MARKETING

STRATEGIES ADOPTED BY TESCO AND SUPERMARKET INDUSTRY

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QUESTION

Selecting one company from the list at the end of this section or a company of your choice from the FTSE top 200 or 250 companies (good sources Sunday Times Business Section or City Am), undertake the following:

SOLUTION

1. RECENT PAST: (assessment criteria 1,2,3,5,6) Strategies deployed and resulting outcomes- recent strategic development history.  Research, describe and give a succinct account of the strategic development history of the company you choose set within the context or the industry to which it belongs over the past 5 to 25 years, choosing the duration of time for the study most appropriate for understanding the recent strategic development of the company. Avoid making just chronological lists of events from websites and in particular identify the strategy(ies) that the company has been pursuing and any changes in strategy that the company has made during the period under consideration and their outcomes and consequences for the strategic situation which is the subject of the following section(1000 to 1500 words)

2. CURRENT: Current Strategic Situation. (assessment criteria 1,2,3,4,5,6) Undertake an evaluation and appraisal of the company’s current strategic situation at the time of writing which relates to the previous section, using any research sources appropriate to support your analysis. Pay particular attention to the company’s strategic macro, industry and competitive environment, changes and trends in that environment and the company’s endowment of internal and external resources, capabilities and organisational structure emanating from decisions made in the recent past. Give a synopsis of the company’s strategic situation in a way which is meaningful for the strategic choices it is able to make for the future which are the subject of section 3 below (1000 to 1500 words)

3. FUTURE: Strategic Direction for the future (assessment criteria 2,3,4,5). Based on your research and analysis undertaken for sections 1 and 2 above, explore a limited range of distinctively different choices of your own creation available to the company for the future. Evaluate and assess the choices available leading to recommendations for the company of your choice’s strategic route forward. Make clear the assumptions you have made and present your recommendations in a way that accommodate uncertainties and changes that might occur to the recommendations in the event of the occurrence of specified contingencies or changes in assumptions (1000 to 1500 words)

SOLUTION

Introduction to the supermarket industry

Supermarkets are well organized self service stores which food and merchandize products. In early days, the process of shopping was too slow. The number of customers being attended in a store was depended upon their staff. The old trends transformed into new ways of retailing making shopping an easy process for customers with the passage of time. In 1990’s, major changes occurred in retail market especially in developing countries throughout the world. The increasing middle class section and availability of ready to eat food are some of the examples of fueling the process of modern retailing trends. Today’s customer is much smarter and has limited time. So, in order to provide never forgetting customer experience a retailer needs to adopt innovative methods of technology.

 

Executive Summary

 

The assignment throws light on world famous retailer TESCO, its competitors in the world supermarket industry, the company’s past, present and future strategies, different fields of its business and the development process. Also, it focuses on the company’s position in the supermarket industry and its  financial performance.

 

About TESCO

 

TESCO is recognized as one of the world’s leading multi national retailers. It is the third largest retailer after in revenue after WALMERT and CARREFOUR. The general merchandiser retailer headquartered in Chestnut, United Kingdom. Its stores are spread in various parts countries like Asia, North America and Europe with the overall count of 14 countries where these stores exist. It is a leading grocery market in UK providing largest private sector employer of labor and is holding a market share of around 30 %. Tesco has a good market in countries like Malaysia, Thailand and Republic of Ireland.

Tesco is part of the FTSE 100 Index in the London Stock Exchange. TESCO was found in 1919 by Jack Cohen, who after owning a shipment of tea from T.E Stockwell and combining the first three initials with first two letters of his last name to name the company. Thereafter, it followed new innovative methods to be what it is today. Let’s discuss various strategies the company has followed so far.

 

Business Strategies followed by TESCO:

  • In the beginning, Jack Cohen’s business aim was sell the product cheap and attract the customers and slogan he used for it was “pile it high and sell it cheap”. Cohen’s another view or idea was “YCDBSOYA” which meant “You Can’t Do Business Sitting on Your Ares”. This idea was used to motivate his sales time.
  • Corporate Strategy: The innovative use of technology was the main strategy adopted by the company. It built self service tills and reduced queues by the use of cameras. To maintain the image of the brand TESCO launched the policy of defamations proceedings. Another feature of TESCO’s corporate strategy was company’s advertisement both in print and television. The way of presentation was too special for example product shot ( a car advertisement for fuel ) on a white background. This possesses on it value or text such as TESCO value imposed on a red circle. The company’s advertising slogan is “Every little helps”. It sells its banking products like credit cards, mortgages, leans etc, through marketing ideas of distributing leaflets advertising these products in their stores.
  • TESCO international operation strategy: It met the local expectations on the country by making joint ventures with local partners. For example: Samsung group and TESCO made a joint venture which came to be known as “Samsung TESCO Home Plus”.TESCO also appointed local personnel in the management. Making small acquisitions is a part of the company’s strategy.
  • Internet operations: The internet operations make it easier for the consumer to get connected with the product with an ease. TESCO not even made grocery home shopping available online but also telecommunication, consumer good and financial services available online. Tesco.com was launched in 2000 but its internet services operated first in 1994.The firm also advertises its banking products like credit card, car insurance, life insurance, mortgages, loans etc, through its website.

Corporate Social Responsibility: In 1992, the company launched in Poland, “the computers for school scheme” offering computers to shoppers.TESCO made commitment in the form of charities by contributing its pre tax profits in the year 2006. Three years later TESCO started advertising with the slogan “change fir good” which can only be used for charity an not business. In 2005-2006, TESCO sponsored a football competition in UK named as TESCO CUP. Created online hub through 2degrees network to reduce carbon footprint.

 

TESCO Retail Multinational Rivals –

  1. WALMART – The world largest industrial corporation in terms of Sales. Also known as multinational retailer. Outside United States, it operates in 14 international markets including Brazil, Argentina, Canada, Japan, China, Mexico and the United Kingdom. In India, Wal Mart announced its entry via a joint venture in the year 2006. It was forced to exit Germany and South Korea. It is highly successful in Mexico and Canada. It has enjoyed mixed feedbacks internationally. The firm is less popular in Asia and Europe. The Wal Mart sales went up to $370 billion in 2008-2009.
  2. CAAREFOUR – Known as the world second largest retailer ( approx. 1/3 of Wal-Mart ). It’s operation spread in Asia , South America and parts of Europe by 1990.During 2000’s it failed to achieve scale but remained as retail multinational operating hypermarkets, supermarkets and small format discount stores under Dia Fascia.
  3. ROYAL AHOLD: Promoted itself as a global operator. In early 2000’s,the firm has its presence in international markets of USA, Latin America, Scandinavia, Parts of Asia specifically East Asia and Eastern/Southern Europe. It started losing market confidence mainly because of two reasons. First one being aggressive strategic business polices and second, tolerance of high financial loses.
  4. METRO: It was a German firm having stores in over 30 countries across Eastern and Southern Europe, Asia Central and few parts of North Africa. Metro is the second largest European retailer and adopts cash and carry (self service warehouse) format, targeted registered business customer only. In 2003, it entered India as a wholesaler with certain regulations.
  5. ALDI: Owned by Albrecht family and has to two divisions namely Aldi Nord and Aldi Sud. Aldi is a German origin retailer operating 8000 smaller format “hard discount” stores in 20 countries across Europe, USA and Australia.

Recent Past of TESCO as the world’s leading retailer

 

The company’s very first store was inaugurated in Burnt oak in the year 1929 located in Edgewater, Middlesex. By 1960’s it had more than 800 stores. Starting from eatables and drink, it extended its market in the field of home products , dental care, health care ,retailing ,insurance for pet, downloading music, renting DVD’s and CD’s, car rental, clothing, financial services, electronics, internal services and software.

 

By May 1987, TESCO owned £ 220 million Hilliard’s chain of forty supermarket based in  north England. In early 1990’s, TESCO was UK’s second largest retailer in terms of sales, profitability and turnover growth. This year it left behind its strong competitor in the market –The Sainsbury. By judicious acquisition of small rivals, innovative methods and strategies applied to develop stores by the mid of 2000’s it had transformed itself into multi-format operator with 72 percent of its UK stores in small ( less than 1500 sq meter )  convenience supermarkets. Its leadership over UK, lead to its victory in the market over its rivals – Sainsbury, Asda and Wal-Mart. As a dominant market leader TESCO faced pressure under market competition and land use restrictions. In April, 2009, TESCO announced its annual sales of £60 billion with the profit of £30 billion for the year 2008-2009.

 

Main events of last decade –

 

In 1994, TESCO took over William low,  known as chain of supermarket. This was indeed a help in increasing its recognition in Scotland.

 

In 1995, the company launched “club card “ a branded loyalty card.

 

In year 2006, TESCO came to be known as the only ambassador in online food retailing because it made internet shopping gain more profits. By 2007, its share was 27.6 percent which was almost twice of the share of Asda, Wal-Mart or Sainsbury.

 

In March 1997, TESCO launched Associated British Food as another service.

 

It was the year 2001when company’s share grew to 35% exclusively in grocery work in the United States and started getting involved in internal grocery retailing.

 

In 2002, TESCO made a big victory by conquering supermarkets of Poland known as 13 HIT. This year it also purchased T & S stores and took  place in UK’s convenience stores.

 

In October 2003, telecom division was launched which included home phone services and mobiles in UK. Same year in June it purchased C two network in Japan.

 

In 2004, TESCO launched its broadband services.

 

In 2005, it acquired 21 Safeway stores. It also entered Taiwan and opened 6 stores.

 

In 2006, TESCO holded 80 % shares in Casino’s leader price supermarkets in Poland.

 

In 2007, company had to undergo an investigation for being a part of cartel of 5 supermarkets and few dairy companies. This investigation was done by UK’s OFT (Office of Fair Trading). The reason was to fix the price dairy products such as cheese, milk and butter. TESCO claims that it was not linked to the cartel by any means. The case is still under investigation. The company was fined £116 million.

 

TESCO at present –

 

As we read that the company claims that it was not a part of cartel. Apart from this, it experienced media scrutiny. The sales figures have dropped to £1.69 billion for the first half of the year 2011. It is interesting to know that despite being recession in 2010 TESCO made record profit for British retailer. The company is working with 2 degrees network to create online hub.

In Feb 2011, the company targeted 70 beauty salons next year offering services liking haircuts, waxing, eyebrow and manicure. It also opened TESCO Gold Exchange.In collaboration with Blackcircles.com, it launched tescotyre.com in the year 2011. This also offered club card points through purchases made.

TESCO SWOT Analysis for the year 2011 in UK –

  1. 1.     Strength: Tesco is known for low cost products. Financial strength is given to the company by its insurance sector. Another factor is growing online sales. The brand recognition of the firm is the strength.
  2. 2.     Weakness: It is still dependent upon UK market for its sales. Also, the business model for TESCO currently being used is good for only UK market. The company has also suffered from insurance claims and bad debt.
  3. 3.     Opportunities: The Company has high growth opportunities in Europe and Asia. The growth of online displays the ample opportunities in the future.
  4. 4.     Threats: Increasing fair trade cotton prices can result in low sales which may impact the profits. Also, the changes in buying trends in the UK market are another threat to the company.

 

TESCO UK operations:

In the UK market, TESCO store are categorized in 6 different forms based on their size and range of products.

  1. TESCO Extra:  These are mainly out of the town supermarkets. These are larger in size.
  2. TESCO Superstores: They are intermediate or standard supermarkets, groceries and smaller number of non food items compared to TESCO Extra.
  3. TESCO Metro: These stores are big stores like TESCO Superstores but somewhere lie between TESCO Superstores and TESCO Express stores in terms of their size. They are commonly based in city centers and high streets of small town.
  4. TESCO Express: The fourth type of TESCO store is TESCO Express which have an approximate area of 2200 square feet, stocking mainly food with everyday essentials.
  5. ONE STOP: These are smaller stores compared to TESCO Express. This is the only store type that does not contain the name TESCO in it. This is usually found in small communities in United Kingdom.
  6. TESCO Home plus: This was TESCO’s first non food chain venture in United Kingdom. The stores were located in dense public shopping malls and high streets.

Apart from the six different type of stores in UK, TESCO extended it’s business in              other fields namely Garden centers, Banking, Technika (brand name for electrical product ), Telecom like mobile phone, technical support named Technika, Film Making, Record labeling, Video, services provided for gold exchange, TESCO tyres, fuel, beauty salon services and TESCO club card. A brief description is given below:

  1. Garden Centers: In June 2007, TESCO purchased Dobbies Garden Centers for £ 155.6 million. Dobbies runs good number of Garden Centers in Scotland and equally good in England, totaling the number of garden centers to twenty eight. Dobbies trade under its brand at current. Headquartered in Melville, near Edinburgh.
  2. TESCO Bank: The TESCO Bank is mainly a joint venture of Royal Bank of Scotland. Both have 50:50 shares in the firm. The banking products like credit card, mortgages, loan facility, car insurance, house insurance, insurance while traveling including life are promoted through websites and leaflets distributed through stores to the consumers. In the beginning of 2007, the company’s share was £66 million. On 28th July, 2008 TESCO announced buying of 50% stakes of Royal Bank of Scotland for £950 million. Personal Finance of the company changed to TESCO Bank in the month of October in 2009.
  3. Technika: The word ‘Technika’ is used to represent a brand used by TESCO for its electronic section of products. The products include TV’s, Computer peripherals, DAB Radios, DVD and Blu ray players. Not forgetting the MP3 docking stations was the part of Technika products. Customer support for the services is offered through TESCO Tech Support in stores or TESCO Electrical Helpline.
  4. Telecom: The firm offers mobile phone, broadband and home phones. These are advertised and sold by websites and TESCO stores in several countries to residential consumers. In 2003, Mobile was launched with O2 firm as a joint venture. In 2009, the company announced that over 2,000 million UK consumers were using TESCO’s mobile phones whereas the company’s Internet Phone was launched in  a joint venture with Freshtel of Australia. In 2009, TESCO has about 100 phone shops and intended to open 500 such shops further.
  5. Fuel: In the year 1975, TESCO sold petrol for the first time. The company has recently started selling blends of fuel like petrol and biological fuels at their petrol stations which offered 100 percent biodiese energy called as the Greenergy.
  6. Tech Support: A company by the name of ‘The PC Guys’ was formed in the year 2008. This was a small IT firm. It was the role of Advisors to answer all IT queries of consumers in stores. The prime role being selling TESCO range of electronic products and providing it’s after purchase services to the customer’s.. Also educating customer’s on product warranty, return if required and payment plan options for their electrical goods was a part of advisors job responsibilities.
  7. Film Making: In the year 2010, TESCO opened a small film studio which produced exclusive DVD films. Paris connection was the first film made under TESCO launched on 6th September 2010. It became a popular investigation thriller; the story was taken from a novel by Jackie Collins.
  8. Record Label: In the year 2010, the company announced its record label stating TESCO records will be renowned products of company’s store.
  9. Video On Demand: In the year 2011, TESCO attained 80 percent shares of Blink box to boost its digital entertainment options for consumers.
  10. Gold Exchange: It is gold service launched by the company in 2011 by the name of TESCO Gold Exchange. Offers money in exchange of gold and club card points to consumers through their website.
  11. TESCO Tyre: In collaboration with Blackcircles.com, it launched tescotyre.com in the year 2011. This also offered club card points through purchases made.
  12. Your Beauty Salon: In Feb 2011, the company targeted 70 beauty salons in the coming year offering services like haircutting, waxing, eyebrow and manicure.
  13. Club card: A customer spending every £1 in TESCO store or TESCO.COM is entitled to earn 2 points. and 1 point on every £2 purchase of fuel. Other sources of collecting points is through TESCO credit cards, mobile phone, home phone, broadband service, personal finance or TESCO  club card partners.

TESCO’s US experience

The company opened the first store on Nov, 2007 in Hemet, California. The headquarters being in EI Segundo, California. About 100 stores were targeted to be opened in the first year. Every third day a new store opened in US in the first year. As a result a chain of grocery stores were opened by the name of ‘Fresh and Easy”. In 2009, US has more than 130 stores which reduced to 117 “Fresh and Easy “stores that too in California, Nevada and Arizona for the year 2011. The following features explain the strategies used by TESCO for business expansion –

  • Connecting with consumer by Online Culture: This is very common technique used these days however TESCO made it easier for consumer to shop online long back using digital innovative technologies. Launched Fresh and Easy brand. The firm used blog and text messaging service with online community and potential customers.
  • Investment in underserved communities to maximize development opportunities:  The firm committed to open stores in even in low income communities. Thus TESCO opened few stores in areas of Los Angeles. This has helped the company win local people trust and gain national recognition.
  • Integrated food production: To ensure availability of quality food product, TESCO maintained an 80,000 square feet “food preperation”facility in Riverside.
  • The competitive response: Entry of world’s largest retailer Wal-Mart created strong competition. TESCO was given unexpected time to continue developing its business in United States.

 

TESCO future strategy –

 

  • TESCO plans to create more employment by offering 16,000 job opportunities. 9000jobs being for UK alone. Opening 70 beauty Salons in the coming year. Reducing carbon footprint by 30% by 2020.

Financial performance

TESCO is listed as TSCO in London Stock Exchange and ranks at number two in Irish Stock Exchange named as TSCO PLC . On 27th February 1997, the company’s turn over was £17,158 million and in the year 2011, on 26th February, the turnover has been recorded as £67,573 million.

      Conclusion

TESCO based in United Kingdom is the biggest British retailer in terms of international sales and local market share. It has a store in every postcode of United Kingdom controlling 30 % of the grocery market. Also, www.Tesco.com is considered as world’s largest grocer online. It receives more than 250,000 orders in a week. The following in the analysis with competitor’s and source is taken from BBC News –

Super market share: Competitor Analysis

 

  • TESCO holds 30.06 % share.
  • ASDA holds 16.06% share
  • Sainsbury holds 16.03 % share
  • Morrison’s holds 11.01 % share
  • Somerfield holds 5.04 % share
  • Waitrose holds 3.70 % share
  • Iceland holds 1.80 % share

Core Competences are –

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