Tesco is known as a food retail leader in United Kingdom and Ireland. Company’s annual online sales exceeded $5 billion and Tesco.com is recognized as the world’s largest online grocer, with a customer base of little less than 1 million and more than 250,000 orders completed a week.
Company has nearly 1,900 vans that operate and about 300 stores and 9,000 pickers. Tesco.com 2006 sales grew up strongly by 29.2%.
Tesco dominated in offline and online grocery market and was looking for other areas to expand.
“ Our market share of UK retailing is 12.5% - that leaves 87.5% to go after” – Terry Leahy, CEO
Terry Leahy – CEO, joined Tesco in 1979 and held a number of marketing and commercial positions prior to being appointed to the Board of Tesco PLC on 5 October 1992.
Tim Mason - President and Chief Executive Officer Fresh & Easy Neighborhood Market. He was appointed to the Board on 16 February 1995. He joined Tesco in 1982 and has been President of our US operations since 2006
Andrew Higginson - Finance and Strategy Director. He is a member of the 100 Group of Finance Directors, Chairman of Tesco Personal Finance and a Non-executive Director of BSkyB PLC. He is also responsible for retailing services, including tesco.com, Tesco Telecoms and Tesco Direct.
Phillip Clarke is International and IT Director. Prior to his appointment he held a number of roles in store operations, commercial and marketing. He is a Non-executive Director of Whitbread PLC. He was responsible for technological part of the Tesco.com.
Asda owned by US corporation Wal-Mart since 1999, is the only supermarket with the potential to become a thorn in the side for Tesco. Wal-Mart is the biggest food chain in the world and has annual sales eight times bigger than Tesco’s. Asda's George range of clothing is the best selling brand in the UK and company is thinking about acquiring Matalan, the giant discount clothing and home furnishing store.
Sainsbury’s was the UK's biggest grocer until 1995, but was recently relegated to third position behind Tesco and Asda. Despite the fact that company has been struggling lately it is starting to get back on track. Despite predictions that Sainsbury's would regain second position and a narrowing of ASDA's lead in recent months, the latest figures released by Taylor Nelson Sofres show Asda's share as 16.6% compared to Sainsbury's at 16.22%.
Despite the fact that Tesco has a 27% of market share, competitors are always one step behind.
With having all of these huge grocer giants that have online delivery services as well as offline retail stores, market was packed and there was an opportunity and need of expansion in other areas.
Tesco thought that if there is any market share left, there is a potential for growth and expansion.
Other challenge in online selling is how to succeed without having huge expenses. Previous attempts to succeed in online selling market for goods like furniture failed because of the inconvenience and cost of shipping and handling.
UK internet penetration as of 2007 was almost 64% and Ireland’s internet penetration is almost 51%. These results make a clear statement for new and emerging online shopping market.
Tesco.com captured the possible online grocer market share and reaching for more was not the best approach, knowing about huge competitors always staying a step behind.
“ Convenience is increasingly important to our customers and we believe that offering new ways to order and a wider range of products will be really popular with our customers.” - Andrew Higginson, Finance and Strategy Director.
This new strategy was not frightening and Tesco took the risk to sell non-food items like furniture.
Creating Value: Economics Of Internet-based Commerce
The most value that is being created by Tesco non-food online selling is the benefit of convenience. Online shopping can save time and energy and even money for customer.
By offering products on the internet it can cut the transaction costs, labor costs and increase market efficiency.
Tesco is known for low prices so the Internet can make those prices even cheaper and create more value for the consumer.
Capturing Value: Market Structure and Competition
Tesco’s strategy is very similar to “winner-takes-all” approach, where DSIR is very important.
In UK’s food market one single company such as Tesco dominates in all areas – offline and online.
Tesco is also trying to capture the value by having loyalty programs, membership cards and special offers on its website.
By being known as one of the low price online retailer, Tesco is also capturing value through pricing.
Creating and Capturing Value in the Supply Chain
Tesco did not have to change its supply chain due to its new strategy, but more of expand its capacity and workforce.
Because company already had online channel for food, it was not extremely difficult to extend this line and offer non-food products.
Tesco defined customer needs and expanded the range of products offered online and fulfilled those needs.
This new expansion of product line improved existing supply chain without making drastic changes.