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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 DVDs, compact discs and music downloads, internet service and consumer telecoms.

Facts and figures

Tesco's revenue for the 52 weeks to 25 February 2006 was £38.3 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 £39.5 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.

History

Formation

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 speeds up

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" , since an estimated 50p in every £1 is believed to be spent in the three Tesco stores within the city . (Nationally, it is estimated that 1 in every £8 is the proportion spent) It introduced a loyalty card branded 'Clubcard' in 1995 and later an Internet shopping service. During the 1990s it expanded into Central Europe, Ireland and East Asia. In July 2001 it became involved in internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks. In October 2003 it launched a UK telecoms division, comprising of mobile and home phone services, to complement its existing internet service provider business. In August 2004, it also launched a broadband service. In addition to opening its own stores, Tesco has expanded by taking over other chains, including:

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.

Corporate strategy

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"
. By contrast ASDA's marketing strategy is focused heavily on value for money, which can undermine its appeal to upmarket customers even though it actually sells a wide range of upmarket products. During its long term dominance of the supermarket sector Sainsbury's retained an image as a high-priced middle class supermarket which considered itself to have such a wide lead on quality that it did not need to compete on price, and was indifferent to attracting lower-income customers into its stores. This strategy has been abandoned since losing the number 1 spot to Tesco and particularly since the arrival of Justin King as CEO in 2004 who has established a new customer-focused strategy closer to that of Tesco.

  • One plank of this inclusivity has been Tesco's use of its own-brand products, including the upmarket "Finest" and low-price "Value". The company has taken the lead in overcoming customer reluctance to purchasing own brands, which are generally considered to be more profitable for a supermarket as it retains a higher portion of the overall profit than it does for branded products.

  • Customer focus: Sir Terry Leahy, chief executive since the mid 1990s, has taken the bold step of trying not to focus on the usual corporate mantra of "maximising shareholder value". The company's mission statement reads, "Our core purpose is, 'To create value for customers to earn their lifetime loyalty'. We deliver this through our values, 'No-one tries harder for customers', and 'Treat people how we like to be treated'". The underlying aim is of course to make higher profits, but there is a clear focus on customer service at the top level of the company.
  • Diversification: The company has a four-pronged strategy:
    • "Core UK business" - That is, grocery retailing in its home market. It has been innovative and energetic in finding ways to expand, such as making a large-scale move into the convenience-store sector, which the major supermarket chains have traditionally shunned.
    • "Non-food business" - Many United Kingdom supermarket chains have attempted to diversify into other areas, but Tesco has been exceptionally successful. By late 2004 it was widely regarded as a major competitive threat to traditional high street chains in many sectors, from clothing to consumer electronics to health and beauty to media products. Tesco sells an expanding range of own-brand non-food products, including non-food Value and Finest ranges. It also has done quite well in non-food sales in Ireland. CDs are one of the best examples, with Tesco Ireland promising to sell all chart CDs (except compilations) for €14.95 compared with HMV Ireland or Golden Discs selling the same for just over or under €20.
    • "Retailing services" - Tesco has taken the lead in its sector in expanding into areas like personal finance (see below), telecoms (see below), and utilities. It usually enters into joint ventures with major players in these sectors, contributing its customer base and brand strength to the partnership. Other supermarkets in the United Kingdom have done some of the same things, but Tesco has generally implemented them more effectively, and thus made most profit.
    • "International" - Tesco began to expand internationally in 1994, and in the year ending February 2005 its international operations accounted for just over 20% of sales, or about £7 billion (approximately $13 billion). It has focused mainly on developing markets with weak incumbent retailers in Central Europe and the Far East and now in 2006 they are going to branch out in the United States. The medium term aim is to have half of group sales outside the United Kingdom. Tesco rolls out successful UK initiatives in other countries. For example Tesco Financial Services and Tesco Express convenience stores both operate in several markets.

UK operations

Formats

Tesco's UK stores are divided into five formats, differentiated by size and the range of products sold. in Irlam (this store was later demolished to make way for a smaller Tesco Extra). The 100th store opened in the 2004/05 financial year. The number of these is now being increased by about 20 a year, mainly by conversions from the second category. Typical size 68,000 square feet (6,300 m²). As of January 2006 Tesco's largest UK store is in Slough and is 190,000 square feet (18,300 m²). This store is unusual in being raised on stilts to maximise space utilisation. For comparison a standard Wal-Mart Supercenter in the U.S. is around 200,000 square feet (18,400 m²).

  • Tesco stores are standard large supermarkets, stocking groceries plus a much smaller range of non-food goods than Extra. They are referred to as "superstores" for convenience, but this word does not appear on the shops. It is the "standard" Tesco format, accounting for the majority of UK floorspace. Most are located in suburbs of cities or on the edges of large and medium-sized towns. The typical size is 31,000 square feet (2,900 m²).
  • Tesco Metro stores are sized between normal Tesco stores and Tesco Express stores. They are mostly located in city centres and on the high streets of small towns. Typical size is 12,000 square feet (1,100 m²). The first Tesco Metro was built in Covent Garden, London
  • Tesco Express stores are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to lack of economies of scale) alongside everyday essentials. They are found in busy city centre districts and small shopping precincts in residential areas, and on petrol station forecourts. There were 654 stores at 25 February 2006 year end, with a typical size of 2,100 square feet (190 m²).
  • One Stop 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. There are more than 500 of them. Typical size 1,350 square feet (125 m²).

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

    • Tesco Homeplus : These stores offer all of Tesco's ranges except food in warehouse-style units in retail parks. Tesco is trying 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. It plans to open at least three more Homeplus stores in 2006.

    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.

    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 telcos. 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.

    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. *

    Internet operations

    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 2005 it recorded online sales up 31.9% to £948 million and profit up 54.9% to £56.2 million. *

    Operations outside the UK

    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. *

    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% . On their Irish website, they also claim to be the largest purchaser of Irish food with an estimated €1.5 billion annually.

    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. . 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 . 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. * 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 37 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.

    Financial performance

    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. *

    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.

    Controversy

    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 However while indivdual cases can be cited Tesco, along with the other major supermarkets, is experiencing price deflation.

    Tesco's 2004 Adminstore acquisition led to local and national protests. Tesco's other store openings and expansions are sometimes contested by campaign groups. These campaigns have not hindered Tesco's expansion programme very much.

    Another point of controversy is the recent expansion of Tesco into the convenience store market. When a company controls more than 25% of a business sector in the UK, it is usually blocked from buying other companies in that sector (but not from increasing its market share through organic growth). The Office of Fair Trading currently treats supermarkets and convenience stores as two distinct sectors - although this definition has been challenged by smaller retailers, including the Association of Convenience Stores.

    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" . The accusation stemmed from the company's building of a store in Stockport that was 20% larger than the company actually had permission to build.

    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 controversey 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.

    See also

    References

    • 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.

    External links

    Official

    Press coverage

    Critical sites

    1924 establishments | Companies listed on the London Stock Exchange | Supermarkets of the United Kingdom | Customer loyalty programs

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