RETAIL MANAGEMENT

ASSIGNMENT

TESCO

SUCCESS AND FAILURES IN RETAIL

SUBMITTED BY:

HIMANSHU AHUJA – 22065

MOUSUMI MAZUMDAR- 22068

MOHIT KHUNTIA- 22043

PREETI- 22048

HARPREET DEOGUN- 22037

RAM MOHAN U – 22023

ABOUT TESCO:

Tesco PLC is a British multinational grocery and general merchandise retailer headquartered

in Cheshunt, Hertfordshire, England, United Kingdom. It is the third largest retailer in the world

measured by profits and second-largest retailer in the world measured by revenues. It has stores

in 12 countries across Asia and Europe and is the grocery market leader in the UK (where it has

a market share of around 28.4%), Ireland, Hungary, Malaysia, and Thailand.

Tesco Stores Ltd. is the subsidiary of Tesco PLC in the United Kingdom. Tesco's UK operation

is divided into six formats, differentiated by size and the range of products sold.

1. Tesco Extra

2. Tesco Superstores

3. Tesco Metro

4. Tesco Express

5. One Stop

6. Tesco Homeplus

7. Dobbies

1. TESCO’S SUCCESS IN SOUTH KOREA:

In 2011, when domestic sales of the UK's retail giant Tesco slumped, it fell back on its second-

largest market, Asia, which accounted for 30 per cent of its total profit. Tesco's success in Asia,

and specifically in South Korea - currently its largest market outside the UK - is based on its

ability to adapt to the local consumer.

Tesco's expansion into Asia has been an important focus for the company since the late 1990s.

Following its acquisition of Thailand's Lotus in May 1998, the company announced a 142-

million investment in South Korea in March 1999 by partnering with Samsung to develop

hypermarkets.

Through its tie-up with Samsung, Tesco made a localisation effort to adapt its Homeplus stores

to the local consumer.

Understanding the Consumer

South Korea, a country of around 50 million people, is the fourth-largest economy in Asia and

the 12th largest in the world. Compared to other Asian countries, South Koreans generally have

higher levels of education, higher average household income, and better living standards. Over

the past few decades, the country has built itself up with its largest resource - people - and has

achieved rapid economic growth through exports of manufactured goods. It is now a major

producer of automobiles, electronics, steel and high-technology products such as digital

monitors, mobile phones, and semiconductors.

Over the past decade, South Korea has advanced tremendously and has been shaped by constant

innovation, technology and westernisation.

In today's world, shopping habits and behaviour of South Korean consumers are impacted by

several key factors.

Extensive use of technology/connectivity: According to a report by McKinsey & Co., South

Korea is one of the most advanced countries in terms of broadband penetration, and has more

than 10 million smartphone users. In other words, one in five South Koreans use a smartphone.

Additionally, according to Nielsen, households in South Korea are making six per cent fewer

shopping trips. When they do shop for products, an increasing number of South Koreans go

online.

Long working hours/busy lifestyle: Although the average annual hours worked per person in

South Korea is declining, the country still comes out top among OECD countries with 2,193

hours. This is perhaps unsurprising, as the work ethic and lifestyle of South Koreans get shaped

at a young age. According to the BBC, South Korean parents spend thousands of pounds a year

on after-school tuition on an industrial scale. There are just under 100,000 hagwons or private

academies in South Korea and around three-quarters of Korean children attend them.

Travel time on public transportation: South Koreans spend a significant amount of time on

public transportation, predominantly between home and work. What has helped is that public

transportation is reliable and inexpensive, and is the fastest and most efficient way to get around.

The introduction of Tesco's virtual stores in subways made use of time spent by commuters

waiting for public transportation, allowing buyers to use the little time they have available for

grocery shopping. Not only did this change the way buyers shopped, it also increased the

potential market for Tesco. These buyers may not have otherwise had time to go grocery

shopping between their personal and professional lives, opting to buy take-out instead.

All of this implies that grocery customers in South Korea are more time-poor and less price-

sensitive. They value convenience and technology to accommodate their busy lifestyle.

Tesco's Value Proposition

Globally, Tesco's customers are price-driven buyers who look for value and/or convenience.

According to its corporate website, Tesco's customers care about the following areas:

(1) price and value

(2) multichannel and convenience, and

(3) trust.

Typically, therefore, the company's value proposition is to provide customers with the products

that they want at a low price. Tesco executes this proposition through multiple channels,

including hypermarkets, grocery stores, convenience stores and online. When Tesco first entered

South Korea, it offered this value proposition for the local customer: to provide the variety of

products that the South Korean customer wants at a low cost in a beautiful store environment.

As the economy progressed and South Koreans invested more time and money into their careers

and high-tech devices, Tesco adapted its value proposition to fit its on-the-go customers. By

introducing the virtual store, Tesco Homeplus is able to execute its new localised value

proposition: provide the variety of products that the customer wants in a convenient location and

at a low cost.

In South Korea, it can be argued that Tesco's customer values multichannel options (for example,

online and mobile), and convenience much more than price. According to a March 2013 research

from MasterCard, around 40 per cent of online shoppers in South Korea used their smartphones

to make a purchase in the previous three months.

2. TESCO’S SUCCESS IN THAILAND:

Tesco Lotus, the Thai subsidiary, was the first western supermarket to set up in the country 12

years ago. A policy of aggressive expansion has made it Thailand‟s leading grocery retailer, with

revenues of £2.34bn in 2009.

For western visitors, the Tesco Lotus experience is familiar yet strange, with durian, dragon fruit

and guava where one might find strawberries and plums in the west, a connoisseur‟s selection of

chilli varieties and 34 types of rice, a dozen of them own-brand.

The recipe has struck a chord with Thai consumers: Tesco now controls 12.7 per cent of

Thailand‟s grocery market.

“There is still a lot of the informal market out there that they can take over,” says David Beller,

head of research for Asia Plus Securities in Bangkok.

Thais are migrating from traditional markets to so-called “modern stores” – hypermarkets,

supermarkets and convenience stores – as the country develops.

As the number of double-income earning families grows across the country, as wealth starts to

grow, then convenience will become more important in the lifestyle of consumers, and if

convenience becomes more important, then they are more likely to find modern trade the right

solution to their lifestyle challenges

Thailand, with gross national income of $3,760 (£2,365) a head, is expected to grow 7 per cent

this year, although that is expected to fall to 4 per cent in 2011 as export demand, the economy‟s

key driver, slows.

But exports are growing in at least one area: British consumers are getting a taste for Thai fruit.

Mr Bush expects Tesco Lotus‟s exports to grow 10 per cent this year from Bt11.7bn (£246m) in

2009.But not all aspects of Tesco Lotus‟s expansion are going smoothly. Last week, the

company lost out to Casino, the French supermarket operator that majority owns the Big C brand

in Thailand, in the auction for Carrefour‟s 42 Thai stores. Casino paid €868m (£742m).

The amalgamation of Big C, Thailand‟s second-largest supermarket operator, and Carrefour, the

fourth largest, will give the combined entity 31 per cent of the country‟s supermarket trade, still

short of Tesco Lotus‟s 40.4 per cent. Tesco declined to discuss the auction beyond saying that

the company was “well-known not to overpay”.

Analysts say that in spite of losing the auction, the merger could be good for Tesco. It will take

time for Big C to integrate the new stores, allowing Tesco to expand into new areas and, in the

longer term, Tesco could also benefit from a consolidated market.

“With only one other competitor, some of the pressure will be taken off pricing,” Mr Beller said.

Tesco has been expanding aggressively, going from 219 stores at the end of 2006 to 704 last

June, including 117 hypermarkets. The company intends to open another 69 stores in the second

half of this year.

The company is looking to organic expansion, especially of its Express convenience store brand,

which has 588 outlets.

The market-leading convenience store franchise 7-Eleven, owned by Thailand‟s Charoen

Pokphand, has more than 5,600 stores.

Philip Clarke, who will succeed Sir Terry Leahy as Tesco chief executive next year, has said he

wants to use a franchise model to expand the number of convenience stores globally, but Mr

Bush said he has no immediate plans to start franchising.

3. TESCO’S FAILURE IN U.S.A:

Research draws attention to Tesco‟s lack of cultural adaption, generic marketing techniques and

low-level customer service leading to Tesco‟s failed US venture. Further studies reveal that

consumer demand for Tesco‟s small format stores was minimal and that mass losses ultimately

led to Tesco‟s withdrawal from the US. The report concludes that Tesco was set to struggle from

the outset given the mismatch of US consumer demands and its small-format supermarkets.

Introduction

Tesco‟s venture into the US with „Fresh & Easy‟ was anything but what the name suggests.

Limited cultural adaptation, minimalistic marketing strategies and poor customer service meant

that Fresh & Easy struggled to access profits from the $400 billion US grocery industry .Tesco

first reported losses of £142 million in April 2009, only 17 months after opening its first store.

Over a six-year period Fresh & Easy continued to accrue losses totalling $1.8 billion before

announcing intentions to exit the US market. Tesco agreed the sale of its Fresh & Easy stores to

Yucaipa in September 2013, putting an end to its US venture.

Factors contributing to the failure of Tesco’s US venture

Tesco‟s failure in the US market can be attributed to four main areas: entry strategy, risk

assessment, market analysis and human resource management.

1. Entry Strategy

In the past, Tesco approached its transnational ventures with great cultural awareness and

sensitivity by adapting its operations to meet the demands and conditions of the local consumers.

When entering the US market, however, Tesco planned to „make others dance to its tune‟ with

small format stores that replicated the ever-popular Tesco Express stores of the . This initial

entry strategy failed to account for the cultural discrepancies that existed between British and

American consumers.

2. Risk Assessment

Tesco‟s risk assessment was also an area of weakness in its operations. The company

strategically targeted „food deserts,‟ areas positioned far away from large grocery retailers, in

Arizona, California and Nevada . Such locations, however, had been hit hard by the economic

recession and the collapse of the real estate market , thus increasing the inherent risk of the Fresh

& Easy venture.

3. Market Analysis

Tesco‟s analysis of the US grocery industry also failed to capture the importance placed on its

store image. In the US developing and maintaining a favourable store image is vital to establish

and improve a retailer‟s market . A favourable store image in the US can help retailers

differentiate from its competitors, increase its bargaining power and improve its overall profit

margins . Research shows that merchandising, store ambience and service, as well as marketing

attractiveness are key components that contribute to the consumers‟ perceived image of the

retailer .Despite intense research into US consumer purchases, Fresh & Easy‟s pre-packaged

produce and limited product selection failed to win over US consumers.

The use of self-checkout lanes and minimal levels of customer service proved to be „frustrating

and impersonal‟ for consumers that were otherwise used to full service . The Fresh & Easy brand

was weak with US consumers and its simple and generic marketing techniques did little to boost

its store image.

4. Human Resource Management

Tesco‟s management of personnel and human resources in the past has been one of its strongest

areas known for continuous development and good workforce relations. Fresh & Easy stores,

however, used self-service checkout systems only in an attempt to increase convenience and

limit labour costs. The absence of employees at traditional checkout lanes limited the company‟s

interaction with the customer, which made it difficult for Fresh & Easy employees to provide a

high level of customer service. During the Fresh & Easy venture, Tesco went through various

transitions of cultural adaptation in an attempt to draw a profit.

Conclusion

Fresh & Easy were set to struggle from the offset with supermarkets set up for the British

grocery industry but entering the US market. This lack of cultural adaptation required Fresh &

Easy to persuade American consumers to shop like Europeans, in order to succeed. The forced

use of self-service checkouts showed a clear lack of focus on customer service and did little to

help its perceived store image. Tesco‟s inability to market Fresh & Easy in a unique and

ambitious manner led consumers to its competitor‟s, while its overdue attempt to adjust to the

cultural demands of US consumers proved to be too little too late. Tesco, however, even failed to

replicate its successful operations of the UK when entering the US market. The lack of personal

service around stores and at checkout lanes, coupled with the limited amount of coupons, both

which Tesco is well acclaimed for in the UK, further drove away business . In cutting costs

through limited labour and simple marketing, Fresh & Easy attempted to draw profits without

providing the full extent of a retail service. Additionally, the gap that Tesco had spotted in the

market existed due to a lack of consumer demand. Therefore in targeting that market Fresh &

Easy was essentially already failing. An acceleration of expansion founded upon £464 million in

accrued losses and the great recession only accelerated the Fresh & Easy failure. Ultimately,

Tesco provided a cheap product with little cheer and much to be desired in Fresh & Easy.

5. TESCO’S FAILURE IN JAPAN:

Tesco may be the world‟s third-biggest retailer, but that doesn‟t make it immune to export

failure.The supermarket giant has made some embarrassing approaches to international business

and 2011-2012 has seen Tesco pull operations in Japan, and consider the same course of action

in the USA. This article looks into the apparent failures, and what went wrong.

Japan in Numbers:

– Revenue of only £476m last year

– Contributed less than 1% of group sales

– Made a loss of £5m on sales of £476m in 2010

What Went Wrong?

After only nine years, Tesco left the Japanese market in 2011. The supermarket giant said

Japan was a difficult country to trade in due to high costs, and that customer demands were

difficult to meet. Since 2004 the retailer invested around £250m in the Japan project, but

could not establish itself in the market. As The Guardian reports, Tsurakame

(the Japanese name for Tesco) only had a market share of 1% of the Japanese grocery

market. Tesco‟s explanation only tells part of the story, since they didn‟t appear to fully

consider the cultural differences between the UK and Japan.

Japan‟s culture is quite different to the UK. The country has many family-owned and long-

established grocery stores, which form a hub of the community, valued for the personal touch

they offer. Another cultural oversight relates to the fact Japanese customers prefer high

quality products and excellent service during their shopping experience. As Tesco stores tend

to be large in size, it‟s almost impossible to offer high levels of customer service to every

shopper. Although Japanese customers love to buy western products from Europe and the

USA, it is still important to present them in a way that will appeal to the Japanese mindset.

In 2011, only half of the 129 Tesco stores in Japan were profitable, prompting the decision to

cease trading there.

Should Tesco Have Stuck to What They Already Knew?

Investing in foreign markets can be profitable when thorough planning and research is

carried out. There are still risks, because each country has such specific sensitivities, and

understanding these cultural differences is key to international success.

The USA and Japan may be seen as quite similar in culture to the UK but as Tesco

discovered, their supermarket buying habits are sometimes very different.

When Tesco decided to expand into Japan and the USA on its own, it made assumptions

about those markets which ended up costing a lot of money. Had they partnered with

respected brands and shared market knowledge, or hired in the right expertise, perhaps they

would have been more successful.