Tesco: Encyclopedia II – Tesco – Corporate strategy Tesco – 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. % share of the grocery market according to retail analysts TNS Superpanel, compared to the 16. 8% share of Wal-Mart-owned ASDA 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 itsaspiration to appeal to upper, medium and low income customers in the 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 adandoned since losing the no. 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”ranges. 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 he overall profit than it does for branded producs. • Customer focus: Sir Terry Leahy, chief executive since the mid1990s, 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. It remains to be seen whether Tesco will be able to maintain this focus now that it is widely perceived as a great corporate success story and the dominant company in the United Kingdom retail market, or if it will succumb to corporate arrogance as sometimes happens to dominant companies. • Diversification: The company has a four-pronged strategy: o “Core UK business” – That is, grocery retailing in itshome 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. o “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 consumerelectronics 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. o “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. o “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, rather than on mature markets such as Western Europe and 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 Expressconvenience stores both operate in several markets. Overall Tesco’s success is probably based mainly on getting the basics of retailing right slightly more often than most of its rivals.