tesco case study

Topics: Retailing, Tesco, Hypermarket Pages: 28 (5124 words) Published: December 4, 2013
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CASE STUDY

Tesco: from domestic operator to multinational giant
Michelle Lowe and Neil Wrigley

This case considers the emergence of Tesco plc as one of the world’s leading multinational retailers. In a remarkable 10-year period, Tesco has transformed itself from a purely domestic operator to a multinational giant – with subsidiaries in Europe, Asia and North America – and in 2009 had 64 per cent of its operating space outside the UK. Examining market entry into Asia in more detail, the case compares ‘success’ in Thailand and South Korea with ‘failure’ in Taiwan. It also considers ‘a high risk gamble’ in Tesco’s entry into the US market, long considered to be a graveyard of overambitious expansion by UK retailers. G

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Introduction
In April 2009, Tesco, the UK’s largest
retailer and private sector employer of
labour, announced annual sales for
2008/09 of almost £60 billion (x66bn or
$90.2bn) together with profits of £3 billion
(x3.3bn or $4.5bn). After a dramatic
decade-long transformation from purely
domestic operator to multinational giant,
Tesco now had a remarkable 64 per
Source: Getty Images.
cent of its operating space outside the UK,
was developing increasingly strong businesses across 11
Asian and European markets, had a rapidly expanding
‘start-up’ subsidiary operating in the western USA, and had announced its entry into the Indian market. Moreover,
as signalled in both the title of its Annual Report (Value
Travels) and the prominence given in that report to its
international profile, the firm was publicly expressing its confidence that it had mastered the art of international
expansion, so long a weakness of UK retailing. Tesco’s
emergence as the world’s third largest retailer, operating 2025 stores and employing 183,600 staff outside the UK
by 2008/09, represents one of the most successful examples
of strategic diversification by any UK company and offers
insight into the role of the ‘corporate strategist’, the CEO.

International expansion – from the UK to
Central Europe, Asia and North America
In the early 1990s Tesco was the UK’s second largest food
retailer, lagging behind the market leader Sainsbury’s in

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terms of sales density, turnover growth
and profitability. Over the next decade it
managed a remarkable transformation –
repositioning itself from its discount roots
into a mass market customer-focused
retailer serving all segments of the UK
market. By judicious acquisition of some
smaller rivals, and by innovative and
flexible store development programmes
which by the mid-2000s had transformed
it into a genuine multi-format operator
with 72 per cent of its UK stores in smaller convenience/
supermarket formats of less than 15,000 square feet, it first captured market leadership in the UK then progressively
accelerated its lead over closest rivals Sainsbury’s and Asda/ Wal-Mart. By 2007, on a conservative definition of the UK
grocery market, its share was 27.6 per cent – almost twice as large as Asda/Wal-Mart and Sainsbury’s with 14.1 per
cent and 13.8 per cent respectively. Simultaneously, as
that gap first emerged in the late 1990s and then widened,
Tesco, as the increasingly dominant market leader, faced
growing regulatory pressure relating to both marketcompetition conditions and land-use planning restrictions. It also experienced increasingly adverse media scrutiny
and orchestrated campaigns to ‘rein in’ its visibly growing power. In response to the latter it moved quickly to embrace agendas of community responsiveness, urban regeneration,
sustainable development, and ethical/responsible sourcing
to address what the UK Government’s Department for
Environment, Food and Rural Affairs described as ‘rising
consumer expectations regarding the social responsibilities

This case was prepared by Michelle Lowe, Professor of Retail Management, University of Survey and Lead Innovation Fellow...

References: allowed it to enter markets (e.g. India in 2003) as a ‘wholesaler’ where regulation restricts FDI by conventional retailers.
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