Tesco — A retail giant

Tesco is one of the world’s largest retailer. How did it become one and how did it sustain its position? What were the strategies that were followed? Let’s take a look in the below where I have summarized the case study of Tesco which was discussed in one of the seminar’s I recently attended.


Company History:
The first Tesco store opened in 1929, in London and by the end of 1930 there were over 100 mainly in London. Jack Cohen decided to adopt the model of “pile it high and sell it cheap” as was prevalent in US. Cohen’s emphasis on self service led him to pay more attention to suppliers and in effect ignoring his customers.

In 1980, Ian MacLaurin became the first non family CEO.

What did MacLaurin do?

  1. MacLaurin closed many of the small stores and built larger more economical 30000 square foot stores in the suburbs.
  2. Expanded till 200 superstores and had a centralized distribution system.
  3. Advanced in fresh foods and its own label
  4. From the innovation perspective, he made things very simple and copied whatever Sainsbury was doing.

Effect of the above: The Company performed well but was exposed in the recession of 1990 where Sainsbury was better off as Tesco had no differentiated offering to maintain the loyalty of its customers.

In 1992 Leahy (Director of Fresh Foods) was moved to marketing and he analysed that if Tesco continued to lose 1% to 2% of its shares per year then the company will be in bad shape very quickly.

Leahy focused on —- WHY EXACTLY WERE CUSTOMERS LEAVING? He figured out the main reason behind the customers anger which was Tesco had been so obviously copying Sainsbury.

In March 1993, Leahy reported the following three things that need to be done:
  1. Stop copying Sainsbury’s as a merchandising strategy.
  2. Institutionalize listening to customers
  3. Build a merchandising offer based on responding to what Tesco’s own customers wanted.
WHAT DID LEAHY DO?

  1. Tim Mason, now Marketing Director coined the phrase “bricks I the wall” to describe the incremental approach to marketing: no sweeping innovation, just patient responses to customer needs.
  2. Internally Leahy explained the strategy as slogan which said, “Tesco: The Natural Choice for Ordinary Shoppers” – Meaning the target audience now is low end users. Externally this was termed as, “Every Little Helps”.
  3. In 1993, Leahy introduced the Value Line, low priced, basic items
  4. “One in front”, they shortened the queue and hence the wait time.
  5. In 1995 Leahy introduced the “Clubcard” which offered one penny back on every dollar
  6. All managers had online access to the customer comments over the call center and the Tesco website
  7. Focus Groups
  8. Improved the hygiene of the toilets and installed refrigerators which were colored replacing the stainless steel ones which reminded the customers of hospitals.
  9. Focus on Employees
  10. Focus on growth by the following ways:
a.       By increasing the effectiveness of the existing UK business
b.      By finding new ways to deliver value to UK customers
c.       By accelerating the pace of international expansion
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