Tesco
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 specialising in food, it has moved into areas such as
clothes,
consumer electronics, consumer
financial services, selling and renting
DVDs,
and
music downloads,
internet service and consumer
telecoms.
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 24% of total revenue.
Formation
|
First self service Tesco, St Albans, England |
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". There is a wide mis-conception that the name is an abbreviation of the name of Jack Cohen's wife, Tessa Cohen, becoming TESCO - however this is wrong as Cohen was never married to a Tessa.
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.
[londonstockexchange.com profile Accessed 9 July 2006.] 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. It has been said that it began own-label canning at the former
Goldhanger Fruit Farms factory, sited a few miles from Maldon in the village of
Tolleshunt Major, despite Goldhanger being another nearby village. The factory has since been sold. It is now a transport depot, with several other business units on the site.
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.
[ http://cep.lse.ac.uk/seminarpapers/24-05-04%20-%20Background%20paper%20by%20Geoffrey%20Owen.pdf] 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.
[http://www.dg.dial.pipex.com/comment/z051128c.shtml]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"
*A majority stake in
Turkish supermarket chain
Kipa in
2003.
*
Lotus in
Thailand*
Hillards, North of England
1984*21 remaining
Safeway/
BP stores in late
2005, after
Morrisons (the new owners of Safeway plc, the British supermarket chain) dissolved the Safeway/BP partnership
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 Wal-Mart 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"
Store summary at 25 February, 2006
As of
25 February 2006, at the end of its 2005/06 financial year Tesco's UK store portfolio was as follows.
| Format | Number | Total area (sq ft) | Total area (m²) | Mean area (m²) | Percentage of space | | Tesco Extra | 118 | 8.0 million | 740,000 | 6,270 | 30.9% |
| Tesco | 445 | 13.9 million | 1,280,000 | 2,880 | 53.7% |
| Tesco Metro | 163 | 1.9 million | 180,000 | 1,100 | 7.4% |
| Tesco Express | 654 | 1.4 million | 130,000 | 200 | 5.4% |
| One Stop | 517 | 0.7 million | 65,000 | 127 | 0.3% |
| Total | 1,897 | 25.9 million | 2,395,000 | 1,260 | 100% |
Tesco Personal Finance
Tesco has a banking arm called Tesco Personal Finance, a 50:50
joint venture with the
Royal Bank of Scotland. Products on offer include credits cards, loans, mortgages, savings accounts and several types of insurance, including car, home, life and travel. They are promoted by leaflets in Tesco's stores and through its website. The business made a profit of £139 million for the 52 weeks to
25 February 2005, of which Tesco's share was £70 million.
This move towards the financial sector has diversified the Tesco
brand and provides opportunities for growth outside of the retailing sector.
Tesco personal finance offer Loans, car loans, Instant access saving accounts, Business credit card, bonus credit card (the credit card that pays you interest back), Clubcard credit card (where you can earn 1 point for every £4.00 spent on it) and mortgages. Tesco also offer insurance including Travel insurance, pet insurance, car insurance, life insurance, home insurance and car breakdown cover in accosation with green flag. A key marketing strategy is tesco offering clubcard point or free petrol when you buy tesco car insurance.
Telecoms
Tesco operates ISP, mobile phone, home phone and
VoIP businesses. These are available to UK residential consumers and marketed via the Tesco website and through Tesco stores.
Though it launched its ISP service in 1998, the firm did not get serious about telecoms until 2003. It has not purchased or built a telecoms network, but instead has pursued a strategy of pairing its marketing strength with the expertise of existing telcoms. In autumn 2003 Tesco Mobile was launched as a joint venture with
O2, and Tesco Home Phone created in partnership with
Cable & Wireless. Tesco Mobile offers both prepaid and
PAYG (pay-as-you-go) accounts. In August 2004 Tesco broadband, an
ADSL-based service delivered via
BT phone lines, was launched in partnership with
NTL. In January 2006, Tesco Internet Phone, a Voice over Internet Protocol,
VoIP, service was launched in conjunction with
Freshtel of Australia
[{{cite_news]| url=http://news.bbc.co.uk/1/hi/business/4627250.stm | publisher=BBC News | title=Tesco launches net calls service | date=January 19, 2006.
Tesco announced in December 2004 that it has signed up 500,000 customers to its mobile service in the 12 months since launch. In December 2005, it announced it had one million customers using its mobile service. In April 2006 it announced that it had over one and a half million telecom accounts in total, including mobile, fixed line and broadband accounts. [1]Tesco offer broadband services.
Tesco also have a digital photo shop that offers multiple products such as, mugs, shirts, celebration cakes and table mats. The service is powered by pixology.
DVD rental is also an option and can only be accessed via the web. The DVDs are processed in warehouses and sent by post.
Music Downloads are also avalable on the internet.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 rival, Safeway plc), operating in the United States and Canada. GroceryWorks has stepped into the void left by the collapse of Webvan, but has not expanded as fast as initially expected.
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. Tesco delivers to over 1 million households, with more than 120,000 orders per week, by 1,000 local delivery vans. 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. [2]
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 gears up for catalogue drive in autumn, retail-week.com, 21 July 2006.]
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.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 one in Korea, one in Poland and one in Japan. [3]
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%[{{cite_news]| url=http://www.rte.ie/business/2005/1206/supermarkets.html | title=Tesco still commanding highest market share | publisher=RTE Business | date=December 6, 2006. On their Irish website, they also claim to be the largest purchaser of Irish food with an estimated €1.5 billion annually.[{{cite_news]| url=http://www.tesco.ie/corporate_info/abouttesco.htm | title=About Tesco Ireland | publisher=Tesco Ireland
On 9 February 2006 Tesco announced that it plans to move into the United States by opening a chain of convenience stores, starting on the West Coast in 2007.[{{cite web]| url = http://www.tescocorporate.com/page.aspx?pointerid=14163CB2412F41B1BD7765AC8DBE49EB | title = Tesco to enter United States | accessdate = 2006-03-13. 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[{{cite_news]| url=http://news.bbc.co.uk/1/hi/business/4695890.stm | publisher=BBC | title=Tesco plans foray into US market | date=February 9, 2006. In May 2006 the Los Angeles times reported that Tesco had purchased a 1.4-million-square-foot distribution center in Riverside County, near Los Angeles and planned to acquire another in Phoenix Arizona. The U.S. chain will be called Tesco Fresh & Easy. The stores are expected to be around 15,000 square feet - good sized supermarkets in many countries, but a rather odd segment in the US market. [Britain's Tesco to Open Its First U.S. Stores in Southland, Los Angeles Times 20 May, 2006. [4] ] The best comparisson to make in size is the Trader Joe's chain in the US.
The following table shows the number of stores, total store size in square feet and sales for Tesco's international operations. The store numbers and floor area figures are as at 25 February 2006 but the turnover figures are for the year ended 31 December 2005, except for the Republic of Ireland data, which is at 25 February 2006, like the UK figures. This information is taken from the 2006 final broker pack.| Country | Entered | Stores | Area (sq ft)! Turnover (£ million) | | China | 2004 | 39 | 3,505,000 | Note 1 | | Czech Republic | 1996 | 35 | 2,575,000 | 473 | | France | 1992 | 1 | 16,000 | Note 2 | | Hungary | 1994 | 87 | 3,282,000 | 1,088 | | Republic of Ireland | 1997 | 91 | 2,140,000 | 1,546 | | Japan | 2003 | 111 | 385,000 | 300 | | Malaysia | 2002 | 13 | 929,000 | 151 | | Poland | 1995 | 105 | 4,778,000 | 917 | | Slovakia | 1996 | 42 | 2,289,000 | 393 | | South Korea | 1999 | 62 | 4,129,000 | 2,132 | | Taiwan | Note 3 | 6 | 484,000 | 134 | | Thailand | 1998 | 219 | 6,768,000 | 1,087 | | Turkey | 2003 | 8 | 623,000 | 182 |
Note 1: The business in China is a joint venture and its turnover is not reported in Tesco's 2006 brokers' pack.
Note 2: Tesco owned a French chain called Catteau between 1992 and 1997. Its existing single store in France is a wine warehouse in Calais, which opened in 1995 and is targeted at British day trippers. Wine is much cheaper in France than in the UK because the duty is far lower. Turnover is not reported separately.
Note 3: In Sept 2005 Tesco announced an asset-swap deal with Carrefour. The six Taiwanese stores will be swapped for 11 hypermarkets in the Czech Republic and four stores in Slovakia.
Note 4:Tesco Stores (Malaysia) Sdn Bhd was incepted on 29 Nov 2001, as a strategic alliance with local conglomerate, Sime Darby Berhad of which the latter holds 30% of total shares.Tesco is listed on the London Stock Exchange under the symbol TSCO. It also has a secondary listing on the Irish Stock Exchange with the name TESCO PLC.
All figures below are for the Tesco's financial years, which run for 52 or 53 week periods to late February. Up to the 26 February 2006 period end the numbers include non-UK and Ireland results for the calendar year ended on 31 December in the accounting year. For the 25 February 2006 period end the non-UK and Ireland accounting date was brought into line with the UK and Ireland. The figures in the table below include 52 weeks/12 months of turnover for both sides of the business as this provides the best comparative. Including 60 weeks of non-UK and Ireland sales the figures to 25 February 2006 were: revenue £39,454 million; profit before tax £2,235 million; profit for year £1,576 million; basic earnings per share 20.07 pence. In the first quarter of its 2006-07 financial year Tesco's sales were 10.4% up on a year earlier. [5]| 52/3 weeks ended | Turnover (£m) | Profit before tax (£m) | Profit for year (£m)! Basic earnings per share (p) | | 25 February 2006 | 38,300 | 2,210 | 1,858 | 19.70 | | 26 February 2005 | 33,974 | 1,962 | 1,366 | 17.44 | | 28 February 2004 | 30,814 | 1,600 | 1,100 | 15.05 | | 22 February 2003 | 26,337 | 1,361 | 946 | 13.54 | | 23 February 2002 | 23,653 | 1,201 | 830 | 12.05 | | 24 February 2001 | 20,988 | 1,054 | 767 | 11.29 | | 26 February 2000 | 18,796 | 933 | 674 | 10.07 | | 27 February 1999 | 17,158 | 842 | 606 | 9.14 | | 28 February 1998 | 16,452 | 760 | 532 | 8.12 |
As of its 2006 year end Tesco was the fourth largest retailer in the world. The three largest are Wal-Mart, Carrefour and Home Depot. METRO was only just behind and might move ahead again if the euro strengthens against the pound, but METRO's sales include many billions of wholesale turnover, and its retail turnover is much less than Tesco's.
At 25 February 2006 Tesco operated 1,897 stores in the UK (25.9 million square feet, 2.395 million m²) and 814 outside the UK (32.8 million square feet, 3.02 million m²).
Tesco's market capitalisation on 31 December 2005 was £26.035 billion ($44.8 billion), which was the largest of any retailer based outside the United States.Tesco is increasingly a target for people in the UK who disapprove of the effects supermarket chains can have on farmers, suppliers and smaller competitors.
The group has also been criticised for its tactics, including allegedly misleading consumers with a "phoney" price cut
Tesco is also criticised by those who think that it infringes upon the interests of farmers and smaller suppliers. The company responds by claiming that it follows industry-best practice and sources locally where it can to meet customer demand. In March 2005 the Office of Fair Trading published an audit of the workings of its code of practice on relationships between supermarkets and their suppliers. It reported that no official complaints had been received against Tesco or any of the other major supermarkets, but the supermarkets' critics, including Friends of the Earth, contested that suppliers were prevented from complaining by fear of losing business, and called for more rigorous supervision of the supermarkets. A further report by the Office of Fair Trading in August 2005 concluded that the aims of the Code of Practice were being met.
In May 2004, Tesco announced it was reducing sick pay in an attempt to reduce levels of unplanned absence, which led to concerns over employees continuing to work despite poor health (faced with a reduced income otherwise).
In December 2005, a committee of UK MPs produced a report accusing Tesco of "riding roughshod over planning rules"
In January 2006 it was revealed that the Scottish city of Inverness was where the highest amount of spend per consumer (estimated at over 50p of every £1) was within Tesco stores - to the point where Inverness has been nicknamed "Tescotown", sparking further fury at the company's dominant position, and controversial plans to construct yet another store in the city.
In March 2006 the Office of Fair Trading (OFT) proposed to refer the UK grocery market to the Competition Commission for a new inquiry and called for the Commission to be thorough but swift in its investigation
In March 2006 the company was criticised when workers at the Dundee Baird Avenue depot (previously the base of William Low) in Scotland found out that all 432 jobs were to be moved to Livingston, 58 miles (93km) away. Staff, some of whom had been with the company for over 10 years, were later told that they had to choose between the move or redundancy.
A major point of international controversy was the purchase of a 50% stake in the Chinese supermarket chain 'Hymal' in late 2004. Hymal offers goods such as live tortoises and frogs which are of questionable abundance in the wild, although Tesco's claims to follow all of the relevant laws.
In Thailand a rocket was fired at one branch of Tesco but the rocket accidently hit an Israeli trade office in an adjacent building. Another controversy arose when the Royal Thai Police alledged that Thai soldiers operating as Tesco security intimidated a rural boy into poisoning chocolates as revenge for having their contracts revoked by Tesco.
The company has also been heavily criticised for its employment policy within its call centres. Over 50% of staff in their Dundee call centre are employed through an on-site agency. This means Tesco are able to pay the majority of their workforce approximately two thirds what actual Tesco employees get for doing exactly the same job. It also means that the agency staff receive fewer holidays, (Tesco employees also get 'first pick' of the holidays), no sick pay and are also not allowed to join the trade union. Their contract stipulates that they can be fired at any time, without reason or notice.
The employees responsible for designing the company's in-store signage appear to have had little education in matters of English grammar, especially the correct use of the apostrophe. Each store advertises (among other items) "mens magazines", "girls toys", "kids books", "womens shoes" and "Chart DVD's". This has arguably contributed to the accepted decline of written English in the UK
*TNS Superpanel
*Tescopoly
* Clive Humby, Terry Hunt and Tim Phillips - Scoring Points: How Tesco Is Winning Customer Loyalty (2003) ISBN 074943578X
* Jack Cohen wrote an autobiography: Pile It High and Sell It Cheap.
Official
* Tesco website
* Tesco Corporate website
Press coverage
*Retail star hit by tall poppy syndrome - a free market argument from The Times 11 November 2005.
* Small retailers revolt over the 'Tesco-isation' of the high street. Independent, 19 October 2005
* Wal-Mart calls for probe into dominant Tesco, The Sunday Times, 28 August 2005
* A Bridge too Far, The Times, 2 July 2005
* Environmentalists target Tesco, BBC News, 17 June 2004
* Tesco Juggernaut to storm America, The Times, 9th Feb 06
* Tesco turns up electricals drive, The Sunday Telegraph, 18th Jun 06
Critical sites
* Tescopoly, Nerve, 7 April 2006
* Supermarket Sweep Up Independent blog / campaign asking questions about Tesco's dominance
* Very Little Helps, Independent Tesco Community Forum
* Tescopoly.org, Friends Of The Earth site criticizing Tesco
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