Tesco - Losing Ground in the UK?

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Case Details:

Case Code : BSTR421
Case Length : 19 Pages
Period : 2006-2012
Pub Date : 2013
Teaching Note :Not Available
Organization : Tesco Plc.
Industry : Retail
Countries : UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Tesco was founded by Jack Cohen in 1919 as a single East End Grocery store in Well Street. By 1939, it had around 100 stores across the United Kingdom. In 1947, Tesco Stores (Holdings) Limited was floated on the Stock Exchange with a share price of 25 pence and the first supermarket4 was opened in 1956 in Maldon, Essex. The first Tesco superstore 5, with an area of 90,000 square feet, was opened in 1967. Tesco diversified into operating petrol pumps in 1974. By 1979, the company's turnover had reached 1 billion, while by 1982, sales had surpassed the 2 billion mark. In 1982 the company started expanding outside the UK and entered Ireland. 6

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In 1985, Ian MacLaurin (Laurin) became the first CEO of Tesco from outside the Cohen family. Laurin realized the need for streamlining Tesco's operations. He closed down most of the smaller stores and was instrumental in starting several large stores of above 30,000 square feet in the suburbs.

In the 1990s, Tesco introduced several customer-centric products and services such as 'One in Front,'7 a loyalty card 8, grocery home shopping, and Tesco personal finance. At that time, it entered France9 and Scotland. In 1995, Tesco had become the largest retailer in the UK.

In 1997, Terry Leahy (Leahy) became the CEO of Tesco. Under Leahy's leadership, Tesco grew rapidly in the international markets and also expanded its product range and services. Leahy was instrumental in introducing private labels and non-food products including clothing, Tesco's different formats10 helped it script a story of success in the UK. In the fiscal year ending February 2009, Tesco posted a profit of 3 billion, which was the highest profit ever recorded by a British retailer. Under Leahy's leadership, Tesco was poised to become the second largest retailer in the world ahead of Carrefour by the second half of 2012.

In March 2011, Leahy retired. He said, "It is important as a CEO to know when is the right time to go, and when I came into this job 14 years ago I had a plan. That plan was to become number one in the UK and to use that strong platform then to go into long-term growth opportunities in non-food, services, and international expansion." 11

Excerpts - Next Page>>

4] A supermarket is a store that sells a wide variety of food. Most supermarkets also sell a variety of other household products that are consumed regularly, such as household cleaning products, medicines, and clothes.
5] A superstore is a superlative name for a large department store. Usually associated with large chains, a superstore sells a wide range of products from toys and electronics to clothing and groceries and even furniture, sporting goods, and automotive supplies.
6] Tesco exited Ireland in 1986.
7] Under the 'One in front' scheme, Tesco store personnel ensured that if there was more than one person at any counter, another counter would be opened for the person second in line. This way, no customer would have to wait at the check-out counters.
8] Loyalty cards are a part of 'loyalty programs,' which aim to retain customers. These cards reward customers when they make purchases from the company in the form of points that accumulate over time. These points can later be redeemed for cash/gifts/discounts. Thus, they provide incentives to customers for being loyal to the stores of a particular company.
9] Tesco exited France in 1997.
10] Tesco operated through different store formats - Express (up to 3000 sq ft), Metro (7000 - 15000 sq ft) Superstore (20000-50000 sq ft), Extra (>60000 sq ft), Homeplus (35000 - 50000 sq ft) - non-food stores, One Stop (<3,000 ft), Dobbie Garden Center (Garden Stores).
11] James Thompson, "Tesco CEO Leahy: Supermarket Star Retires," www.businessweek.com, June 09, 2010.

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