Tesco Marketing Analysis

Tesco Marketing Analysis

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INTRODUCTION

Tesco is one of the best known names in the high street. It is a large public limited company (plc) with approximately 165 000 shareholders. By 1995, Tesco had become the largest food retailer in the UK, overtaking Sainsbury's. The company operates over 800 stores throughout Europe.

BUSINESS OBJECTIVES

Tesco sets objectives for the four main areas of its business:

customers operations people (ie employees) shareholders.

Figure 1: The Tesco Steering Wheel



Page 5: Development of Tesco, Tesco's presence in Central Europe

After serving in the First World War, Jack Cohen used his savings and started selling groceries in Londonl East End markets. Tesco was founded in 1924. The name was based on the initials of T E Stockwell, a partner in a firm of tea suppliers, and the first two letters of Cohen. In 1929, the first store was opened in Edgware, North London. The business prospered and, in 1947, Tesco Stores (Holdings) Ltd was floated on the Stock Exchange. In 1956, the first self-service supermarket was opened. Apart ftom opening new stores, Tesco has expanded by taking over other businesses. For example, in 1992, it bought 57 William Low stores in Scotland and, in 1997, it purchased 109 stores in Northern Ireland and the Republic of Ireland ftom ABF pie.

Tesco is an ambitious company with plans to open more new stores in the United Kingdom (UK). However, in recent years, a major part of the firm's strategy has been to open stores in other European countries.



Page 6: Tesco's stores 1998, Opening a new Tesco store

Figure 3: Tescos Stores, 1998

stores Sales (£m)
Ireland 109 1028
France 103 644
Hungary 43 57
Poland 31 22
Czech Republic 6 84
Slovakia 7 61
United Kingdom 534 14640

OPENING A NEW TESCO STORE

Tesco's sales in Europe have risen steadily. Expansion into central European countries, such as those shown on the map in Figure 2, can be risky because sales might not be as high as expected. Average incomes and expenditure are lower in these countries, but have the potential to grow. The cost of a good site is also much lower than in the UK. The company intends to open more new stores in Europe, requiring more investment.

Each superstore contributes between £2 million and £3 million annually to the local economy, in wages and other expenditure by the store.

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Because of these benefits, many local authorities are keen to have a store in their area. When opening a new store, Tesco needs to decide what type of store is needed in that area. Apart from the typical superstore, Tesco has introduced three new types of store.

Tesco Metro - Introduced in 1992, the intention was to maintain a presence on the high street at a time when most developments were at out-of-town sites. The target market is people at work and those who prefer to shop in town and city centres.

Tesco Express - Launched in 1994, these stores bring together petrol stations and shops. Much smaller than a supermarket, they have a wide range of products. They are located to provide easy access for both motorists and local residents. The company continually evaluates the success of its Express stores, before deciding whether to build more.

Tesco Extra - This is Tesco's newest type of store and also its largest. Two stores were opened, the first at Pitsea in Essex and the second at Peterborough in Cambridgeshire. These stores are twice the size of a typical superstore and provide a huge range of food, household goods and clothes.


Page7 : Tesco &ICT (Information and Communication Technology)

Tesco uses ICT in most areas of its business. Stock, distribution, pay roll and accounts are some of the operations which are controlled and monitored by ICT.

STOCK

Over 95% of Tesco's products in the UK are automatically re-ordered from its warehouses. The stores' computers log sales and place orders for products when necessary. In turn, computers at the warehouses then automatically re-order stocks of products from suppliers.

DISTRIBUTION

Using ICT makes it more efficient to transport smaller orders and to have more frequent deliveries. New supplies can be ordered instantly for immediate delivery. Tesco hopes that using ICT in this way will allow it to save money. It will be possible to hold lower levels of stocks in its stores and warehouses. The ultimate aim is for supplies to arrive just when they are needed.

THE TESCO CLUBCARD

This is Tesco's loyalty card. It is the largest loyalty card scheme operating in the UK. By 1998, it had 10 million members. Customers hand their card to the assistant at the cheekout when paying for their purchases. The card is scanned electronically. Customers collect points based on their purchases. The purpose of such a card is to reward customers using the stores, by giving discount vouchers which they will then use to purchase more goods at Tesco stores. It also allows Tesco to gather information on the type of products the cardholders purchase. In this way, it can build up profiles of its customers and target its advertising and promotions more accurately.

Figure 4: Example of a Tesco Clubcard and discount vouchers


Page 8: Home shopping

Tesco will provide a CD to customers containing the full range of its products. Customers can view the contents of this CD and order by telephone for. home delivery Tesco now also offers home shopping via its 'Intemet Superstore' on the World Wide Web. Below is an example of a web site page

Figure 5: Internet Screen


Page 9: Working for Tesco

Tesco employs over 185 000 people, with 160 000 working in the UK. Recruitment is an important process for Tesco, with most new employees in the UK being recruited through Job Centres. The company uses various tests to select suitable employees.

Tesco also seeks to retain and reward its employees. Labour turnover is a problem for many retailers. However, in 1997, nearly 45 000 UK employees had worked with the company for six years or more. All employees are given training opportunities. Managers at Tesco receive training to improve their management skills and all employees are offered the chance to develop their careers

Benefits received by Tesco employees

1. Pension Scheme. A contributory pension scheme offering a pension based on final salary.

2. Staff Discount. After one year's employment, staff are entitled to a discount card which allows them 10% off most Tesco purchases

3. Profit-sharing. Employees are entitled to a share of company profits. The amount depends upon salary and is in the form of Tesco shares.

4. Medical Insurance. Managers and Directors receive free membership of Tesco's Private Health Care Scheme.

5. Holidays. Holidays granted to staff depend upon how long they have worked for the company. Most full-time employees get a basic entitlement of 22 days per year.

Tesco believes that effective communication is vital if all staff are to help the company succeed. The company encourages formal and informal communication, holding regular briefing sessions for all staff and 'Communication Days' for managers


Page 10: Marketing the business, Market Research

Tesco's sales have risen steadily as the firm has become the UK's largest food retailer.

Figure 6: Tesco Sales Statistics

1994 1995 1996 1997 1998
Food and drink 10.7% 12.0% 13.7% 14.6% 15.2%

Figure 7: Sales Growth

1994 1995 1996 1997 1998
13.1% 15.7% 10.7% 13.3% 11.6%

UK Total Sales Growth

In addition to data collected from Clubcard users, Tesco also carries out market research. This provides information on how customers view Tesco.




Page 11: Customer Services, Financial Information

During the 1990s, information from market research showed that customers wanted three things:

more choice of products;

value for money

high quality customer service

To meet customer needs, Tesco has provided more assistants and longer opening hours. About half the stores now open from 8 am until 10 pm, and some are open 24 hours a day.

CUSTOMER SERVICES

Tesco has now moved into a number of other services which it offers to its customers. These include:

financial services, eg savings accounts, the Tesco Credit Card;

Internet provision



Market research revealed that customers also want to be able to buy a wider range of products at Tesco stores. Some stores now feature:

petrol stations;
pharmacies;

organic products;

cash dispensers;
cafeterias;
non-food products, eg clothes, CDs and videos;

luxury food products under the 'Tesco Finest' label




Tesco also recognised that low prices are important to its customers. The company introduced an 'Unbeatable Value' campaign. It sells own brand, low-cost, everyday products under the 'Tesco Value' logo.

FINANCIAL INFORMATION

Tesco has to produce financial information for its shareholders in its annual report

Figure 9: Selected financial data from Tesco's Profit & Loss Account.

1997/8
£m
1996/7
£m

Sales (less value added tax) 16450 13 900
Operating expenses (Inc. profit-sharing) 15550 13100
Operating profit 900 800
Profit (after tax and interest payments) 505 520
Retained Profit 250 295


Page 12:Tesco–The Environment and the Community,Tesco–the future?

In 1998, Tesco had 165000 shareholders as shown in Figure 10.

Figure 10.. Tesco's Shareholders

Type of shareholder
Number of shareholders
Percentage of shares

employees
55000
2.2

other individuals
89000
8.2

institutions e.g. banks
21000
89.6


TESCO - THE ENVIRONMENT AND THE COMMUNITY

As a company, Tesco is concerned about the impact of its business on the environment. It has attempted to minimise harmful effects in a number of ways:

waste has been reduced and resources conserved by a policy of recycling;

new haulage methods have reduced the miles driven by Tesco's lorries by 20%;

Tesco has helped pioneer the sale of cleaner petrol and diesel fuels;

all growers supplying Tesco have to meet strict guidelines designed to protect the environment and wildlife.

Tesco also plays an important role within the community. Each January, Tesco appoints a charity of the year to support. In 1997, this charity was Mencap and £1.4 million was raised. From the launch of its 'Computers for Schools' scheme in 1992 to Autumn 1998, Tesco gave schools ICT equipment worth over £44 million.

TESCO - THE FUTURE?

The company plans to be more competitive and efficient in the future. It aims to remain the leading UK supermarket chain, through developing new services and products in response to consumer demand.

At the same time, the company realises that it will be difficult to expand much more in the UK. It is for this reason that Tesco is opening new stores in central Europe.
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