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7/28/2019 7532969-tesco-case-study-111010225655-phpapp01

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TescoBy Gediminas Sumyla


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Company overview

Tesco is known as a food retail leader in UnitedKingdom and Ireland. Companys annual online salesexceeded $5 billion and Tesco.com is recognized asthe worlds largest online grocer, with a customer

base of little less than 1 million and more than250,000 orders completed a week.

Company has nearly 1,900 vans that operate andabout 300 stores and 9,000 pickers. Tesco.com 2006sales grew up strongly by 29.2%.

Tesco dominated in offline and online grocerymarket and was looking for other areas to expand.

Our market share of UK retailing is 12.5% - thatleaves 87.5% to go after Terry Leahy, CEO


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Management team

Terry Leahy CEO, joined Tesco in 1979 and held a number ofmarketing and commercial positions prior to being appointed to theBoard of Tesco PLC on 5 October 1992.

Tim Mason - President and Chief Executive Officer Fresh & EasyNeighborhood Market.He was appointed to the Board on 16 February1995. He joined Tesco in 1982 and has been President of our USoperations since 2006

Andrew Higginson - Finance and Strategy Director. He is a member ofthe 100 Group of Finance Directors, Chairman of Tesco PersonalFinance and a Non-executive Director of BSkyB PLC. He is alsoresponsible for retailing services, including tesco.com, TescoTelecoms and Tesco Direct.

Phillip Clarke is International and IT Director. Prior to hisappointment he held a number of roles in store operations,commercial and marketing. He is a Non-executive Director ofWhitbread PLC. He was responsible for technological part of theTesco.com.


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Competitors

Asda owned by US corporation Wal-Mart since 1999, is theonly supermarket with the potential to become a thorn in theside for Tesco. Wal-Mart is the biggest food chain in the worldand has annual sales eight times bigger than Tescos. Asda'sGeorge range of clothing is the best selling brand in the UK andcompany is thinking about acquiring Matalan, the giantdiscount clothing and home furnishing store.

Sainsburys was the UK's biggest grocer until 1995, but wasrecently relegated to third position behind Tesco and Asda.Despite the fact that company has been struggling lately it isstarting to get back on track. Despite predictions thatSainsbury's would regain second position and a narrowing ofASDA's lead in recent months, the latest figures released byTaylor Nelson Sofres show Asda's share as 16.6% compared toSainsbury's at 16.22%.


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History

1919 Jack Cohen founded Tesco, when he began to sellsurplus groceries from a stall in the East End of London. Hisfirst days 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.comhome shopping model to the US.

2002Tesco launches its exclusive clothing brand Cherokeeinto many of its UK stores.

2004 - Tesco.com becomes first major British supermarket toenter music download market.

2005 Tesco announces annual profits of 2 billion. 2005 Tesco announces non-food store trial.


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Challenges

Despite the fact that Tesco has a 27% of marketshare, competitors are always one step behind.

With having all of these huge grocer giants that haveonline delivery services as well as offline retail

stores, market was packed and there was anopportunity 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 succeedwithout having huge expenses. Previous attempts tosucceed in online selling market for goods likefurniture failed because of the inconvenience andcost of shipping and handling.


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Strategy

So Tesco.com finally launched it new online initiativecalled Tesco Direct.

This new concept brings non-food offers to millionsof 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 anew website or from a new catalogue and then order

in one of three easy ways: online, by phone or inselected stores at the new Tesco Direct desks.

Customers have option for the products to bedelivered or picked up in a selected local stores.


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Technological drivers of change

UK internet penetration as of 2007 was almost 64%and Irelands internet penetration is almost 51%.These results make a clear statement for new andemerging online shopping market.

Tesco.com captured the possible online grocermarket share and reaching for more was not thebest approach, knowing about huge competitorsalways staying a step behind.

Convenience is increasingly important to ourcustomers and we believe that offering new ways toorder and a wider range of products will be reallypopular with our customers.- Andrew Higginson,Finance and Strategy Director.

This new strategy was not frightening and Tescotook the risk to sell non-food items like furniture.


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Creating Value: Economics Of Internet-basedCommerce

The most value that is being created byTesco non-food online selling is the benefit ofconvenience. 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 andincrease market efficiency.

Tesco is known for low prices so the Internetcan make those prices even cheaper andcreate more value for the consumer.


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Capturing Value: Market Structure and

Competition

Tescos strategy is very similar to winner-takes-all approach, where DSIR is veryimportant.

In UKs food market one single companysuch as Tesco dominates in all areas offlineand online.

Tesco is also trying to capture the value byhaving 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 valuethrough pricing.


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Creating and Capturing Value in theSupply Chain

Tesco did not have to change its supplychain due to its new strategy, but more ofexpand its capacity and workforce.

Because company already had online channelfor food, it was not extremely difficult toextend this line and offer non-food products.

Tesco defined customer needs and expandedthe range of products offered online and

fulfilled those needs. This new expansion of product line improved

existing supply chain without making drasticchanges.

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