Topics: Retailing, Supply chain management, Supply chain Pages: 18 (4970 words) Published: May 9, 2013


Leading UK supermarket group, Tesco, can serve millions of Internet customers with home deliveries from its of its stores. In doing this it is not alone – its main rivals, ASDA and Sainsbury’s, also offer home deliveries driven by orders over the Internet. Tesco also runs an on-line bookshop. These are recent developments which have been facilitated by the power and potential of information technology (IT). Price cutting, an important competitive strategy in retailing, does not truly distinguish one food retailer from another, as price cuts can be followed by rivals, although creative advertising can suggest a price differential when one really does not exist. Supply-chain cost savings, also facilitated by IT, however, can be an important source of advantage and improved profitability. This case looks at how Tesco exploited IT in the early 1990s to drive competitive advantage. Since the case was written in 1996 events have moved on, but the basic strategic issues raised here remain pertinent and relevant. Tesco, for example, now shares live sales information with its suppliers and, by embracing IT themselves, more and more suppliers are linked electronically to Tesco. Again using the power of the Internet, e-markets allow any retailer to post up ‘confidential’ information but limit access to it through password-driven ‘firewalls’. Going beyond the advantages discussed in this case, the Internet allows retailers to invite suppliers to engage in bids or auctions when either the retailer has a specific shortage or a supplier has excess inventory. This case has two themes: • •

the use of information technology by Tesco to strengthen its competitiveness, and the role of information technology in forging strategic linkages between Tesco and its distributors and suppliers.

Information technology has both reduced costs and strengthened Tesco’s competitiveness by improving its overall level of customer service. The case is designed to be used in conjunction with Chapters 9 and 13. This version of the case was written in 1996 by John L. Thompson with the co-operation of Tesco. It is for classroom discussion and should not be taken to reflect either effective or ineffective management.

In the mid-s Tesco overtook Sainsbury’s to become the market share leader for UK groceries. By the s Tesco had become successful with a policy of ‘pile it high, sell it cheap’, the philosophy of the founder, John Cohen. Tesco concentrated at that time on relatively small supermarkets close to town centres. The shops offered only a basic level of comfort and service. In the s it became apparent that future growth and prosperity required a new strategy. Tesco appeared to have too many small stores, poor warehousing and stock control and weak administration systems. The strong concentration on price was limiting the total service, and strategically implied a focus, rather than a broad appeal. Desiring a strong market presence, Tesco sought to reposition itself. The new strategy would be based on quality and service in a pleasant shopping environment, together with competitive prices.

In the s Tesco had some  stores. This number was systematically reduced to  in  through a series of closures and new openings of single-storey units with car parking. Redesigned new superstores have been built in carefully selected locations and a further  stores were acquired in  when Tesco bought the Scotland-based Wm. Low Group. In  Tesco had  stores in the UK plus  Catteau stores in France and  Global stores in Hungary. The UK stores comprise:

• • • •

superstores compact stores – smaller supermarkets metros – town centre stores designed to serve specific local needs, and express stores – convenience stores adjacent to a petrol forecourt.

The total product range of some , food and non-food items is available in only the largest stores; the smaller ones carry just ...
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