The Success Story of Tesco
When Jack Cohen started selling groceries from a stall close to London in 1919, he might not have realized what success story he was about to create (Tesco, 2012). Hard to believe, but this was the foundation of Tesco as we know it today. Tesco has become one of the leading food retailers in the world with a revenue of more than 60 billion pounds and a global workforce of around 490.000 employees in 2011. There have been various factors that have had major impact on the company including the Second World War as well as the United Kingdom entering the European Union. These influences can be broken up into social, economical, legal and political. Additionally there has been another element of Tesco, which made the company unique and attributed majorly to its success: Its growth strategies. These will be analyzed with 'Ansoffs Matrix'.
[Abbildung in dieser Leseprobe nicht enthalten]Tesco has enjoyed great benefits from the corporations between countries forming free-trade areas and customs unions such as the European Union (Gupta & Randhawa, 2008:127). The entry in the EU has given Tesco access to the European market and has made it significantly easier for the company to operate in Europe. The diagram demonstrates that the member countries (A,B,C) of a customs union, like the European Union, trade freely amongst each other. It shows that Tesco has been able to trade and set up in EU-member countries with no barriers. Since 1994 Tesco has been spreading across Central Europe including the Czech, Slovak and Polish markets. This gave the company higher levels of certainty and the company has gained additional knowledge by operating in these new countries. "Our experience operating in Central Europe is reflected in the design and operation of our UK Extra stores" shows the knowledge transfer (Gupta & Randhawa, 2008:128). During the 1970s Britain became the "sick man of Europe" and so the country decided to join the EU in 1973 and adopted many new policies. Markets were deregulated and trade union power was greatly reduced, which enabled Tesco to have a more flexible workforce (Flensted, Sibbernsen & Toft).
Globalization has been a key to the company's international success in that more countries all over the world have opened up for foreign direct investment (FDI). China started opening up for FDI in the 1980s and Tesco made 13 percent of its profit from China in 2010 (THE WORLD BANK, 2010), entering the country in 1999 (Steiner, 2010). Before Tesco started its market expansion overseas the company's sales amounted to around 2 billion pounds in 1982. In contrast, the annual revenue for 2011 has been more than 67 billion pounds illustrating the success of the overseas expansion in the period. Tesco has become a stable, crisis-proof business, because if one country, market or product was doing poorly it still benefited from other markets. Even during the financial crisis period in 2010, profit increased by 22 percent due to its strong international business (Haerifar, 2011:19).
Tesco went through very unstable times in its early days with the Great Depression in 1929 and the Second World War a few years later. During and after the Great Depression unemployment rates increased to more than 22% at its peak in 1932 and so people were very price conscious looking for the cheapest alternatives (Hicks & Allen, 1999). Tesco was the ideal retailer with its strategy of "pile it high, sell it cheap" and company was able to "take off (...) in the aftermath of the Great Depression" (Angwin, 2011). During the 1950s and 60s the economy started to grow again and GDP per capita was increasing by up to three percent annually. People's interest shifted to more convenient shopping and customers were willing to spend more, because of their rising disposable income. Tesco started building new, modern supermarkets, which attracted customers and sales increased rapidly. Tesco has been able to be successful in times of recessions and in times when the economy was flourishing.
In 1918 the first woman was elected to the House of Commons and this was the start of a change in social structures. Over the last century women have started entering the workforce enabling Tesco to hire "cheap female labour for services" (Fine, 1992:159). Fine (1992) describes the UK as being "dependent on a low-wage female workforce".
With man and woman working there was not enough time for the preparation of food and therefore precooked meal and frozen food became fashionable. This is an ad from 1960 promoting fish steaks (Delplanque, 2010). These items have a particularly high profit margin and Tesco was able to benefit greatly from this (Griffin, 2011). Additionally the "advent of the weekly shop" became a cultural norm made easier with the increasing usage of cars (Corporate Watch UK, 2004). Tesco set up huge out-of town shops, benefiting from increased economies of scale, selling a variety of products to its customers. "Customers saw supermarkets as a practical means of saving money" and were willing to drive out of town for a good bargain (Smith, 2007:266).
Technology has also impacted the company in various ways including the invention of the shopping cart. After 1950 the company introduced self-service stores, equipped with the newest technologies, reducing the labor costs of Tesco. Tesco's expansion would not have been as effective without the invention of price stamps on items and price tags, which greatly reduced its costs. Before, employees had to write down the prices by hand (Smith, 2007:266). Additionally the company introduced electronic point of sale systems, which reordered automatically reducing Tesco's warehouse costs considerably (Kew & Stretwick, 2005:18). These new technological advances reduced the company's cost and enabled the company to become price-leader. Technology enabled Tesco to investigate customer's buying behavior and target customers more effectively. Tesco launched its Clubcard in 1995 and research shows that there is a positive relationship between owning a Clubcard and loyalty to store (Turner and Wilson, 2006:958). Today there are more than 15 million club cardholders and "80% of total spending" is made using Tesco's loyalty card. "Probably the main factor in Tesco's success has been the commitment to use the data gained to drive the business" (Powell, 2004). These are just a few examples of how technology has significantly influenced the company's success. In 2001 the company launched "Tesco Online", which has become the most successful on-line grocery shopping service in the world. Via the Internet the company has been able to reach a variety of customers including "busy urban families to people in rural communities" increasing the company's sales revenue (Johnson, Scholes & Whittington, 2006:390).
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- Chris Obereder (Author), 2012, The Success Story of Tesco, Munich, GRIN Verlag, https://www.grin.com/document/210398