Tesco - Losing Ground in the UK
Case Code: BSTR421
Case Length: 19 Pages
Pub Date: 2013
Teaching Note: Not Available
Organization: Tesco Plc.
Themes: Business Strategy, Business Environment
Abstract Case Intro 1 Case Intro 2 Excerpts
Tesco, the third largest retailer in the world as of 2012, was founded in the UK in 1919. The company was a pioneer in introducing stores in different formats, including out of the town hypermarkets and superstores. While making its mark in the UK market, the company also ventured into several international markets and was among the top retailers in several of those markets. Tesco went on to become the largest retailer in the UK, accounting for almost 30% of the market share, leaving competitors like Asda and Sainsbury's far behind. The UK was the most important market for Tesco, accounting for almost two thirds of the company's total revenues.
Over the years, Tesco concentrated on developing its non-food items business, where the margins were higher, and on international markets. In the process, its focus shifted from its core business, the UK food business. Meanwhile, competitors were revamping their stores, and introducing several new and high quality products to attract customers. The customers started to complain that Tesco's stores were dull and clinical, and that the shelves were empty. They also complained that customer service at Tesco was very poor. Customers who demanded quality and value moved to competitors.
Tesco began to feel the impact when it had to face a tough retail environment in the UK brought on by the worsening economic conditions in the wake of the recession. In the first quarter of 2009, UK was officially declared to be under recession. Rising oil prices only added to the woes of the customers, who curtailed spending on non-essential items. Looking to save on their grocery shopping, customers opted to shop at hard discounters like Aldi and Lidl. At around the same time, Terry Leahy, who had been at the helm of affairs at Tesco for over 14 years and had been instrumental in placing Tesco among the largest retailers in the world, retired from the company.
The new leader, Philip Clarke (Clarke), inherited a company whose UK operations were crumbling. Though the sales and revenues were increasing, the same store sales had started to show a decline. By August 2011, the company's performance in the UK was the worst in two decades, with same store sales falling by 0.9%. Clarke tried to revive the business by announcing price cuts amounting to £ 500 million. However, customers complained that their weekly grocery bill for shopping at Tesco had increased after the price cut and started shunning the stores. So Tesco did not perform up to expectations during the Christmas / New Year season in 2011-12, and it was forced to issue a profit warning. The investors reacted sharply to the news and the share price fell by 15.9%.
In order to revive the fortunes of the company, Clarke announced a six-pronged program in April 2012, with the focus on improving stores and customer service; revamping the range and quality of products; going slow on developing large stores and concentrating on smaller stores; introducing better prices; developing the dot com business further; and coming up with a new marketing plan to take Tesco closer to the customers.
Tesco started several programs in the direction of implementing the strategy. Though some of the analysts felt that Tesco was moving in the right direction under the leadership of Clarke, others were not so sure about the company's ability to regain its lost glory.
The case is structured to achieve the following teaching objectives:
- Understand the strategies of a market leader
- Learn the macro-economic impact on business operations
- Examine the role of leadership in the organization - Transactional Vs Transformational
- Scrutinize the impact of the external environment on business
- Understand how competitors' strategies impact business decisions
Trouble in Store
New Leader, New Challenges
Plans to Regain Momentum
Build a Better Tesco
Will Tesco be Better?
Tesco, UK, retail, recession, hard discounters, Philip Clarke, revival, Terry Leahy, product strategy, customer service, same store sales
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