A History of Tesco: the Rise of Britain's Biggest Supermarket - Case Study Example

Tesco - Introduction History Tesco came to existence in the year 1919. The concept started from Jack Cohen’s initiative of selling groceries in London. On his first day, he managed to make a profit of £1 from the £4 of sales. It was not until 1924, however, when the brand name Tesco appeared to surface. This was when Mr. Cohen purchased a tea shipment from Mr. T.E. Stockwell. Mr. Cohen, in 1929, opened the first Tesco outlet in North London, with the name comprising of initials from Jack Cohen and T.E. Stockwell’s names. (Clark, 2008) The 1930s was the decade of growth for Tesco. Mr. Cohen opened up a head quarters and warehouse in London and by1932, the company was registered as a private limited company. About fifteen years later, in 1947 (Tesco PLC) , the company was registered in the stock market with each share for 25p. Tesco quickly expanded by buying out competitors. For instance, only in the 1950s, the company bought out 70 Williams’ stores and 200 Harrow stores. Later, in the 1960s it occupied the Victor Value chain and 97 Charles Philips stores. The company also started to rapidly increase its size in terms of retail store size in the 1960s. (Clark, 2008) Profile Core UK business - Tesco is the largest food retailer in United Kingdom Stores Extras – 29 Superstores – 450 Metro/High Street – 167 Express – 56 Total – 702 Non-Food Business – 4% market share from a £5bn market (Tesco) Includes electronics, home entertainment, toys, sports equipment, cook shop, home shop, etc. Tesco.com – number one online grocery business, covering 90% of the UK population (Tesco) International Presence Hungary, Poland, Czech Republic, Slovac Republic, Taiwan, South Korea, Thailand, Malaysia, and other Asian countries. Competitors In theory, all retailers should be categorized as Tesco’s competitors. However, the sheer size and success of Tesco makes it almost impossible for smaller retailers to compete with Tesco. The main rivals of Tesco, therefore, are ASDA, Sainsbury and Morrison’s.(Corporate Watch, 2004). Morrison’s is by far the least threat posing competitor for Tesco, falling behind Sainsbury and Tesco. Sainsbury used to be UK’s biggest retailer till 1995. It fell behind ASDA and Tesco, however, because of unsuccessful strategies and internal problems. The company gave more importance to the design and supply chain aspect of the business, without focusing on the price. However, its lost share indicates that customers still rank price as one of the most important elements of their decision making process. Also, disputes amongst the shareholders of the company caused the management to collapse, dragging down Sainsbury to the third spot. (Corporate Watch, 2004) ASDA, by far, is the only competitor of Tesco that can supersede Tesco in the near future (Corporate Watch, 2004). ASDA came under Wal-Mart’s management in 1999. The potential of ASDA can be evaluated by the fact that Wal-Mart had sales of $256 billion in 2003, and is eight times as big as Tesco. ASDA is the largest non-US business unit of Wal-Mart. ASDA focuses on low prices. With its ASDA Smart Price section, it declares that prices products in that section are the lowest in the market. Low price has been one of the key elements of ASDA in attaining its high market share. Sales of Tesco, Sainsbury and Asda in the past five years (Sales Figures are in £m) Tesco Sainsbury Asda Morrison 2006 39,454 14,287 15,759 12,115 2007 42,641 15,277 16,896 12,462 2008 47,298 15,912 18,604 12,969 2009 53,898 16,815 19,862 14,528 2010 56,910 17,672 21,205 15,410 Note: Sales figure increase for the year 2010 for Asda has been estimated based on the increase from 2009-2010. Also, figures for Sainsbury have been adjusted by removing VAT (17.5%), to match Tesco and Asda’s figures Description: There had been a steady increase in the sales performance of Tesco, as well as all its competitors. However, it is evident that the increase in Tesco’s performance of around £17 million is far greater than the remaining companies, which shows that Tesco still maintains its competitive edge much beyond the reach of its competitors. References used: Tesco Website (www.tescoplc.com), ASDA Website (www.your.asda.com), Sainsbury Website (www.j-sainsbury.co.uk) and Morrison’s Website (www.morrisons.co.uk) Employee Figures of Tesco, Sainsbury and Asda in the past five years Tesco Sainsbury Asda Morrisons 2006 386,213 96,200 153,580 93,041 2007 413,061 109,650 156,780 84,653 2008 444,127 123,100 162,115 83,736 2009 468,508 136,550 169,847 89,855 2010 472,094 150,000 177,947 94,724 Note: Number of employees increased in year 2010 for ASDA have been estimated based on the average increase from 2008-2009. Also, number of employees in year 2007, 2008 and 2009 for Sainsbury’s, have been estimated by dividing the increase between year 2006 and year 2010 equally amongst the 3 years. Description: The graph shows steady growth in employment for Tesco, Asda and Sainsbury. However, for Morrison’s, there was a decrease in the number of employees between the years 2006 to 2008. The years 2009 and 2010, however, saw an increase in the employment for Morrison’s as well. References used: Tesco Website (www.tescoplc.com), ASDA Website (www.your.asda.com), Sainsbury Website (www.j-sainsbury.co.uk) and Morrison’s Website (www.morrisons.co.uk) Recent Developments Apart from moving, extensively, into non-food products and global expansion (as discussed in the coming sections), Tesco has recently started a venture called Tesco Homes. Under this plan, Tesco aims to build affordable homes through partnerships and deals with construction companies and housing associations. (Corporate Watch, 2004) Moreover, the company is aiming to make Corporate Responsibility integral to its business. With the company’s “Community Plan”, it aims to help the local communities in the different parts of the world where Tesco is active, adopting environment friendly business processes, providing healthy options and jobs to local people, and so on. (tesco website, 2010) Industry Trends The supermarket industry has developed a trend of using the established brand name and expanding into non-food items to maximize revenue. This includes pharmacies, electrical goods, photo-labs, clothing lines, and so on. The reason for doing that is that these products carry a bigger profit margin as compared to food items. This strategy was introduced by Wal-Mart. In 2004, Tesco declared that non-food products contributed about 20% of their overall revenue. Supermarkets offering wider range of products become a one-stop-shop for customers who do not have to go to several different outlets to buy the different products. (Newman, 2002) The product lines are not only limited to the general non food products. Tesco has started offering things like music CDs, newspapers, natural products, such as products to boost sexual performance and so on. The key trend, therefore, is expansion (Seth, 2001). And this expansion is not only limited to domestic markets. As the domestic market reaches saturation point, UK popular supermarket brands such as Tesco, and Sainsbury, and Marks & Spencer, have targeted international markets. This has taken competition on a global scale, as UK supermarket brands go head to head against retailing giants such as Wal-Mart and Carrefour. (BBC, 2000) Products and Competitors and their Growth Tesco has a wide range of products to offer. These include everything, from thousands of food brands, as well as non-food brands. Tesco keeps itself aligned with the industry trends and needs of the customer. It has expanded both, domestically and internationally, to offer all kinds of products such as food items, electronics, clothing, pharmacy products, musical products, and so on. As discussed previously, Tesco is on top of the leader board in the UK market. The only close competition of Tesco is ASDA. Many people believe that ASDA’s merger with Safeway would have been the only way to counter Tesco’s domination in the market. However, Safeway ended up being acquired by Morrisons. Tesco had maintained its top position through its competitive strategies of low prices and expansion (Razzaq, 2008). As majority of the people prefer buying from a low cost supermarket because they buy in large quantities, Tesco was never in conflict with ‘up-market’ stores such as Marks & Spencer and Waitrose. These stores had an image of selling quality products, but at a higher price. Recently, however, Tesco had moved into offering premium brand products in its outlets as well (BBC, Lunch Lesson 12 - New product development, 2002). There can be two consequences of this: either Tesco’s image of a low price supermarket will get distorted and it will end up losing its revenue, or even the ‘up-market’ stores’ customers would end up coming to Tesco to buy the premium brands, and hence, further increasing Tesco’s revenue. Works Cited BBC. (2002, November 27). Lunch Lesson 12 - New product development. Retrieved October 27, 2010, from BBC News: http://news.bbc.co.uk/2/hi/programmes/working_lunch/education/2518475.stm BBC. (2000, September 19). Supermarkets must go global. Retrieved October 17, 2010, from BBC News: http://news.bbc.co.uk/2/hi/business/931595.stm Clark, T. (2008, April 18). A history of Tesco: The rise of Britains biggest supermarket. Retrieved October 16, 2010, from Telegraph.co.uk: http://www.telegraph.co.uk/finance/markets/2788089/A-history-of-Tesco-The-rise-of-Britains-biggest-supermarket.html Corporate Watch, U. (2004, September). Tesco - A Corporate Profile. Retrieved October 17, 2010, from CorporateWatch.org: http://archive.corporatewatch.org/profiles/tesco/tesco1.htm Newman, A. (2002). Retailing: Environment and Operations. Cengage Learning. Razzaq, R. (2008, June 27). Supermarkets cut prices in war with the budget chains. Retrieved October 16, 2010, from This is London: http://www.thisislondon.co.uk/standard/article-23501396-supermarkets-cut-prices-in-war-with-the-budget-chains.do Seth, A. (2001). The Grocers: the rise and rise of the supermarket chains. Kogan Page Publishers. Tesco. (n.d.). Retrieved October 15, 2010, from Global Sources: http://www.globalsources.com/PEC/PROFILES/TESCO.HTM Tesco PLC. (n.d.). Retrieved October 16, 2010, from work smart: http://www.worksmart.org.uk/company/company.php?id=00445790 tesco website, t. p. (2010). Community. Retrieved October 17, 2010, from tescoplc.com: http://www.tescoplc.com/plc/about_us/strategy/community/ Asda Official Website (2009). All About Asda. Retrieved October 24, 2010, from your.asda.com: http://your.asda.com/assets/attachments/10008/original/All_about_Asda.pdf Sainsbury Official Website (2010). Annual Reports and Financial Statements. Retrieved October 24, 2010, from j-sainsbury.co.uk: http://www.j-sainsbury.co.uk/files/reports/ar2010_report.pdf Sainsbury Official Website (2010). Key Facts.Retrieved October 24, 2010, from j-sainsbury.co.uk: http://www.j-sainsbury.co.uk/index.asp?pageid=192 tesco official website, t. p. (2010). Five Year Summary. Retrieved October 24, 2010, from tescoplc.com: http://www.tescoplc.com/plc/ir/financials/fiveyearsummary/ Morrison’s Official website, Annual Report and Financial Statements. Retrieved October 24, 2010, from morrisons.co.uk: http://www.morrisons.co.uk/Corporate/2010/AnnualReport/investor-information/supplementary-information/# Read More