A Report of Tesco Plc International Activities

Tim Ward William McLaughlin Gary Mullan Stephen Douthart Ryan McQuillan

Tesco Chronology

1919
1924 1970s 1998

Founded in East End market stall by Jack Cohen. Partnership with TE Stockwell, Tesco was born. Tesco equated with taking a headlong decline. Became the leading food retailer, most admired retailer, most admired company in the UK.

Rise to Leadership in the UK

Asset portfolio:370 superstores (20,000 sq.ft & above)

Human Legacy:Only UK corporate not to lose a single executive main board dir. Corporate culture:Years of pursuing Sainsburys taught them never to rest on its laurels.

Rise to Leadership in the UK

Steering wheel philosophy:
Customer, staff, management, shareholders all four interested parties in business have an equal role to play and deserve an equal share of the rewards. Tesco is now the UKs largest supermarket and hypermarket operator.

Tesco Firsts

First
First

First First

nationwide superstore loyalty scheme with Clubcard. retailer to introduce automated replenishment system. to offer widespread 24 hour shopping. to offer unbeatable value and weve cut prices again 100 million price cuts. Every little helps.

Tescos Activities in the UK

Food retailing- 729 stores Non-food retailing- including clothing, electrical, music &books Online retailing Financial services- loans, credit cards, insurance Petrol retailing- 339 petrol stations on Tesco sites, plus 90 Tesco Express stores on site

Table 3: Selected Leading UK Supermarkets and Superstores by Market Share by Value (%), 2001

Tesco PLC J Sainsbury PLC ASDA Group Ltd Safeway PLC The Big Food Group PLC Somerfield PLC Wm Morrison Supermarkets PLC Marks and Spencer PLC Waitrose Ltd Other Total

28 21 12 10 6 6 5 4 3 6 100

Tesco Growth Strategy

Tesco continues to pursue a successful growth strategy based on 4 key principles.

1. 2. 3. 4 Maintaining a strong core UK business. Becoming as strong in non-food sales as in food. Growing internationally. Moving into retailing services such as online shopping.

The Expansion of Tesco into Asia

Asian Countries that Tesco have Expanded to.

Taiwan South Korea Thailand Malaysia

Tesco entered Taiwan in 2000.

Tesco planned to open in June 2001.

By Acquiring Mackro Asia they were able to enter in December of 2000. By 2005 they plan to have 20 stores in Taiwan.

Tesco in Taiwan.

In a drive to build sales and traffic in its Taiwan stores, UK grocery operator Tesco has promised to further push down prices. An announcement which was sure to provoke a price war. Tesco offer more value lines targeting specific customer segments. The company is also expanding its "Made in Taiwan" value line with everyday products such as detergents and instant coffee mixes.

Tesco entered Malaysia in 2002

A joint-venture agreement signing between British retail group Tesco Ltd and Sime Darby Bhd to form Tesco Stores Malaysia. Tesco Ltd would hold a 70% stake in Tesco Stores Malaysia, and Sime the remaining 30%.

Tesco in Malaysia

There will be 50,000 product lines, including more than 1,000 Tesco-owned branded products
Tesco branded items will be imported, but eventually, the company hopes to source most of them locally. Like any typical Tesco store, the Malaysian outlets will carry roughly 60% food items, and 40% nonfood products.

Tesco in Malaysia

Tesco Stores Malaysia could start reaping between 15% and 20% return on its capital in three years time. Tesco
Malaysia chief executive officer Simon Turner

Sime Darby Malaysia regional director Jafar Carrim said Tescos investment in Malaysia, reflects its confidence in the retail business in Malaysia.

Tesco entered South Korea in 1999

Tesco currently controls a joint venture with Samsung and also operates supermarket chain Homeplus.
Homeplus Youngdeungpo store took over 1.1 million on opening day, a world record for Tesco. Samsung Tesco won numerous awards, including the Corporate Culture Award for the second consecutive year. They are already profitable, a year ahead of schedule, and see South Korea as a good opportunity for growth.

Tesco in South Korea

Tesco's new store in Youngdeungpo, south-west Seoul, bares little resemblance to any of the UK company's domestic supermarkets. "It would have been totally wrong to import the sterile shopping environment of a Tesco in [a regional British town such as] Skipton, Bridgend or Watford,"Eric Bowen,
chief operating officer of Tesco's 14 South Korean outlets

Tesco in South Korea

Lee Sang-koo, analyst at Hyundai Securities, confirms that Tesco has localised its service better than western rivals.

Tesco entered Thailand in 1998

Tesco Lotus is a joint venture between Tesco of the UK and CP Group, Thailand's largest agribusiness group. By the end of 2003, Tesco's local investment would total 600 million and it would have 40 stores.

Tesco in Thailand

Tesco Lotus has about 31 percent of the market.

Sales in 2002 exceeded by some margin the overall figure for 2001 - 686 million pounds ($1.07 billion).

Tesco first entered Ireland in 1978.

Aided by the Irish Government.

Bought 51% Of Albert Gubays Three Guys for 4M Divested Irish operations to local H Williams supermarket for 17M.

Sold with cumulative losses amounting to IR6 M in 1986.

Tesco Ireland
When? Tesco Ireland was formed in 1997 following the acquisition of Power Supermarkets Ltd (Quinnsworth/Crazy Prices). How they are doing? 76 stores nationwide. 1.7 million sq.ft of sales area 10,200 employees Planning to open a further 4 stores Why they moved to Ireland? By taking over Quinnsworth/Crazy Prices they became the largest food retailer in Ireland. They had the greatest market share.

Tesco in Poland

When? Tesco first moved into Poland into 1995, buying the Savia chain and opened its first hypermarket there in 1998.

How they are doing. 47 Polish stores including 15 hypermarkets Employs 9,000 staff in Poland, only 11 of which are nonnationals. 1n 2002 bought Polish hypermarket chain called HIT for around 410 million

Tesco in Poland
Why they moved into Poland?

The fragmented market and fast growing structure of the Polish retailing market is the main attraction to foreign investors eager to exploit profitable opportunities. In addition, the liberalisation policies, the political framework and government incentives play a role. (Pearce, 1999)

Tesco in Hungary

When? In 1994 Tesco bought a 57% stake for 15 million in the supermarket chain Global, which owns 41 stores in Western Hungary, these subsequently became known as Tesco-Global Rt, with Tescos share rising to 99%in 2000.

How they are doing. 48 stores. Employs 8,000 people. Plans to open a further six stores in next 12 months. Serves up to 1 million customers every week.

Tesco in Hungary contd

In 2000, 6 years later after entry Tesco made a profit for the first time, although having revenues double year on year since they moved into Hungary. Tescos is operating 21 hypermarkets throughout Hungary and opens between 4 and 6 hypermarkets each year.

Why they moved? Tesco chose to enter the Hungarian market as it provided the growth rates and the demographics that it desired.

Tesco in the Czech Republic

When? Acquired K-Marts stores in 1996 along with stores in Slovakia. In 1997, Tesco had a majority interest in six large department stores and four hypermarkets, and was the largest foreign retailer in the Czech republic. How they are doing. They currently have fifteen stores and plan to open a further 3 stores in the next 12 months. Opened Czech Republics largest hypermarket in Prague on 29/10/98. Tesco has six supermarkets (average sales area 1,500 sqm) located throughout the Czech Republic.

Tesco in Czech Republic contd

They

have 2 state of the art hypermarkets (100,000sqm) in Prague and Brno In 1998, Tesco had a turnover of 6billion, which corresponds to 4% of the total Czech retail food market. Why they moved? The Czech Republic was seen as an under developed market. Collapse of Communism. Legal obstacles removed.

Tesco in Slovakia
When? In

1996 entered via acquisition of department stores. In 1999: first hypermarket opened. first Slovak hypermarket director Tesco becomes market leader in Slovakia Introduction of Tesco own brand
How

they are doing. In 2001 Tesco moves into profit and they have hypermarkets and five department stores across Slovakia.

Tescos in Slovakia Contd

In 2002 there was the introduction of the permanently low price program and 4 new hypermarkets were planned.

Why? Slovakia was seen as an underdeveloped market. Collapse of Communism. Legal obstacles removed.

Problems in Europe
Retailing is a very localised concept and you need to be very sensitive to local tastes and habits Steve Woolf, retail analyst at Paribus

In June 1993, Tesco bought 7 Hypermarkets and 95 Supermarkets in France from French Food Chain, Catteau for 150 million By February 1998, they had sold it to Promodes SA for 250 million

Reasons For Tescos Divestiture

Through applying the Tesco Formula that had worked so well in the UK, came up against protectionist policies by the French Government It was unable to increase its market share due to restrictions on out-town store expansions.

They were also unable to adapt their own brands products to local tastes
Ultimately they felt it wasnt a suitable springboard for further expansion into Europe

Weaknesses on Entering Ireland

Timing Home

was wrong.

market was not strong enough.

Immature

given structural capacity for expansion.

not a priority.

Internationalisation was

Problems that lead to Tescos Divestment in Ireland

Seen as extension of U.K. Did not engage with local suppliers. Built on edge of town locations. Failure in integrating Tesco own brand. Price Wars Trading Losses in 79/80 1.3M Small market share in comparison to competition. 1986 Tesco peaked with 10%, compared to Dunnes Stores 22%, Quinnseworth 20%.

Recent Problems in Ireland

The Union Mandate have criticised them in the press being the lowest payers in Irish retail Trade
Mandate and Bertie Ahern have denounced Tescos plans for 24 hours stores, stating that it isnt something the public will demand, plus they are unwilling to raise safety and security issues with reference to young female workers. In 2002 they have also been charged with collusion for fixing the prices of milk and dairy products

Problems in the Czech Republic and Hungary

The concept of customer loyalty is still a very alien term in these countries, Consumers will go where they believe will be cheapest.
Greenpeace activist have billboarded poster and gave out flyers reading Tesco is feeding us with what they dont want in their livestock in England . The activists are wanting to point out Tescos double policy who refuse to sell GM foods in Britain but continue to do so in the Czech Republic and in Hungary. Growth was slow and Frustrating. It wasnt until 2 years later after entry, that Tesco established its first Hypermarket.

Problems in Slovakia

Consumers want national products on offer to reflect national identity.

They must establish good and long-term relationships with local producers, and are scrutinised by government officials more than if they were back in the U.K.

Problems In Poland
Tesco has entered a very competitive market with excess
competition.

Local retailers have responded by bringing together networks of smaller stores into co-operative purchasing organisations from local suppliers.

The rise in unemployment, high interest rates and inflation has depressed consumer spending.

Polish shoppers prefer to shop in city-centre locations.

Problems in Poland continued

Complicated land ownership issues as one of the big challenges for future retail development by the government still owning much downtown property. Bad press on issues for high quality, full-time employment.
A new law, still to be agreed, may give local retailers in Poland a say in what goods new hypermarkets can sell.

Problems in Asia
Thailand small traders are billboarding their towns and cities (e.g. Bangkok and Chanthaburi) The Billboards read A planned Tesco PLC shopping center nearby will destroy local Retailers Thailand government have sided with local retailers and are currently drafting laws. Malaysia have also halted its approvals of large Hypermarkets. Charged by Thailand's Commerce Ministry for selling goods below cost. In 2002 three stores where bombed through grenade attacks from local retailers and Anti-Western Extremists

Tesco: More Than Just a UK Food Retailer

Tesco is seen as one of the coming pan-European, even global food retailers.
Tesco is no longer competing against just Sainsbury but retailers Wal-Mart, Carrefour, Ahold & Auchan. These are world leaders not just UK leaders.

Tesco goes Global

We play our international cards as best as possible by focusing on emerging growth markets.We must find the right way to enter. The Tesco formula of putting customers first and not taking them for granted is retailing at its best, and should work whether it is applied in Budapest or Belfast.

Tesco Goes Global

International expansion policy:

The strategy is vintage Tesco; by showing a degree of flexibility, the company can carve out a competitive edge in terms of size, location, and the range of goods on offer. The challenge is for Tesco to carry on its original Tesco formula, which has proved to be a winner in the UK and to balance it with enough regional touches to appeal to local communities.

We must be the best, must set high standards for ourselves. This is difficult when you become number one in the UK. Tescos people are better at the bottom looking up than being on the top. Therefore focusing on world competition sets a new standard and puts us at the bottom again, where we are at our strongest. Ted Leahly