Tesco - The Supermarket that's eating Britain

Saturday, September 12, 2009

Tesco is Britain's favourite supermarket. With 2,000 stores and 15 million customers a week, it's almost twice as big as its nearest rival. Dispatches shows how Tesco could soon become even bigger, and asks if this retail giant is abusing its power.

Watch Documentary - The Supermarket that's eating Britain



Tesco plc is a UK-based international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share, with profits exceeding £3 billion. It is currently the third largest global retailer based on revenue, behind Wal-Mart and France's Carrefour, but second largest based on profit, ahead of Carrefour. Originally specialising in food and drink, it has diversified into areas such as clothing, consumer electronics, financial services, telecoms, home, health and car insurance, dental plans, retailing and renting DVDs, CDs, music downloads, Internet services and software.

Management and strategy changes

Founder Jack Cohen was an enthusiastic advocate of trading stamps as an inducement to shoppers to patronise his stores. He signed up with Green Shield Stamps in 1963 and became one of the company's largest clients.

In 1973 Jack Cohen resigned and was replaced as Chairman by his son-in-law Leslie Porter. Porter and managing director Ian MacLaurin abandoned Cohen's "pile it high, sell it cheap" philosophy, which had left the company "stagnating" and with a "bad image".In 1977 Tesco launched "Operation Checkout", which included the abandonment of Green Shield stamps, price reductions and centralised buying for all stores. The result was a rise in market share of 4% in two months.

1980s

In May 1987 Tesco completed its hostile takeover of the Hillards chain of 40 supermarkets in the North of England for £220 million.

1990s
Tesco at Seacroft, Leeds. This was built as a redevelopment of the 1960s Seacroft Civic Centre.

In 1994 the company took over the supermarket chain William Low, successfully fighting off Sainsbury's for control of the Dundee-based firm which operated 57 stores. This paved the way for Tesco to expand its presence in Scotland, which was weaker than in England. In 2006 Inverness was branded as "Tescotown", because well over 50p in every £1 spent on food is believed to be spent in its three Tesco stores.

Tesco introduced a loyalty card, branded 'Clubcard', in 1995 and later an Internet shopping service. As of November 2006 Tesco was the only food retailer to make online shopping profitable. In 1996 the typeface of the logo was changed to the current version with stripe reflections underneath. Terry Leahy assumed the role of Chief Executive on 21 February 1997, the appointment having been announced on 21 November 1995.

On 21 March 1997 Tesco announced the purchase of the retail arm of Associated British Foods which consisted of the Quinnsworth, Stewarts and Crazy Prices chains in the Republic of Ireland and Northern Ireland, plus associated businesses, for £640 million.The deal was approved by the European Commission on 6 May 1997. This acquisition gave it both a major presence in the Republic of Ireland and a larger presence in Northern Ireland than Sainsbury's, which had begun its move into the province in 1995.

In 1997 Tesco and Esso (part of Exxonmobil) forged a business alliance that included several petrol filling stations on lease from Esso, with Tesco operating the attached stores under the Express format. In turn Esso would operate the forecourts and sell their fuel via the Tesco store. Ten years later over 600 Tesco/Esso stores can now be found across the UK.

2000s
Trolley shelter
A new Tesco Extra store under construction in June 2007 in Shrewsbury, Shropshire. This store has since been completed.
Tesco in Skipton, North Yorkshire being redeveloped in 2009

In July 2001 Tesco became involved in Internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks.In 2002 Tesco purchased 13 HIT hypermarkets in Poland. It also made a major move into the UK convenience store market with its purchase of T & S Stores, owner of 870 convenience stores in the One Stop, Dillons and Day & Nite chains in the UK.

In October 2003 the company launched a UK telecoms division, comprising mobile and home phone services, to complement its existing Internet service provider business. In June 2003 Tesco purchased the C Two-Network in Japan. It also acquired a majority stake in Turkish supermarket chain Kipa. In January 2004 Tesco acquired Adminstore, owner of 45 Cullens, Europa, and Harts convenience stores, in and around London. In August 2004, it also launched a broadband service. In Thailand Tesco Lotus was a joint venture of the Charoen Pokphand Group and Tesco but facing criticism over the growth of hypermarkets. CP Group sold its Tesco Lotus shares in 2003. In late 2005 Tesco acquired the 21 remaining Safeway/BP stores after Morrisons dissolved the Safeway/BP partnership. In mid 2006 Tesco purchased an 80% stake in Casino's Leader Price supermarkets in Poland. They will be rebranded into small Tesco stores.

On 14 July 2007, fourteen Tesco stores across the UK were temporarily closed after a 'bomb scare' and a criminal investigation launched after threats were made. A 'suspect device' was found in one store on 16 July 2007 causing the store and surrounding area to be sealed off while the Army Explosive Ordnance Disposal unit disposed of the package.

In 2007, Tesco took part in a joint venture with O2 to form the Tesco Mobile mobile virtual network operator in Ireland.

In 2007 Tesco was placed under investigation by the UK Office of Fair Trading (OFT) for acting as part of a cartel of five supermarkets (Safeway, Tesco, Asda, Morrisons and Sainsburys) and a number of dairy companies to fix the price of milk, butter and cheese. In December 2007 Asda, Sainsburys and the former Safeway admitted that they acted covertly against the interests of consumers while publicly claiming that they were supporting 5,000 farmers recovering from the foot-and-mouth crisis. They were fined a total of £116 million. Tesco, which maintains that it was not a part of the cartel, is still under investigation by the OFT.

A two-part television ad campaign celebrating Christmas with the Spice Girls aired in 2007. They have reportedly been paid £5 million (US$10 million).

In April 2009, Tesco announced that it had created a super tomato that "doesn't leak". The tomato is grown in Holland and is meant to be a better tomato for sandwiches since, being less juicy, they won't make sandwiches as soggy as regular tomatoes do.

Corporate strategy

According to Citigroup retail analyst David McCarthy, "Tesco has pulled off a trick that I'm not aware of any other retailer achieving. That is to appeal to all segments of the market". One plank of this strategy has been Tesco's use of its own-brand products, including the upmarket "Finest", mid-range Tesco brand and low-price "Value" encompassing several product categories such as food, beverage, home, clothing, Tesco Mobile and financial services.

Beginning in 1997 when Terry Leahy took over as CEO, Tesco began marketing itself using the phrase "The Tesco Way" to describe the company's core purposes, values, principles, and goals This phrase became the standard marketing speak for Tesco as it expanded domestically and internationally under Leahy's leadership, implying a shift by the company to focus on people, both customers and employees.

In order to protect its brand image, and given its expansion plans in Thailand, Tesco has recently been employing a policy of launching defamation proceedings. In November 2007, Tesco sued a Thai academic and a former minister for civil libel and criminal defamation. Tesco is insisting that the two pay £1.6 million and £16.4 million plus two years' imprisonment respectively. They have been alleged to have misstated that Tesco's Thai market amounts to 37% of its global revenues, amongst criticism of Tesco's propensity to put small retailers out of business.

Tesco's main advertising slogan is "Every little helps". Its advertisements in print and on television mainly consist of product shots (or an appropriate image, such as a car when advertising petrol) against a white background, with a price or appropriate text, e.g. "Tesco Value", superimposed on a red circle. On television, voiceovers are provided by recognisable actors and presenters, such as James Nesbitt, Jane Horrocks, Terry Wogan, Dawn French, Ray Winstone, Neil Morrissey, Martin Clunes, David Jason and Kathy Burke among others.

Stores

Tesco's UK stores are divided into six formats, differentiated by size and the range of products sold. These are shown below;

Tesco Extra
Tesco Extra, Southport, England

Tesco Extra stores are larger, mainly out-of-town hypermarkets that stock nearly all of Tesco's product ranges. The first Extra opened in 1997. The 100th store opened on 29 November 2004 in Stafford. The number of these is now being increased by about 20 a year, mainly by conversions from the second category. The largest store by floor space is Tesco Extra in Pitsea, Basildon with floorspace of 11,600 m2 (125,000 sq ft). Newer Tesco Extra stores are usually on two floors, with the ground floor for mainly food and the first floor for clothing, electronics and entertainment. Most Tesco Extra stores have a café. However, the Perth, Manchester Gorton, Dumfries and Aylesbury stores, have all sales on one floor, with a cafe on the upper balcony. The Manchester Gorton store opened in October 2008, with the Perth store opening several years before, but only being converted to an extra recently. A Tesco Extra has recently been opened in Oldham, Greater Manchester, which replaced the most profitable store in the UK. The new store is the biggest Tesco in the UK. However, the Tesco Extra completed in Slough holds the title for biggest supermarket in Europe.

Tesco Superstores

Tesco superstores are standard large supermarkets, stocking groceries and a much smaller range of non-food goods than Extra stores; they are referred to as "superstores" for convenience, but this word does not usually appear on the shops. A new store in Liverpool is the first to use the branding 'Tesco Superstore' above the door. The very first Tesco store is in Hackney on Mare Street.
Tesco Metro in Leeds city centre.

Tesco Metro

Tesco Metro stores are sized between Tesco superstores and Tesco Express stores. They are mainly located in city centres, the inner city and on the high streets of small towns such as Rowlands Gill, Nelson and Cleveleys. The first Tesco Metro was opened in Covent Garden, London in 1992. Since then all Tesco branches that have a high street format including those which opened before the Covent Garden branch have been subsequently rebranded from Tesco to Tesco Metro probably to give an identity to the Tesco high street sub brand. The Tesco store in Devizes was the last store to finish rebranding, in September 2006. The store had not been renovated for over 20 years.

Tesco Express
Tesco Express, Hilperton Road, Trowbridge, Wiltshire

Tesco Express stores are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to small store size, and the necessity to maximize revenue per square foot) alongside everyday essentials. They are found in busy city centre districts, small shopping precincts in residential areas, small towns and on Esso petrol station forecourts. The 1000th Tesco Express site opened in July 2009.

One Stop

One Stop stores are the only category which does not include the word Tesco in its name. These are the very smallest stores. They were part of the T&S Stores business but, unlike many which have been converted to Tesco Express, these will keep their old name. However, some have Tesco Personal Finance branded cash machines.

Tesco Homeplus
One Stop, Trowbridge, Wiltshire (with private accommodation above)

History

Tesco Homeplus is not Tesco's first non-food only venture in the UK. Until the late 1990s/early 2000s there were several non-food Tesco stores around the country including Scarborough and Yate. Although not in a warehouse style format, the stores were located on high streets and shopping centres, they did stock similar items to Homeplus stores. In both cases this was because in another part of the shopping centre was a Tesco Superstore which stocked food items only.

In May 2005 Tesco announced a trial non-food only format near Manchester and Aberdeen, and the first store opened in October 2005:

A further 5 stores opened before it stopped being a trial, and there is now a plan to open many more stores.

Current

Stores offer all of Tesco's ranges except food in warehouse-style units in retail parks. Tesco is using this format because only 20% of its customers have access to a Tesco Extra, and the company is restricted in how many of its superstores it can convert into Extras and how quickly it can do so. Large units for non-food retailing are much more readily available.

There are currently 12 Homeplus stores nationwide. The newest Homeplus store opened in Chester in July 2009.

Future

2 more are due to open in the first half of '09 at sites around the country. All of these will feature the Order and Collect desk where customers can purchase and collect most items straightaway.
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