Tesco
By Gediminas Sumyla
Company overview
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Tesco is known as a food retail leader in United
Kingdom and Ireland. Company’s annual online sales
exceeded $5 billion and Tesco.com is recognized as
the world’s largest online grocer, with a customer
base of little less than 1 million and more than
250,000 orders completed a week.
Company has nearly 1,900 vans that operate and
about 300 stores and 9,000 pickers. Tesco.com 2006
sales grew up strongly by 29.2%.
Tesco dominated in offline and online grocery market
and was looking for other areas to expand.
“Our market share of UK retailing is 12.5% - that
leaves 87.5% to go after” – Terry Leahy, CEO
Management team
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Terry Leahy – CEO, joined Tesco in 1979 and held a number of
marketing and commercial positions prior to being appointed to the
Board of Tesco PLC on 5 October 1992.
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Tim Mason - President and Chief Executive Officer Fresh & Easy
Neighborhood Market. He was appointed to the Board on 16 February
1995. He joined Tesco in 1982 and has been President of our US
operations since 2006
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Andrew Higginson - Finance and Strategy Director. He is a member of
the 100 Group of Finance Directors, Chairman of Tesco Personal
Finance and a Non-executive Director of BSkyB PLC. He is also
responsible for retailing services, including tesco.com, Tesco
Telecoms and Tesco Direct.
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Phillip Clarke is International and IT Director. Prior to his
appointment he held a number of roles in store operations,
commercial and marketing. He is a Non-executive Director of
Whitbread PLC. He was responsible for technological part of the
Tesco.com.
Competitors
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Asda owned by US corporation Wal-Mart since 1999, is the
only supermarket with the potential to become a thorn in the
side for Tesco. Wal-Mart is the biggest food chain in the world
and has annual sales eight times bigger than Tesco’s. Asda's
George range of clothing is the best selling brand in the UK and
company is thinking about acquiring Matalan, the giant
discount clothing and home furnishing store.
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Sainsbury’s was the UK's biggest grocer until 1995, but was
recently relegated to third position behind Tesco and Asda.
Despite the fact that company has been struggling lately it is
starting to get back on track. Despite predictions that
Sainsbury's would regain second position and a narrowing of
ASDA's lead in recent months, the latest figures released by
Taylor Nelson Sofres show Asda's share as 16.6% compared to
Sainsbury's at 16.22%.
History
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1919 – Jack Cohen founded Tesco, when he began to sell
surplus groceries from a stall in the East End of London. His
first day’s profit was $2 and sales $8.
1979 – Annual sales reach £1 billion.
1982 - Annual sales exceed £2 billion.
1995 – Tesco becomes the market-leading food retailer.
2000 – Tesco.com is launched.
2001 – Tesco announces a new strategic relationship with
American supermarket Safeway Inc, to take the Tesco.com
home shopping model to the US.
2002 – Tesco launches its exclusive clothing brand ‘Cherokee’
into many of its UK stores.
2004 - Tesco.com becomes first major British supermarket to
enter music download market.
2005 – Tesco announces annual profits of £2 billion.
2005 – Tesco announces non-food store trial.
Challenges
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Despite the fact that Tesco has a 27% of market
share, competitors are always one step behind.
With having all of these huge grocer giants that have
online delivery services as well as offline retail
stores, market was packed and there was an
opportunity and need of expansion in other areas.
Tesco thought that if there is any market share left,
there is a potential for growth and expansion.
Other challenge in online selling is how to succeed
without having huge expenses. Previous attempts to
succeed in online selling market for goods like
furniture failed because of the inconvenience and
cost of shipping and handling.
Strategy
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So Tesco.com finally launched it new online initiative
called Tesco Direct.
This new concept brings non-food offers to millions
of users online. Over 8,000 products will be available
from beds and sofas through to kitchenware,
electronics, cameras, bikes and so on.
Customers can choose the product they want on a
new website or from a new catalogue and then order
in one of three easy ways: online, by phone or in
selected stores at the new Tesco Direct desks.
Customers have option for the products to be
delivered or picked up in a selected local stores.
Technological drivers of change
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UK internet penetration as of 2007 was almost 64%
and Ireland’s internet penetration is almost 51%.
These results make a clear statement for new and
emerging online shopping market.
Tesco.com captured the possible online grocer
market share and reaching for more was not the
best approach, knowing about huge competitors
always staying a step behind.
“Convenience is increasingly important to our
customers and we believe that offering new ways to
order and a wider range of products will be really
popular with our customers.” - Andrew Higginson,
Finance and Strategy Director.
This new strategy was not frightening and Tesco
took the risk to sell non-food items like furniture.
Creating Value: Economics Of Internet-based
Commerce
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The most value that is being created by
Tesco non-food online selling is the benefit of
convenience. Online shopping can save time
and energy and even money for customer.
By offering products on the internet it can
cut the transaction costs, labor costs and
increase market efficiency.
Tesco is known for low prices so the Internet
can make those prices even cheaper and
create more value for the consumer.
Capturing Value: Market Structure and
Competition
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Tesco’s strategy is very similar to “winnertakes-all” approach, where DSIR is very
important.
In UK’s food market one single company
such as Tesco dominates in all areas – offline
and online.
Tesco is also trying to capture the value by
having loyalty programs, membership cards
and special offers on its website.
By being known as one of the low price
online retailer, Tesco is also capturing value
through pricing.
Creating and Capturing Value in the
Supply Chain
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Tesco did not have to change its supply chain
due to its new strategy, but more of expand
its capacity and workforce.
Because company already had online channel
for food, it was not extremely difficult to
extend this line and offer non-food products.
Tesco defined customer needs and expanded
the range of products offered online and
fulfilled those needs.
This new expansion of product line improved
existing supply chain without making drastic
changes.