TescoMartina BrtnickáCase study2011
2ContentsAbstract............................................................................................................
3AbstractI had been thinking a lot about a topic for this case study, before i finally chose Tesco.There was no particular...
4HistoryTesco is a British supermarket chain. The first Tesco store was opened in 1929 inLondon. The founder´s name was Ja...
5Current situationTesco, a global grocery, is the third-largest retailer in the world after Wal-Mart andCarrefour. It oper...
6It was necessary to found a new concept of Tesco in order to enter the US market asthe UK conception would not succeed in...
7In today´s highly competitive world everything is copied in no time. So if a companyis not careful about their new upcomi...
8works better and save money to the customers. Fresh & Easy promotes that they do not spendmoney in unnecessary things lik...
9ConclusionTesco before entering US market was already operating with more than 50% outsidethe UK. The final decision to e...
10LiteratureCoriolis Research. Coriolisresearch.com [online]. 2004 [cit. 2011-10-30]. Tesco: a casestudy in supermarket ex...
11Appendix I.: Private labels(Coriolis Research, 2004, online)
12Appendix II.: Growth strategy(Coriolis Research, 2004, online)
13Appendix III.: Tesco formats(Coriolis Research, 2004, online)
14Appendix IV.: CommercialsFresh & Easy USTesco UK – Spice Girls
15Appendix IV.: The Tesco Way(Kyrýt, 2011, online)
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  1. 1. TescoMartina BrtnickáCase study2011
  2. 2. 2ContentsAbstract.............................................................................................................................................. 3History................................................................................................................................................ 4Current situation................................................................................................................................ 5Tesco – UK.......................................................................................................................................... 5Fresh and Easy Neighborhood Market – USA.................................................................................... 6Difference in advertisement .............................................................................................................. 7Tesco advertisement in US................................................................................................................. 7Tesco advertisement in UK ................................................................................................................ 8Conclusion.......................................................................................................................................... 9Literature.......................................................................................................................................... 10Appendix I.: Private labels................................................................................................................ 11Appendix II.: Growth strategy.......................................................................................................... 12Appendix III.: Tesco formats ............................................................................................................ 13Appendix IV.: Commercials .............................................................................................................. 14Appendix IV.: The Tesco Way........................................................................................................... 15
  3. 3. 3AbstractI had been thinking a lot about a topic for this case study, before i finally chose Tesco.There was no particular reason for duing so. It was actually coincidence as while looking formaterials for another subject I found out a power point presentation about Tesco and thesubject was: “How to transform global communication strategy into the local environment”,which was the first sign. Secondly I talked to my friend as she told me about this fantasticbook full of case studies and one of them was about Tesco. So that was it and I decided towrite about Tesco, a British company, with a brave decision of joining the US market.This report has the following structure: first I will introduce a history of this companyas having a closer look to it I found it very interesting. Then there will be a section aboutTesco recent situation. Followed by introducing the main differences between UK and USmarket and finally introducing the Tesco entering strategy to US market in 2006. The lengthof this essay is not enough to explain everything so it is considered to be a brief look at thisTesco global movement.
  4. 4. 4HistoryTesco is a British supermarket chain. The first Tesco store was opened in 1929 inLondon. The founder´s name was Jack Cohen. Its first private label product was a Tesco tea.The name of “Tesco” is coming from the first two letters of his surname “CO” and the initialsof his tea supplier T. E. Stockwell which makes T. E. S. + CO = TESCO. Actuallysurprisingly simple. (Quelch, 2006, s. 38-53)Originally the shops were not found as self-service. This was an American style andthe first Tesco of this kind was opened in 1947. The size of the shops were quite small untilthe time, 1980s, of the first non-family CEO Ian MacLaurin who closed most of Tesco´ssmaller stores and build larger, 30 000 square meter ones in the suburbs, for economicalreasons. (Quelch, 2006, s. 38-53)Tesco was not an innovative and very successful company at first, as most of the ideasthey copied from their competitor Sainsbury´s. During 1992 they even started losing its shareof the market and some action had to be taken. The main responsibility was given to Leahy,who organized focus groups with the customers and realized what Tesco was doing wrong.They did not listen to their customers´ needs which rapidly changed and the first customerdriven innovation was established a year later – a value line, a low prices basic products. In1995 Tesco introduced the Clubcard which was a very successful move, offering a pennyback per pound spend and it made some of the ex-customers to come back to Tesco. Whatmore, the new Clubcard loyalty cards collected important information about the customersand it made the possibility to use direct mail to target selected customers. (Quelch, 2006, s.38-53)During the last 20 years the Tesco brand transformed from cheap, distressed and downmarket to admired market leader.It used to be that in the older days managers of all sorts of businesses went to Americato see how the industry is working there and found out, that its absolutely different, they gotthe ideas and tried to implement them in their home country. Nowadays its more about Asiancountries as their economy is efficient and in this case innovation is going in the oppositedirection to that of the US. (Tidd, 2009, online)
  5. 5. 5Current situationTesco, a global grocery, is the third-largest retailer in the world after Wal-Mart andCarrefour. It operates in 14 countries: United Kingdom, China, the Czech republic, Hungary,Republic of Ireland, Japan, Malaysia, Poland, Slovakia, South Korea, Thailand, Turkey andUnited States. In 2010 the company had 5 280 stores and employed 472 000 people.(Wikipedia.org, 2011, online)It is known that Tesco has its private brands even in non-food (clothes, stationery,etc.). Nowadays Tesco sees non-foods as a cornerstone for its future growth and set a goal tobe as strong in non-food as they are in food.The global communication is coordinated from UK with local supervision. The TescoWay is an unified communication for all the countries where Tesco operates. The Tesco wayhas five very important elements. (Kyrýt, 2011, online) Brief introduction: “Core Purpose” isto earn lifetime loyalty of customers while creating a value for them. “Goals” of Tesco are,for instance, be a global retailer, have the most loyal staff, be valuable for people more thanany other retailer etc. “Values” are that no one understands customers more than Tesco,generally be innovative, lively and first in mind for the customer, look after our staff as bestwe can so then they can pass it on our customers and much more. “Principles” are very sortbut expressive: To be better for the customers, simpler for the staff and cheaper for Tesco.The last element is called “Steering wheel” which is the tool, that helps to communicate theprevious four factors in a balanced way emphasizing equally on each of them. (Quelch, 2006,s. 38-53)Tesco – UKThe key elements of the UK´s largest retailer success are its strong and growingprivate labels. The general pricing psychology at Tesco is known as every day low pricing(EDLP). In 1996 Tesco new website Tesco.com was started, primary for online shopping. Bythe year 2002, they managed to cover 95% of the UK and had about 100 000 order per week.To make it look even better than it is already, Tesco in UK has one of the best distributionnetworks worldwide by investing millions of pounds every year in upgrading facilities.(Yoruk, 2000, online)
  6. 6. 6It was necessary to found a new concept of Tesco in order to enter the US market asthe UK conception would not succeed in America because of different mentality and believesof the customers.Customers in US are very branded orientated and private labels are mostly regarded asinferior products and this fact was very worrying for a company with more than 50% of “ownlabels”. The British customers do not mind private labels products. Actually Tesco´s privatebrands were very strong in UK. And it is generally very difficult to change establishedmindsets. US is an extremely tricky market because of the different cultures. (Tidd, 2009,online)Fresh and Easy Neighborhood Market – USAThis decision to enter the US market was not actually sudden. The company wasthinking about it very carefully and investing money in a research and finding such hugedifference between both markets, that in 1999 they decided not to enter the US market for fearif its high risks.However the idea never went to sleep and in 2007 Tesco decided to be brave enoughto market in an unknown territory under a brand new name. The first Fresh & EasyNeighborhood Market was opened in Hemet, about 120 kilometers east from LA on the 1stNovember 2007. Conceptually it was similar to UK Tesco Express store and the size wasabout four times smaller than the traditional US supermarkets. Here is a nice definition ofFresh & Esay by its CEO Tim Mason: “The brand is designed to be as fresh as Whole Foodwith a value like Wal-Mart, the convenience of a Walgreens and a product range of TraderJoe´s…that leaves us with a specific edge in the market.” (Tidd, 2009, online)It is impossible to be successful abroad without knowing the local market. That is whythe company founded an executive team, who would live in the chosen part of US for acertain period of time to find out about character, believes and shopping habits of theAmericans. They would visited US customers, went shopping with them, cooked or discussedthe food they bought. Asked about their opinion of healthy food and diet. In order to design afood store fitted to American shoppers. Corporate Affairs Director Lucy Neville Rolfesaid:“Spending time with people in their houses, looking in their cupboards and fridges andactually shopping with them is a great way to understand the market.” (Tidd, 2009, online)
  7. 7. 7In today´s highly competitive world everything is copied in no time. So if a companyis not careful about their new upcoming product, the idea can be stolen and sold after differentname before they even manage to introduce it. That is why Tesco, while testing the UScustomers and the layout of their food store was very mysterious about it. At the beginningthey introduced themselves as a researched company with even a fake website, so they couldtest their concept of Fresh & Easy store modeled in a warehouse, not getting anyonesuspicious. Tesco did not want to alert their competitors before it was really unnecessary.(Tidd, 2009, online)Generally, when you go to the supermarket, you have to go through the checkouts sothe cashier can charge you for your shopping. But Tesco went even further and offered theircustomers several options how to check out their shopping the most comfortable way. Theshoppers can check out themselves, if help is needed then Tesco will provide if or if thecustomers find it easier to be checked out by the cashier it is also possible.The difference between the British and American market is obvious in the matter ofonline shopping. Being very famous way to get your goods, but the American version ofTesco, Fresh & Easy, simply does not offer this kind of service.Difference in advertisementAmericans have a very strong tendency to explain the specifics of the products usinginformative advertising (just like the Fresh & Easy advertisement). In US there is commonuse of humor, popular songs that are sometimes considered silly, but they sell as they simplystick in the people´s heads. Britons like advertisement with simple, understated humor. Alsovery popular is celebrity´s endorsements. It is used in UK as well, just not much as heroes,more like in situations where they can laugh at themselves (like is described further down,UK Tesco advertisement with Spice Girls). Tesco is aware of the fact, that Americans arecontrol freaks, they want to control their life, children, parents, job, other people, money, timeeverything. That is why arguments like – shopping at Fresh & Easy save your time, money,protects your health by not using artificial colors are used. (Trompenaars, 2004, s. 45-131)Tesco advertisement in USI am going to describe a video posted on the company website as I did not find anyother TV commercials. The video is about Fresh & Easy and that they are going to change theway that people shop. The company learned that is necessary to keep things simple as then it
  8. 8. 8works better and save money to the customers. Fresh & Easy promotes that they do not spendmoney in unnecessary things like expensive displays, stores are build in a way to save moreenergy, equipped with concrete stores which are cheaper and so on. What more, theyguarantee that there is no use of artificial flavors, colors or trans fats to protect your health. Atthe end, there is promised made of making your shopping simpler, food fresher and gettingmore value for your money.Tesco advertisement in UKAs I was looking for an advertisement of UK Tesco, on youtube.com I have found onefrom the year 2007 with Spice Girls. It is quite a funny video corresponding with Britishhumor where the members of the music group are discretely buying each other Christmaspresents at Tesco. We can see one of them hiding behind Christmas three, next one is supposeto be trying a sweater on to hide herself, Jerry hiding behind the Guinness Book of Recordsupside down etc. already making good advertisement as to the large variety of products underone roof. In spite of the risk of embracement of being caught shopping in a place notcommonly frequented by celebrities even the Spice Girls could not resist such a convenientvariety of products and value for money.
  9. 9. 9ConclusionTesco before entering US market was already operating with more than 50% outsidethe UK. The final decision to expand into America took about 7 years and it was, by manyexperts considered as very risky, but Tesco, once made their decision, looked very confidentwith their move. In the Tesco story we can see that going global is not a matter-of-course. Alot is to be considered as it involves a lot of time, money and energy and it may not always bethe right decision. Even Tesco went wrong few years back trying to expand in France, butafter few unprofitable years they left the market.On the other hand it is quite an impressive story about the biggest UK retailer enteringthe very tricky US market with courageous innovations that no one could predict how thecustomers would react to. But so far so good. It looks like that Tesco made a good move andit can be a very good example for many other companies.For me, as a marketing student, this case study gave me a very interesting look into“the kitchen” of one very strong and successful company. And I realized that to be a goodglobal marketer you need to understand the market and the shoppers in the country youplanning to enter. What more, you have to believe in what you are doing.
  10. 10. 10LiteratureCoriolis Research. Coriolisresearch.com [online]. 2004 [cit. 2011-10-30]. Tesco: a casestudy in supermarket excellence. Dostupné z WWW:<http://www.coriolisresearch.com/pdfs/coriolis_tesco_study_in_excellence.pdf>.KYTÝR, Libor. Lewispr.cz [online]. 2011 [cit. 2011-10-30]. Transformace globálníkomunikační strategie do lokálního prostředí. Dostupné z WWW:<http://www.lewispr.cz/MediaLibrary/MediaLibrary/Documents/Tesco-Libor-Kytyr.ppt>.TIDD, Joe; BESSANT, John. Managing-innovation.com [online]. 2009 [cit. 2011-10-30].Challenges in Retail Innovation Aspects of Innovation in Tesco plc’s Market Entry into theUSA. Dostupné z WWW: <http://www.managing-innovation.com/case_studies/Tesco.pdf>.TROMPENAARS, Fons. Marketing across cultures. Chichester, West Sussex, England:Capstone, 2004. 353 s. ISBN 978-1-84112-471-1QUELCH, John A. Global marketing management. 5th ed. Mason: OH : Thomson/South-Western, 2006. 680 s. ISBN 0-324-32284-4.Wikipedia.org [online]. 2011 [cit. 2011-10-30]. Tesco. Dostupné z WWW:<http://en.wikipedia.org/wiki/Tesco>.YORUK, Deniz Eylem; RADOSEVIC, Slavo. Profesores.ie.edu [online]. 2000 [cit. 2011-10-31]. International expansion and buyer-driven commodity chain: The case of Tesco.Dostupné z WWW:<http://profesores.ie.edu/enrique_dans/TESCO/international%20expansion.pdf>.
  11. 11. 11Appendix I.: Private labels(Coriolis Research, 2004, online)
  12. 12. 12Appendix II.: Growth strategy(Coriolis Research, 2004, online)
  13. 13. 13Appendix III.: Tesco formats(Coriolis Research, 2004, online)
  14. 14. 14Appendix IV.: CommercialsFresh & Easy USTesco UK – Spice Girls
  15. 15. 15Appendix IV.: The Tesco Way(Kyrýt, 2011, online)

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