What Helped Tesco to Become a Pioneer of Retail in the UK and to Expand Worldwide for Decades - Case Study Example

Report on Tesco as a retailer Table of Contents Introduction 2 Analysis 2 Consumer behaviour 2 Retail Operations 2 Store layout 4 Retail Strategy and Retail marketing Planning 5 International Strategy 8 Distribution and Channel Management 10 Retail Brand and Retail Communications 11 Conclusion 11 References 12 Introduction Tesco was founded in the year 1919 by Jack Cohen when he started selling his surplus groceries in a small stand. It was almost after 10 years, precisely in 1929 that he went up to open his first Tesco store and after 3 years in 1932 it became a private limited company. In the year 1934 he went up to establish the first modern warehouse which also ushered in modern ideas in inventory management and control. In 1947 Tesco stocks got listed on the exchange. In 1956 it launched its self-service supermarket and the journey continues till date. The brand has spread over different countries of the world and has become the third largest retailer after Wal-Mart and Carrefour (TIMELINE-Tesco's rise to world's third largest retailer, November 2007). Analysis Consumer behaviour Tesco has been a consumer or customer centric organization and has gained much important information about their behavior through innovative methods. It has devised many new schemes which would initiates customer behavior which was profitable from the group’s perspective. It launched ‘Club card’ which was used to collect information about the customer or the consumer. These would be highly analysed to gain deep understanding of the consumer behaviors based upon which the company forms its strategies and other plans (Humby C., et al, 2003). Retail Operations Though an International retailer now, yet Tesco’s core market lies in the UK which even accounts for 755 of the total sales and profit of the group. In UK Tesco have 2100 stores and 280000 employees working. Thouh primarily a Food retailer Tesco has also diversified into non-food retail also which is also a part of its overall strategy. The group has got four main retail formats under which it functions and also a fifth one which is on the trial stage and is known as Homeplus. Some of the key pointer the group keeps in mind in context of its retail operations is its continued investment in innovation in terms of new product lines which would satisfy the customers. In this context it has launched various in-house brands like Value, Finest, Free From, Healthy Living, Wholefoods and others to cater to a wide range of consumers. They also follow a labelling system for their packages which contain all pertinent nutritional information and which helps the customer’s decision making. Express, Metro, Superstore and Extra are the names of Tesco’s primary formats and added to this is their trial format known as Homeplus (Core UK, 2009; Store Formats, 2009). Besides food retail Tesco also focuses on non-food retail. Under non-food retail the chain sells a wide range of products spanning over categories like home-entertainment items, beauty products, health products, stationary furnishing, electricals and even garden furniture. The core of non-food retailing is done through Extra Stores and the new Homeplus while the non-food online retailing is done through Tesco Direct which offers over eleven thousand products online. Though the other formats also sale non-food items, yet Extra and Homeplus are the formats which offer the broadest range of non-food items (Non-food, 2009). Tesco’s primary market though lies in the UK; the chain has expanded its operations across many countries starting from the mid 1990s. In total it has got its operations in twelve markets other than UK. Its international operations are spread in Europe, North America and Also Asia. In fact the more than half of the group’s retail selling space is in these international markets. Its international operations employ over 160000 personnel and bring home about £13.8 billion in sales while catering to more than 28 million customers (International, 2009). Store layout Tesco has got four primary formats and the layout is also dependent upon the kind of format. The four primary formats of Tesco are: Express- These are the smallest and are usually up to 3,000 sq ft in size. These are located near to localities and customers and offer around 7000 products which consist of food items, bakery products, wines and other spirits. Metro- These stores are between 7,000-15,000 sq ft in terms of size and they cater to a wide customer base through their strategic locations at city centres. It also sells ready made meals and sandwiches beside its staple fresh food items. Superstore- Superstores are between 20,000-50,000 sq ft in size and the group follows a strategy of continued refurbishing and refreshing these stores. It has also launched various non-food items through these superstores and have added DVDs and books to their offering. Tesco also keeps on adding to its number of Superstores. Extra- This is one of the most popular formats of Tesco as it offers the broadest range of both food and non-food items which span over categories like electronic items, health products, beauty products to even seasonal garden furniture. These stores are usually around 60,000 sq ft in size. Other than these it has also got the Homeplus format which is on trial phase. This is one format which actually focuses only on non-food side of the business and offer selling space area of 35,000 sq ft to 50,000 sq ft. It has also innovated in terms of delivery of products through Tesco Direct order as well as collection points. So far their trial has been successful and the company wants to open ten more Homeplus stores beside the initial seven. In 2008 the company announced that it would be opening stores over multiple levels in city centres following which other retailer like Marks and Spencer got worried. Basically the company has taken this strategy in places where land attracts a premium price. These would be having 60000 sq ft of area (selling area). This multi-floor format would give direct competition to traditional retailers like marks and Spencer (Core UK, 2009; Store Formats, 2009; Tesco plans to open department-style stores, January 2008). Retail Strategy and Retail marketing Planning Tesco follows a multipronged retail strategy and marketing plan. Its core strategy emanates from the motto ‘circle the customer’. It creates value in its services and offerings through better understanding of the customers which it has made possible through customer information; in fact it has done it better than any of its competitors. It has got a ‘1% rebate program’ which translated to the customer earning 1 point for every £1she spent in their stores and which could then make them eligible for receiving rebate cheques on a quarterly basis. This scheme has actually provided the chain with loads of information about the customers which it has leveraged innovatively in every aspect of its retail strategy and planning. This in depth information has been utilized by the company to expand its retail operations, product offerings, online retailing store. It has been confident enough to allow its customers to redeem the points earned in its stores at other competing UK retail stores. Its primary strategy has been to analyse this vast array of information which reflect varied needs of its customers and then innovatively coming out with solutions which meet those needs. It main focus area has been its customer centricity and all its ideas, plans and strategies have emanated from that only (Woolf B., January 2004). The company has understood and has always focused on understanding the ever-changing needs and wants of the customer and strived to respond to them without wasting time. Fig.1. Customer centricity Fig.1. focuses on the customer centric orientation of the retail chain. Its focus on value for the customer and offering quality products to her makes the foundation of its customer service. It believes that its customers should be taken care of well and therefore provides customer assistants at each and every store. These staff has been provided high level training to be sympathetic towards the needs of the customers and at the same time to be responsible in their approach. Tesco also takes care of the shopping environment and understands its importance in attracting the customer. It is important for the customer to feel at home at the stores and also feel comfortable in its surroundings. Tesco makes sure that it provides such an environment for its customers. One of the most crucial factors for any retailer is to ensure the quality of its products. Tesco puts ample importance to its product quality so that it is able to satisfy the customer’s needs and retain the customer. One of the stated strategies of the company is to be as strong in non-food retail as it is in food retailing. Some of the key points Tesco strives to maintain in all its offering are great quality of product, huge range of product offerings, value for money and excellent service quality. While the Extra Stores and the Homeplus offer a wide variety of non food items, the Tesco Direct launched in the year 2006 offers more than eleven thousand products through the internet. They also offer a delivery to store function through which the consumers are able to collect their items which were ordered online at a local Tesco store. Tesco has also got its own brands for different product ranges, most famous of them being Standard and Finest. One of the key strategies for the company has been to provide a wide range of fashionable clothing to its customers at enticing price points. F&F is one such brand which Tesco offers and it’s a value for money brand is very popular with the customers. Cherokee is another brand which is aimed at kids and trendy adults. Amongst the 27 distribution centres 7 are focused on non-food items as well as clothing retail. It also procures its products from all over the globe at competitive prices and ensures that it reaches the shelf at the right time for the customer (Non-food, 2009). The company also concentrates on expanding its business overseas. To make shopping easier for the customers Tesco has got into a joint venture with the RBS or Royal Bank of Scotland to form the Tesco personal Finance. This venture has become the leading supermarket bank in UK over the last ten years. Again it has provided ‘Tesco.com’ since the year 2000 for their customer which has gone to become very popular with customers for shopping of groceries online. Besides this the company also offers a telecom service under the brand name of Tesco Telecoms which offers an array of telecom services. It can always leverage its existing retail customer base or vice versa (Retailing services, 2009). International Strategy Form the middle of the 1990s TESCO has been foraying into foreign markets outside its core operations at UK. Tesco has got its operations in twelve foreign markets presently and spans over Asia, Europe and North America. The company basically follows a six-point strategy for its international operations. These are: Flexibility – The company designs its stores, offerings and operations keeping in mind the local taste of the customer and for this factor it always maintains a flexible approach. For example in Japan Tesco had to enter the retail market through acquisition of ‘discount super market’ as Japanese like fresh food and Tesco’s hypermarket format and operating style would not have worked there. Localisation – Tesco has believed and understood the value of localisation. Whenever it has forayed into new foreign market it has taken into account the local culture, local management practices, local supply chain’s intricacies, local laws and regulations and has designed its operations in accordance with them. For example Tesco’s Thailand store caters to specific wants and needs of Thai customers who are habituated shopping while checking each and every item with their own hands. Tesco has made sure that this option is provided to them. Focus – They are very focused in their approach towards making the company a leading player in these foreign markets and also to provide its customers the best products and services. Different formats – Tesco understands that it cannot satisfy the wide array of customer thorough one kind of store. Therefore it has used the strategy of establishing different kinds of formats, starting from convenience stores to hypermarkets while offering enticing discounts whenever needed. This experience in establishing and running different kinds of stores is helpful for Tesco as it can apply this knowledge in running a varied operation in different market. Capability development - The company strives to maintain its capability in terms of operational processes, people. And systems so that it is able to provide its local customers in the foreign market with pertinent produce and high quality service always. It trains the local managers in high quality skills and brings them in line with TESCO’s objectives and plans. These managers are capable of developing Tesco’s’ business model and expand its operations in the local markets in line with Tesco’s expectations. Brand- Tesco focuses not just on quality of operations, or its product offerings but also puts in prime importance on building strong brand equity for itself in the foreign markets that it operates in. this is done so that it can leverage the high brand value in future also when it expands its operations further in these markets (International, 2009; Dawson J. A, et al). Distribution and Channel Management Tesco’s primary focus on the customer has also got reflected in its distribution and channel management strategy. Its distribution and channel management strategies have gone through three phases. Initially it stated its operations with a distribution system which focused on directly delivering the products to the store. Then the group moved towards a centalised system of distribution and finally it adopted an integrated distribution system. In the 70s the company faced a crisis in context of distribution system when the prevailing system could not handle the massive volume of goods. But this crisis also taught it a lesson that distribution was as important as any other of its operations. It also leveraged the power of computers and information technology system in handling the distribution and operations of the warehouses. It also brought down the unit cost by introducing even newer IT systems into its operations. Tesco has in total 27 distribution centres and out of this seven are primarily focused on non-food retail. Finally in the present days as it has moved to a composite system of distribution, it has been able to bring down the costs as now it can use a single vehicle for different types of goods instead of 5/6 different vehicles. This new system has also enabled the company in totally integrate its various channels, to keep a stronger hold on all costs, to maintain freshness of the products and handle its complex operations in smoother fashion than before (Findlay A.M. and Sparks L., 2001). Retail Brand and Retail Communications Tesco has an array of retail store offerings, starting from convenience stores to big hypermarkets. Express, Superstore, Extra, Metro is the four main stores whereas Homeplus has been launched recently as a trial concept. It has been following a slogan called ‘every little helps’ and therefore believes in the adage that taking care of all the little things in operations would ensure that ultimate objective is achieved. It has also been one of the very first retailers to launch self-branded products. Value, Finest, Free From and Healthy Living are some of its well known in house brands. It also launched one of a kind (at that point of time) ‘club card’ in 1995 which it utilised to the maximum in collecting information about its customers. This information was analysed to offer the best retail experience to the customer form every perspective Conclusion Tesco has been s successfully utilising customer information and has been leveraging this information to improve on all counts, whether in UK or in any other foreign market. It has been one of the pioneers of retailing in UK and has been expanding in different parts of the world for the last many years. Its customer centricity has been a major reason behind its success. In fact its balanced perspective towards all the stake holders, from customer, community, People, operations and finance has been a major factor behind its success. References Timeline-Tesco's Rise to World's Third Largest Retailer, November 2007, Reuters, [Online], Available: http://uk.reuters.com/article/businessNews/idUKL2110323620071127 , [28th May, 2009] Core UK, 2009, Tesco Plc, [Online], Available: http://www.tescoplc.com/plc/about_us/strategy/coreuk/ , [28th May, 2009] Store Formats, 2009, Tesco Plc, [Online], Available: http://www.tescoplc.com/plc/about_us/strategy/coreuk/ , [28th May, 2009] Non-food, 2009, [Online], Available: http://www.tescoplc.com/plc/about_us/strategy/non_food/ , [28th May, 2009] International, 2009, [Online], Available: http://www.tescoplc.com/plc/about_us/strategy/international/ , [28th May, 2009] Tesco Plans to Open Department-Style Stores, January 2008, Reuters UK, [Online], Available: http://uk.reuters.com/article/businessNews/idUKL2257702220080122 , [28th May, 2009] Woolf B., January 2004, Lessons From Along Loyalty Lane, Retail Strategy Center, [Online], Available: http://www.brianwoolf.com/articles/read.asp?id=13 , [28th May, 2009] Retailing services, 2009, [Online], Available: http://www.tescocorporate.com/plc/about_us/strategy/services/ [28th May, 2009] Dawson J. A., Kaynak E. and Lee J. H., 2005, International Retailing Plans and Strategies in Asia, Haworth Press. Findlay A.M. and Sparks L., 2001, Retailing: Critical Concepts, Taylor & Francis. Humby C., Hunt T. and Phillip T., 2003, Scoring Points: How Tesco Is Winning Customer Loyalty, Kogan Page Publishers. Read More