
By contrast
ASDA's marketing strategy is focused
heavily on value for money, which can
undermine its appeal to upmarket customers
even though it actually sells a wide
range of upmarket products. During its
long term dominance of the supermarket
sector Sainsbury's retained an image
as a high-priced middle class supermarket
which considered itself to have such
a wide lead on quality that it did not
need to compete on price, and was indifferent
to attracting lower-income customers
into its stores. This strategy has been
abandoned since losing the number 1
spot to Tesco and particularly since
the arrival of
Justin King as CEO in 2004 who has
established a new customer-focused strategy
closer to that of Tesco.
- One plank of this inclusivity has
been Tesco's use of its own-brand products,
including the upmarket "Finest"
and low-price "Value". The
company has taken the lead in overcoming
customer reluctance to purchasing own
brands, which are generally considered
to be more profitable for a supermarket
as it retains a higher portion of the
overall profit than it does for branded
products.
- Customer focus: Sir
Terry Leahy, chief executive since
the mid 1990s, has taken the bold step
of trying not to focus on the
usual corporate mantra of "maximising
shareholder value". The company's
mission statement reads, "Our
core purpose is, 'To create value for
customers to earn their lifetime loyalty'.
We deliver this through our values,
'No-one tries harder for customers',
and 'Treat people how we like to be
treated'". The underlying aim
is of course to make higher profits,
but there is a clear focus on customer
service at the top level of the company.
- Diversification: The company has
a four-pronged strategy:
- "Core UK business"
- That is, grocery retailing in
its home market. It has been innovative
and energetic in finding ways to
expand, such as making a large-scale
move into the convenience-store
sector, which the major supermarket
chains have traditionally shunned.
- "Non-food business"
- Many United Kingdom supermarket
chains have attempted to diversify
into other areas, but Tesco has
been exceptionally successful. By
late 2004 it was widely regarded
as a major competitive threat to
traditional high street chains in
many sectors, from clothing to consumer
electronics to health and beauty
to media products. Tesco sells an
expanding range of own-brand non-food
products, including non-food Value
and Finest ranges. It also has done
quite well in non-food sales in
Ireland.
CDs are one of the best examples, with Tesco Ireland promising to sell all chart
CDs (except compilations) for 14.95 compared with HMV Ireland or Golden Discs
selling the same for around
20.
- "Retailing services"
- Tesco has taken the lead in its
sector in expanding into areas like
personal finance (see below), telecoms
(see below), and utilities. It usually
enters into joint ventures with
major players in these sectors,
contributing its customer base and
brand strength to the partnership.
Other supermarkets in the United
Kingdom have done some of the same
things, but Tesco has generally
implemented them more effectively,
and thus made most profit.
- "International" -
Tesco began to expand internationally
in 1994, and in the year ending
February 2005 its international
operations accounted for just over
20% of sales, or about
7 billion (approximately $13 billion).
It has focused mainly on developing
markets with weak incumbent retailers
in Central Europe and the Far East
and now in 2006 they are going to
branch out in the United States.
The medium term aim is to have half
of group sales outside the United
Kingdom. Tesco rolls out successful
UK initiatives in other countries.
For example Tesco Personal Finance
and Tesco Express convenience stores
both operate in several markets.
Internet
operations
Tesco has operated on the internet in the UK since 1994 and was the first
retailer in the world to offer a robust home shopping service in 1996. Tesco
also has Internet operations in the Republic of Ireland and South Korea. Grocery
sales are available within delivery range of selected stores, goods being
hand-picked within each store. In contrast to the warehouse model followed by
Waitrose's home delivery service partner Ocado, this model, which is now also
applied by competitor Sainsbury's, allowed rapid expansion with limited
investment, but has been criticised by some customers for a high level of
substitutions arising from variable stock levels in stores. Nevertheless, it has
been popular and is the largest online grocery service in the world.
In 2001 Tesco invested in GroceryWorks, a joint venture with the American
Safeway Inc. (who had long since sold-off their UK subsidiary and Tesco's former
rival, Safeway plc), operating in the United States and Canada. GroceryWorks has
stepped into the void left by the collapse of Webvan, but did not expand as fast
as initially expected and Tesco sold its stake to Safeway Inc in 2006.
Concerned
with
poor
web
response
times
(at
the
time
of its
launch
in 1996,
broadband
was
virtually
unknown
in the
UK),
Tesco
offered
a CDROM-based
offline
ordering
program
which
would
connect
only
to download
stock
lists
and
send
orders.
This
was
in addition
to,
rather
than
instead
of,
ordering
via
web
forms,
but
was
withdrawn
in 2000.
Tesco
claimed
in its
2005
annual
report
to be
able
to serve
98%
of the
UK population
from
its
300
participating
stores.
In the
financial
year
ended
25 February
2006
it recorded
online
sales
up 31.9%
to
948
million
and
profit
up 54.9%
to
56.2
million.
Tesco
is expected
to launch
its
first
home
shopping
catalogue
in autumn
2006,
as another
channel
for
sales
of its
non-food
ranges.
This
is expected
to be
integrated
with
the
internet
operation,
with
both
channels
being
branded
as "Tesco
Direct".
Tesco
launched
an advertising
campaign
for
its
internet
phone,
marketing
the
service
to customers
by offering
free
calls
to all
other
Tesco
internet
phone
customers.
On
1 October
2006,
Tesco
announced
that
it will
be selling
six
own-brand
budget
software
packages
for
under
20 each,
including
office
and
security
suites,
in a
partnership
with
software
firm
Formjet.
As Formjet
is exclusive
distributor
for
Panda
Software
and
Ability
Plus
Software,
packages
from
these
companies
are
likely
to feature.
Operations
outside
the
UK
Many British retailers
that have attempted
to build an international
business have failed.
Tesco has responded
to the need to be sensitive
to local expectations
in foreign countries
by entering into joint
ventures with local
partners, such as Samsung
Group in South Korea,
and Charoen Pokphand
in Thailand (Tesco
Lotus), appointing
a very high proportion
of local personnel to
management positions.
In late 2004 the
amount of floorspace
Tesco operated outside
the
United Kingdom
surpassed the amount
it had in its home market
for the first time,
although the
United Kingdom
still accounted for
more than 75% of group
revenue due to lower
sales per unit area
outside the UK. Tesco
regularly makes small
acquistions to expand
its international businesses.
For example in its 2005/06
financial year it made
one in 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. Tesco is the
grocery market leader in the Republic of Ireland, with a reported November
2005 share of 26.3%. On their Irish website, they also claim to be the
largest purchaser of Irish food with an estimated 1.5 billion annually.
United States
On 9 February 2006
Tesco announced that
it plans to move into
the
United States
by opening a chain of
convenience stores on
the West Coast (Arizona,
California and Nevada)
in 2007.
The initial planned
capital expenditure
is up to 250 ($436m)
million per year. CEO
Terry Leahy stated, "We
have committed serious
resources to developing
a format that we believe
will be really popular
with American consumers".
Investors responded
with some scepticism
to the project, with
a small fall in the
company's share price
on the day of the announcement.
In May 2006 the Los
Angeles Times reported
that Tesco had purchased
a 130 000 m (1.4-million-square-foot)
distribution center
in Riverside County,
California, near
Los Angeles,
and planned to acquire
another in Phoenix,
Arizona. The stores
are expected to be around
1400 m (15,000 square
feet) - good sized supermarkets
in many countries, but
a rather odd segment
in the U.S. market.
Tesco's US research
did not stop at just
shopping with consumers.
In east Santa Monica,
away from the beaches
and tourists, Tesco
constructed a dummy
store within a warehouse.
Knock down the walls
of the warehouse and
it could be a standalone
fully functioning store,
said a Tesco insider.
Such is the secrecy
surrounding Tesco's
US plans that when it
first built the store
it pretended to be making
a film set.
More than 200 focus
groups have toured the
store, providing feedback.
From what I hear, the
ready meals are to-die-for.
And Californians are
wealthy and busy enough
to try them all out,
said a member of the
Santa Monica Chamber
of Commerce.
Tesco has announced
that it has taken a
lease on a 300 m (32,500
square foot) former
Albertsons store in
Glassell Park (Los Angeles),
suggesting that the
company might be planning
stores twice as large
as previously thought.
However, analysts noted
that Tesco could divide
the Glassell Park site
or bring in a concession
so that it would be
left with a store in
line with its plans
for a convenience chain.
"It is a strategy
of developing local
scale. They want to
build enough market
share to matter,"
said Darrell Rigby,
who heads the global
retail practice of consultant
Bain & Co. in Boston. "The
biggest question for
competitors is how many
Tesco formats will show
up here," Rigby
said. The size of the
Glassell Park lease
indicates that the British
retailer most likely
has a multifaceted approach
to capturing a slice
of the U.S. market,
Rigby said.
Both Albertsons Inc.
and Kroger Co.'s Ralphs
chain have closed supermarkets
in the Glassell Park
neighborhood, leaving
the community with one
independent grocer and
a smattering of small
convenience stores. "This
has forced us to shop
outside of our local
area," said George
Brauckman, president
of the Glassell Park
Improvement Assn. If
Tesco "is clean
and has fresh food and
produce, it will do
very well," Brauckman
said. "People will
like the idea that Glassell
Park is the location
for this new venture."
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Glassell Park Improvement
Association Tesco
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