In 2006 Tesco, the UK’s most successful grocery retailer (with about 30 per cent market share), again reported a record-breaking year. Over the previous four years it had almost doubled group sales (excluding VAT) and profits to ?39bn (approx 57bn euro) and ?2. 28bn respectively. The “group statistics” painted a picture of what this growth meant on the ground: the number of stores had tripled to 2,672 and employee numbers had grown by about 60 per cent to 273,000. Significantly, sales to the rest of Europe had grown from 9 to 13 per cent of group sales and Asian sales were 11 per cent of group sales (up from 6 per cent in 2002).
The company had also extended its product range significantly since 2002-moving into non-food sectors and retailing services. Not surprisingly the 2006 annual report was very “upbeat” and the Chairman, David Reid, summarised the company achievements and prospects for the future: UK Our sales performance in the UK core business has been strong, as we have invested in all parts of the customer offer.
International has delivered good growth in like-for-like sales, profits and returns. Our largest ever new store development programme delivered 5. 4 million sq ft (500,000 m2) of sales area, with a further 6. million sq ft planned in the current year. Non-food has again made strong progress, with UK sales up by over 13%, against the background of cautious consumer spending. Our established areas such as health and beauty (up by 10%) have done well and newer departments such as consumer electronics (34% growth) and clothing (16% growth) have performed particularly strongly. Retailing services have also had a good year with tesco.
com delivering record results, Tesco Personal Finance (TPF) performing well in a challenging personal finance sector and good growth in telecoms.
The report went on to explain in more detail exactly how each of the main parts of the business were changing and developing: “giving customers what they want 24/7” Ranges Because everyone is welcome at Tesco, we appreciate that our customers have different tastes and requirements. We work hard to give our customers a broad variety of leading brands, a really good range of Tesco products-from Finest to Value lines- and lots of new ideas for feeding the family. Instead of offering a standard product range everywhere, we have put a lot of effort into tailoring our offer for local customers.
For example, our new Extra store in Slough, Berkshire features over 900 speciality Asian products, from new vegetarian and Halal ready meals to extensive ranges of bulk-pack rice, and even Bollywood DVDs. Formats Our store formats are a way of meeting the different needs of our customers wherever they live and however they want to shop- in large stores, in small stores or on-line. Tesco Express brings great food and low prices into the heart of neighbourhoods. Metro offers the convenience of Tesco in town and city centres where people live and work.
At Tesco Superstores, customers can find everything they need for their weekly shopping and at our Extra stores customers can not only find our full range of food and convenience lines, but also a comprehensive range of non-foods. Home plus non-food only store was trialled in 2005. Non-Food “offering great quality, range, price and sesrvice” More and more people are choosing to buy not just their household essentials but also bigger ticket items at Tesco, from clothing to TV’s and fridges and from sports equipment to toys.
They appreciate the convenience of being able to do their entire shopping under one roof in our Extra stores. We will be sourcing products that are common in all countries (UK, Ireland and Central Europe) together as a group. Each country will retain the responsibility of identifying the local needs of their customers and sourcing those products from the appropriate suppliers within their respected country. RETAILING SERVICES “making on-line shopping simple” Tesco. com is the most successful on-line grocery shopping service in the world.
What is remarkable about our on-line business is the diversity of customers using it, from busy urban families to people in rural communities. It has also allowed many house-bound people to shop properly for the first time. DVDs to your door 60,000 customers have now signed up to our DVDs to rent service, giving them access to the 30,000 titles that are available through our on-line DVD service. Energy We have enabled tens of thousands of customers to save money on their gas and electricity bills (by comparing prices of different suppliers).
This service is fully comprehensive, fully independent and fully impartial. Getting healthy on-line E-diets help customers to tailor their eating plans to what’s right for them, taking into account lifestyles, food preferences and health recommendations. “financial services that are simple” Tesco Personal Finance now offers 21 financial products and services from loans and savings accounts to credit cards and insurance. We are Britain’s third largest on-line car insurer with over 1. 4 million active car insurance policies.
We are continuing trying to improve our offer for customers and now offer the opportunity to purchase travel money in-travel store, by providing kiosks in seven stores. We have also made the purchase of premium bonds much more convenient for customers (through) the partnership with National Saving & Investments (NS&I). Tesco Mobile is a virtual network formed as a joint venture with (the mobile operator) O2. International With the exception of Ireland (91 stores) the company’s international expansion had been in Eastern Europe (272 stores) and Asia (450 stores).
The company planned to enter the US market in 2007 with a completely new local format for the American consumer modelled on Express. What was most interesting was the way that each development reflected local market conditions rather than working to a standard working model. Some of the details from the 2006 annual report are shown in the box. Where next from here? Despite this rosy picture not everyone was convinced that Tesco was yet a major world player. The obvious comparison was with the world’s biggest retailer, the US company Wal-Mart, whose turnover of US$312 (approx 250bn euro) was more than four times that of Tesco.
Although Wal- Mart’s US sales were flattening out it had a presence in some 70 countries with 2,285 stores outside in the race to enter India in the autumn of 2006 leaving Tesco with difficulties in finding a suitable local partner – crucial in that market. Market research with UK consumers also highlighted issues for the company to think about. In particular, although Tesco had attracted a broad range of customers across demographics and age groups, there was evidence that the market was fragmenting.
Tesco customers’ loyalty seemed to be declining and in an analysis of people’s favourite brands by age, Tesco and other high street retailers did well among the over 55s, but did not feature at all in the top 10 brands of 16 to 24 year olds. But the Tesco Chief Executive, Sir Terry Leahy, was clear about the Tesco “formula” for success: Tesco is about making the shopping experience better for customers and we’ve built our success and our growth by listening to them. Tesco’s international stores in 2006 China (39 stores)
We have begun to accelerate our expansion programme beyond the Yangtse delta and have teams working to develop our network in Beijing, Shenzhen and Guangzhou. We have also invested in capacity, bringing Tesco systems and know-how into the business, focusing particularly on improving store design, the supply chain and store replenishment. Japan (111 stores) In Japan, we operate discount convenience supermarkets, typically 3,000 sq ft in size. We opened our first trial Express store in April 2006. Malaysia (13 stores)
We are trialling our Express format in Malaysia with three stores, situated mainly in the area around Kuala Lumpur. We also opened our first Value store, a 3,000 sq m store in Banting. By offering a tailored hypermarket range in a smaller store which is cheaper to build, we have been able to bring a modern retail offer to a community which would not have been able to sustain a larger hypermarket. South Korea (62 stores) We opened eight new hypermarkets in South Korea this year, including three compact hypers.
We have further adapted our Express model in South Korea, enabling us to focus on the key products which customers want to be able to buy, close to where they live and work. Taiwan (6 stores) (We have agreed an) asset swap deal with Carrefour…. (which) will enable us to exit from Taiwan with minimal financial impact, allowing us to focus on investment in Central Europe and our other Asian businesses. Thailand (219 stores) (Through) the launch of our Talad format we have tailored our offer to customers who are used to shopping in local markets. We now have ten of hese stores, which carry between 4,500 and 7,500 product lines in around 10,000 sq ft of selling space. Czech Republic (35 stores) We have accelerated our new store development programme, adding 20% to our sales area during the year, with eight new compact hypermarkets. (Also) we opened the Group’s first 1,000 sq m, or “1k” store…. (which) enables us to bring the Tesco offer to smaller towns, carrying a locally-tailored range of around 2,700 products. Hungary (87 stores) Customers are facing a more challenging economic and retail environment in Hungary, which has held back our growth but we have still made solid progress.
Our customers have benefited from lower prices in stores and from the roll-out of petrol stations, making it significantly cheaper to fill-up. Poland (105 stores) Customers love the convenience of our small format stores which bring many of the advantages of our larger hypermarkets closer to where they live and work. Republic of Ireland (91 stores) We continue to invest in bringing prices down for our Irish customers…. We are also focusing on extending our product ranges. With Finest growing in popularity, we have increased the number of lines in areas such as cheese, ready meals and wine.
Slovakia (37 stores) In line with our other Central European businesses, Tesco Slovakia has introduced a price promise on 50 everyday items, guaranteeing that we won’t be beaten by any local competitor. Our new store programme is now supported by the growth of our compact hypermarket format. Turkey (8 stores) In Turkey, Kipa delivered a very strong performance… We successfully launched the Kipa Value brand in Turkey, with over 400 products so far and we plan to extend this in the coming year.
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