Tesco (UK)


Selected Tesco advertising

Tesco is the UK's leading supermarket chain and a challenger to Carrefour as the world's #2 retailer. It leapfrogged domestic arch-rival Sainsbury's in 1995 to become Britain's biggest food retailer, and has continued to extend its lead ever since, while also broadening its footprint considerably with an aggressive move into non-food merchandise. In 1999, the group went one step further, becoming the UK's most profitable retailer as well, after Marks & Spencer announced a dramatic fall in net earnings. It has steadily improved on that position too, breaking the 3bn profit barrier for the first time in 2008 (although performance began to slow significantly during 2012). Instead, Tesco has looked mainly to the international market for further expansion. Most of its non-UK operations are concentrated in Eastern Europe and Asia - a bold attempt to break into the US market in 2007 ended in failure five years later. The platform for this astonishing growth was established in the 1970s and 1980s when former managing director Ian MacLaurin fought a long and drawn-out battle with the store's founding family to drag the brand upmarket, before overseeing a range of innovative schemes during the 1990s. However, performance has faltered dramatically since 2010 as the group wrestles with price wars and sliding sales in several key markets including the UK.

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 20th Nov 2014: The UK's grocery sector reported a 0.2% decline in the latest sales figures from Kantar Worldpanel, the first fall since Kantar's records began two decades ago. The cause is the brutal ongoing price war, in which the Big Four multiples are wrestling with one another to match discount prices offered by challengers Aldi and Lidl. Tesco was the biggest victim, with a 3.7% decline in actual sales in the 12 weeks to 9th Nov, compared to a 3.3% fall for Morrisons and 2.5% for Sainsbury's. Asda matched the overall market with a decline of just 0.2%. At the other end of the scale, Aldi's sales jumped by 25.5%, Lidl grew by 16.8%, while upmarket grocer Waitrose - which has largely avoided any involvement in the war - put on 5.6%. A new report from Goldman Sachs published this week suggested that the current crisis is largely the major chains' own fault because overconfidence in the structure of the market at the end of the 2000s encouraged them to overspend on store expansion. "Basically, too much supermarket floor space was added, prices were increased and services cut to support profit margins". Goldman warns that the price war is unsustainable. It is now impossible for the big chains to match the profit returns of the no frills discounters because of their bloated cost base. Their only option, says the report, is to start shutting stores, possibly as many as one in five of their existing estates. "Capacity exit is the only viable solution for a return to profitable growth."

Adbrands Weekly Update 23rd Oct 2014: Tesco completed the investigation into the black hole in its profits for the half year, revealing that the final figure for over-statement was 263m. Independent investigator Deloitte said it had discovered irregularities in the accounting of promotional payments from suppliers and the associated costs of those promotions dating back two years. Pretax profits for the half plunged 92% to 112m, as the adjustment was compounded by a 4.6% fall in like-for-like sales in the UK. Chairman Sir Richard Broadbent said he would stand down at the end of the year.

Adbrands Weekly Update 9th Oct 2014: Retail giant Tesco is reported to be considering offers from at least one private equity firm for DunnHumby, the data marketing agency which launched its pioneering Clubcard loyalty programme in 1985. Tesco acquired an initial stake in DunnHumby in the 1990s to protect its relationship with the agency and gradually increased its holding before taking full control in 2010. Since then the agency has expanded its footprint globally, developing loyalty programmes for a variety of other retailers including Carrefour in France and Kroger in the US. It could attract a price tag of as much as 2bn from a private equity buyer.

Adbrands Weekly Update 25th Sept 2014: There was a shock warning from supermarket giant Tesco, which revealed it had discovered 250m of over-stated profit in draft accounts for the first half of the year. The latest errors, which were apparently brought to the board's attention by a whistleblower, are the result of erroneous accounting of revenues and associated costs, so that payments from suppliers to support product promotions were recognised in the first half but not the associated costs of the promotions. The amount is equivalent to more than a third of UK operating profits for the first six months of the year. Tesco has requested an independent investigation, though it said that there was no evidence yet of deliberate fraud. Nevertheless, four senior managers including UK managing director Chris Bush have been suspended pending the result of that investigation. Robin Terrell, head of the group's online business, is to lead the UK division on an interim basis. That news also alarmed analysts because of Terrell's lack of experience in bricks and mortar retailing in the crucial run-up to Christmas. These developments, along with a warning that the group might uncover other such discrepancies for the current or previous years, prompted yet another plunge in Tesco's share price to an 11-year low. One might think from the accompanying media frenzy that Tesco is on the verge of collapse. Nothing could be further from the truth. Latest figures from Kantar put Tesco's share of the UK grocery market at 28.8% for the 12 weeks to Sept 14th. That's down from the same time last year, but for all Tesco's widely reported troubles, it remains the UK's leading supermarket by a substantial margin, more than 11 percentage points ahead of its closest rival Asda (at 17.4% share), and more than Sainsbury's and Morrisons combined. Tesco's best-ever performance in share was 31.4% in 2011.

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Tesco Hit (Poland) Tesco Lotus (Thailand)

 


Adbrands Weekly Update 4th Sept 2014: UK supermarket giant Tesco cut its forecast of trading profits for the current year for the second time in two months as it struggles to bolster falling market share. It also announced the arrival of new CEO Dave Lewis a month earlier than expected. Lewis issued a rallying call to all staff: "In our DNA we have always been the customers' champion, and we will be again... These are challenging times, but we will emerge stronger. With a relentless focus on our customers, and a preparedness to challenge ourselves and take bold decisions we can retain our position as the customers' champion." It wasn't enough to reassure some institutional shareholders. Leading US fund manager Harris Associates, which had held a 3% stake in the group, cut its holding by two-thirds and bemoaned the retailer's lack of a clear strategy. Meanwhile, in a rather more lighthearted sideline, the store has been wrestling with a fake Twitter account which has been responding to genuine customer complaints with foul-mouthed but funny ripostes. For example, one job applicant who apologetically tweeted he'd just accepted a position at rival Asda instead of the one offered by Tesco, received a rogue response from "Tesco Express" of "You are dead to me". Another complained about the quality of Tesco's 60p garlic sausage slices and was asked "what the f*ck did you expect for 60p?". The account has since been shut down but you can see an entertaining account of the story here at Buzzfeed.


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Background

Free for all users | see full profile for current activities: Jack Cohen started selling cheap groceries from a market stall in London's East End in 1919. His first products were fish paste and sugar syrup, but in around 1924 he began to retail packet tea, supplied by wholesaler TE Stockwell. This he named Tesco, a brand created from an amalgamation of the names TE Stockwell and Cohen. The name stuck, and Jack Cohen opened his first Tesco shop in Edgware in 1929.  Business boomed and a series of other shops were opened in and around London before the start of World War II. Cohen had become increasingly influenced by the sales philosophy of American retail groups, and he got his first opportunity to put them into practice after the war. The company went public in 1947, and Cohen moved to self-service shopping the following year. The Tesco philosophy, as conceived by Cohen, was "Pile it high and sell it cheap". (Another favourite slogan, first coined in his market trading days was "Always keep your hand over the money and be ready to run.") In 1956, he opened the first UK supermarket, broadening the product range to include fresh food and clothing.

The group grew rapidly through acquisition, swallowing other retail chains around the country. Another American import was Green Shield stamps, introduced in 1963. At the time, legislation forced all retailers to sell goods at the manufacturer's specified price. With no opportunity to discount, it was hard for any store to develop its customer base by competing on price. However, Green Shield stamps allowed customers to build up loyalty points, which could be redeemed for cash or against other goods. These proved popular with Tesco customers, and as the business got bigger, so did the stores. Tesco coined the term superstore in 1968 when it opened a 90,000 sq ft store in West Sussex, then the largest in Europe. Cohen was knighted the following year.

During the 1970s, Tesco found its development increasingly hampered by its generally down-market image, a legacy from the "pile it high" days, as well as by Cohen's autocratic, aggressive and often undisciplined leadership style. Ian MacLaurin, a former management trainee who had worked his way up to become the company's managing director, dubbed Cohen "Slasher Jack" in his autobiography, and described company board meetings as being "like a meeting of the Chicago mafia, with Jack in the role of Godfather". Nevertheless, the group slowly began to move upmarket, closing older city centre outlets in favour of out-of-town superstores. Tesco introduced the first supermarket forecourt petrol station in 1974, and slowly rolled out the concept nationally. Despite the move upscale, Tesco didn't abandon its reputation for keen prices - its "Operation Checkout" discounting promotion in 1977 increased the store's market share from 7% to 12% in just one year. That year also witnessed the first cracks in Cohen's steely control of the business, after MacLaurin and Cohen clashed over the issue of Green Shield stamps. Cohen saw them as the cornerstone of the business, but MacLaurin argued that they promoted a downmarket image for the store. To Cohen's dismay, Tesco's board of directors supported MacLaurin over the company's founder and the scheme was dropped.

The 1980s became a time of considerable transition for the group. Sir Jack Cohen died in 1979, and was replaced as chairman by his malleable son-in-law Leslie Porter. Within the company, MacLaurin began a complete overhaul of the business, gradually prising it away from Porter and the Cohen family in what became an increasingly bitter struggle. MacLaurin replaced Porter as chairman in 1985. His first challenge was a bid by Cohen's daughter Dame Shirley Porter to join the board, but she was rebuffed.

The 1990s saw a series of innovations which left Sainsbury's standing. The remaining city centre stores were given a complete overhaul, rebranded as Tesco Metro from 1992 onwards, while the petrol forecourt outlets were grouped under the Tesco Express brand. The Tesco Clubcard, introduced in 1995, was a brilliant innovation, replacing the old trading stamps concept with a more upmarket reward scheme which also allowed the store to track purchasing habits in extensive detail. It was rapidly adopted by other retailers, including Sainsbury's, which was also quick to copy Tesco's launch of a banking service in partnership with Royal Bank of Scotland in 1996. In 1997, Tesco was the first UK food retailer to offer an Internet-based home shopping service, and the Tesco Extra hypermarket format was launched for the biggest stores the same year. A year later MacLaurin retired as chairman. Following the lead of Dixons, the home shopping service was bundled into a free ISP service, Tesco.net, in 1999.

Over the following years, the group became increasingly active in the international market. An initial foray into the Republic of Ireland in 1979 was abandoned during the 1980s. In 1993, the group made another attempt to go abroad, acquiring 100 Catteau supermarkets in northern France for 158m. By 1995, the group had added a hypermarket in Paris and a wine shop in Calais, both under the Tesco name. However all were sold two years later. Eastern Europe proved more fruitful for the group. In 1994, Tesco bought a controlling share of the Global S Markt supermarket chain in Hungary, followed by Poland's Savia chain and other stores in 1995. Tesco entered the Czech Republic and Slovakia in 1996, spending 79m to buy American supermarket chain K-mart's stores there. In 1997, the group returned to Ireland, buying 109 stores from Associated British Foods for 630m to become the country's leading supermarket business. In 1998 the group acquired Lotus, the second largest retailing business in Thailand with 13 modern hypermarkets, and followed this in 1999 with a partnership deal with Samsung Corporation to develop hypermarkets in South Korea. In March 2000 the group announced plans to open 20 hypermarkets in Taiwan over the next five years. At the end of 2000 the group announced it had teamed up with Asian conglomerate Sime Darby to open 15 hypermarkets in Malaysia. 

Building on the success of its online operations, Tesco took a 35% stake in the online operations of US grocery retailer Safeway. The British company agreed to adapt its successful UK model for Safeway's GroceryWorks service. In 2001, the group acquired a controlling stake in The Nutri Centre, a specialist mail order retailer selling complementary medicine products. Later the group said it would take on UK high street clothing retailers Gap and Next, following negotiation of an exclusive licence to import Cherokee American clothing, already sold exclusively through Target stores in the US and Zellers in Canada. At the end of the year, the group announced that it would acquire British convenience store operator T&S Stores for around 530m in shares and debt.


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