tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In T 658 (1 of 7) 74.8% CASE STUDY Search 'Redact' Tesco: from domestic operator to multinational giant Michelle Lowe and Neil Wrigley Export PDF This case considers the emergence of Tesco plc as one of the world's leading multinational retailers. In a remark- able 10-year period, Tesco has transformed itself from a purely domestic operator to a multinational giant - with Adobe Export PDF subsidiaries in Europe, Asia and North America - and in 2009 had 64 per cent of its operating space outside the UK. Examining market entry into Asia in more detail, the case compares 'success' in Thailand and South Korea Convert PDF Files to Word with 'failure' in Taiwan. It also considers 'a high risk gamble' in Tesco's entry into the US market, long considered or Excel Online to be a graveyard of overambitious expansion by UK retailers. Select PDF File Introduction terms of sales density, turnover growth tesco case.pdf X In April 2009, Tesco, the UK's largest and profitability. Over the next decade it retailer and private sector employer of managed a remarkable transformation - labour, announced annual sales for repositioning itself from its discount roots Convert to 2008/09 of almost t.60 billion (E66bn or reet gold sort into a mass market customer-focused $90.2bn) together with profits of 3 billion retailer serving all segments of the UK Microsoft Word (*.docx) (E3.3bn or $4.5bn). After a dramatic market. By judicious acquisition of some decade-long transformation from purely smaller rivals, and by innovative and domestic operator to multinational giant, flexible store development programmes Document Language: Tesco now had a remarkable 64 per which by the mid-2000s had transformed cent of its operating space outside the UK, Source: Getty Images. English (U.S.) Change it into a genuine multi-format operator was developing increasingly strong businesses across 11 with 72 per cent of its UK stores in smaller convenience/ Asian and European markets, had a rapidly expanding supermarket formats of less than 15,000 square feet, it first start-up' subsidiary operating in the western USA, and had captured market leadership in the UK then progressively announced its entry into the Indian market. Moreover, accelerated its lead over closest rivals Sainsbury's and Asda Convert as signalled in both the title of its Annual Report (Value Wal-Mart. By 2007, on a conservative definition of the UK Travels) and the prominence given in that report to its grocery market, its share was 27.6 per cent - almost twice international profile, the firm was publicly expressing its as large as Asda/Wal-Mart and Sainsbury's with 14.1 per confidence that it had mastered the art of international cent and 13.8 per cent respectively. Simultaneously, as expansion, so long a weakness of UK retailing. Tesco's that gap first emerged in the late 1990s and then widened, emergence as the world's third largest retailer, operating Tesco, as the increasingly dominant market leader, faced 2025 stores and employing 183,600 staff outside the UK growing regulatory press ressure relating to both market- Edit PDF by 2008/09, represents one of the most successful examples competition conditions and land-use planning restrictions of strategic diversification by any UK company and offers It also experienced increasingly adverse media scrutiny insight into the role of the 'corporate strategist', the CHO. and orchestrated campaigns to 'rein in' its visibly growing LO Create PDF power. In response to the latter it moved quickly to embrace International expansion - from the UK to agendas of community responsiveness, urban regeneration, Central Europe, Asia and North America sustainable development, and ethical/responsible sourcing Comment to address what the UK Government's Department for In the early 1990s Tesco was the UK's second largest food Environment, Food and Rural Affairs described as 'rising retailer, lagging behind the market leader Sainsbury's in consumer expectations regarding the social responsibilities Convert, edit and e-sign PDF forms & agreements This case was prepared by Michelle Lowe, Professor of Retail Management, University of Survey and Lead Innovation Fellow AIM and Neil Wrigley, Professor of Geography, University of Southampton and Editor of Journal of Economic Geography. It is intended as a basis for class discussion and t as an illustration of good or bad practice. @ Michelle Lowe and Neil Wrigley. Not to be reproduced or quoted without permission. Free 7-Day Trial TESCO 659 22. C ENG 11:12 PM Cloudy US 12/12/2022 3tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In T 659 (2 of 7) O + 74.8% Y TESCO 659 Table 1 Tesco's international operations Search 'Redact' Year of Store numbers Regional % of operating Region Country entry 2008 /9 Employees 2008/9 space 2008/9 Europe Hungary 1994 149 21,356 Export PDF Poland 1995 319 23,569 Czech Rep 1996 113 12,677 Slovakia 1996 70 8,286 3 Rep Ireland 1997* 116 13,764 Turkey 2003 96 7.025 Adobe Export PDF Asia Thailand 998 571 38,166 S. Korea 1999 242 20,626 Convert PDF Files to Word aiwan 2000 Exited market 2005 or Excel Online Malaysia 2002 29 9.872 33 Japan 2003 135 4,007 China 2004 70 19,452 Select PDF File India Announced entry 2008 North America USA 2007 115 2,581 tesco case.pdf X * Re-entry in 1997 following unsuccessful entry in 1980s. Source: Figures derived from Tesco Annual Report, 2009. Convert to of supermarkets'. In response to regulatory pressures, Tesco On the other side of the world, Tesco had taken the progressively refocused its operations and capital investment potentially transformational, but high risk decision to enter Microsoft Word (*.docx) in an attempt to secure long-term growth - diversifying into the USA - the world's largest consumer market. Building non-food products and retail services (personal finance, on Leahy's strategic vision of the market opportunity to telecoms, online shopping channels) and, most significantly, develop dense networks of a new breed of convenience- Document Language: expanding out of its home market via one of the most com- oriented, smaller-format stores served by a short-lead-time prehensive and sustained international diversifications integrated food preparation/distribution system, Tesco English (U.S.) Change ever attempted by a UK company. had announced entry into the western USA in 2006. By After commencing the first stage of international the end of 2008, a year after opening its first store, it expansion in Europe - entering the emerging post-Soviet had already rolled out a chain of 115 stores together with consumer markets of Central Europe in the mid-1990s (see a 675,000 square feet distribution centre with capacity Table 1) - Tesco launched the next stage of its strategy in to serve over 500 stores in Southern California, Arizona Convert 1998. Following Terry Leahy's appointment as CEO in 1997, and Nevada. it committed to an Asian expansion programme, initially As a result of this international expansion, by the entering Thailand and South Korea. The growth potential mid-2000s Tesco had moved into the elite group of of the Asian markets had been extensively researched by multinational retailers. As Table 2 shows, by 2006/07 the firm for a number of years. However, the immediate there were 15 retailers generating sales outside their home catalysts for entry were the rapid liberalisation of previous markets of over $11 billion per annum (see Appendix Edit PDF restrictions on retail FDI across unities for summaries of the key firms). For a variety of reasons - to make strategic majority-share acquisitions of fledgling but including the higher development costs (and associated potentially market leading retail businesses at discounted sales densities) required in the tightly regulated UK market, LO Create PDF prices, which resulted from the Asian economic crisis of and the relative 'immaturity' of a higher proportion of its 1997/98. Tesco's subsequent expansion in Asia was international space - Tesco's international sales growth dramatic. Just 10 years later it had 1047 stores, accounting inevitably lagged behind the increase in its international for 33 per cent of the firm's global operating space, in the operating space. Nevertheless, at more than $20 billion Comment region (see Table 1). South Korea now provided Tesco with those sales were sufficient to rank the firm within the top its second largest market by sales after the UK. Significantly, 10 multinational retailers (Table 2). By 2008/09 Tesco's Tesco had signalled its commitment to develop businesses international sales had increased by a further 60 per Convert, edit and e-sign PDF in two of the world's key twenty-first century economies, cent, propelling it into a top five position in the ranking. forms & agreements China and India. In China it was rapidly building the scale Additionally, those international sales and also operat- of its operation following entry in 2004, and in India it ing profits (if US start-up losses are excluded) were slowly had successfully negotiated a partnership arrangement for but progressively moving into closer alignment with the entering a market in which ownership of retail businesses proportion of international operating space (Table 3). In Free 7-Day Trial by international operators was still strictly regulated. turn, that reflected rates of growth in the international 22. C OLDer ENG 11:13 PM Cloudy O US 12/12/2022 3tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In T 660 (3 of 7) + 74.8% Y Table 2 Leading multinational retailers ranked by sales outside home market 2006/7 Search 'Redact' International nternational sales % No. of countries Rank Name of company Country of origin sales 2006/7 [US$m] of total, 2006/7 of operation Wal-Mart US 7,100 Carrefour 54,758 14 France Export PDF Ahold Netherlands 49,562 Metro Germany 45,125 DO YOUIFWN- Auchan France 24,204 Aldi Germany 23,476 Adobe Export PDF Lidl & Schwarz Germany 23,103 46 IKEA Sweden 1,882 Tesco UK 21,678 26 Convert PDF Files to Word 10 Delhaize Belgium 19,914 77 or Excel Online Rewe Germany 17,445 32 Tengelmann Germany 15,989 Seven & I Japan 14,144 34 Select PDF File Pinault France 13,283 55 Costco 11,793 Source: N.M. Coe and N. Wrigley (2009) The Globalisation of Retailing', volume 1, p. xvili. Cheltenham: Edward Elgar. tesco case.pdf X Table 3 Tesco's international operating space, sales and operating profits as a percentage of the firm's global totals Convert to 2001/2 2003/4 2005/6 2007/8 2008/9 2010/12 Est Microsoft Word (*.docx) International operating space (%) 42.1 49.7 55.9 61.3 64.6 International sales* [%) 15.3 19.6 24.0 26.3 29.7 35.2** International operating profit (%) Document Language: excluding US start-up losses 8.1 16.4 21.4 24.9 25.6 (including US start-up losses] (22.5) 20.3) English (U.S.) Change * ex-VAT. Source: Figures calculated by authors from statistics available in Tesco Annual Reports and Financial Statements, except **Bank of America/Merrill Lynch estimate 8 December 2009. subsidiaries which continued to exceed those achievable success in those markets related to its mode of market entry, Convert in Tesco's 'mature' and highly regulated home market. its determined efforts to build market scale, and its adaptive responses to growing pressures across East Asia for tighter Success in Asia - Thailand and South Korea regulation of the expansion of multinational retailers. At the point of market entry into Thailand and South Korea The Asian economic crisis of 1997/98 left major in 1998/99, Tesco acquired majority stakes in two retail domestic conglomerates urgently seeking cash injections. chains (Lotus in Thailand and Homeplus in South Korea) As a result, Tesco was able to enter both markets via together having fewer than 20 stores or development sites majority-share partnerships in the non-core retail businesses Edit PDF and operating in markets still dominated by traditional of the leading conglomerates: the CP Group in Thailand forms of retailing. Whilst the growth potential for 'modern' and Samsung in South Korea. Initially Tesco's share of the retail across Asia was considerable, that potential was partnerships was 75 per cent in Thailand and 81 per cent LO Create PDF simultaneously attracting many of Tesco's major European in South Korea. However, subsequent capital injections and North American competitors - including Wal-Mart, by Tesco into the expansion of the chains rapidly reduced Carrefour, Ahold, Casino and Delhaize. Nevertheless, a decade CP Group's share to zero, and Samsung's share first to Comment later Tesco had successfully turned foothold acquisitions 11 per cent and then in two subsequent stages to 1 per into positions of market leadership (Thailand) or potential cent. Despite this rapid dilution of the local partners' share market leadership (South Korea), had developed extensive of the businesses, the partnerships offered Tesco knowledge Convert, edit and e-sign PDF multi-format store networks (exceeding 800 stores), and of local business/regulatory conditions and consumer had outperformed its multinational rivals to the extent that culture, plus the ability to build upon the 'local' appeal forms & agreements Wal-Mart and Carrefour had been forced to exit South and customer image of the acquired chain - particularly Korea leaving Tesco as the dominant inter ernational retailer in South Korea where retention of the Samsung name in both countries. Some of the key dimensions of Tesco's (Samsung-Tesco) proved to be essential. Free 7-Day Trial 22. C OLDCHO ENG 11:13 PM Cloudy US 12/12/2022 3tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In T 661 (4 of 7) 74.8% TESCO 661 Search 'Redact' In both countries, Tesco has made substantial and con- in Thailand and South Korea were absent in Taiwan. tinuous post-entry capital investment to build scale and In particular, Tesco entered the market in which one of accrue market leadership advantages. In Thailand the its major multinational retail competitors, Carrefour, had investment has been pumped entirely into organic expan- been operating for more than a decade and had built a Export PDF sion and has required store development programmes strong and, in practice, unassailable market dominance. of considerable flexibility. In South Korea, 'within market' Moreover, unlike Thailand and South Korea and Tesco's acquisitions - 36 ex-Carrefour 'Homever' hypermarkets for subsequent Asian market entries into Malaysia and China, 1950 million in 2008 and 12 Aram Market hypermarkets Tesco was unable to find a suitable local partner and Adobe Export PDF in 2005 - have been used to enhance its market position was therefore obliged to attempt an entry based on de nuovo and to keep pace (as the country's second ranked operator) expansion. However, not only had many of the potenti- Convert PDF Files to Word with the domestic market leader E-Mart. Tesco's ability ally most attractive sites for expansion already been or Excel Online to finance those acquisitions (outbidding its rivals when developed by Carrefour, or were held under future develop- necessary) and to sustain a substantial annual capital ment option, but also the highly complex Chinese land Select PDF File expenditure programme has rested on the firm's steadily ownership system proved to be a difficult arena in which growing profitability. That is to say, on the 'free cash flow' to transfer Tesco's skills in market/site location analysis tesco case.pdf X for investment generated from both its domestic and and property acquisition/development. international operations and the ability to raise capital at As a result, despite determined efforts, Tesco was never advantageous rates which that profitability ensures. able to develop the market scale necessary to support the Convert to Capital investment in both countries has occurred substantial infrastructure investment required for the against a background of pressures (felt across many parts type of central distribution systems which so vitally under- of East Asia) to tighten regulation and rein in expansion of pinned its operations in Thailand and South Korea, With Microsoft Word (*.docx) the multinational retailers. Those pressures have ranged a market share of barely 3 per cent it became increas from attempts to re-impose res ownership and ing clear both to the firm and to industry analysts that control, through efforts to protect existing retail struc there was little realistic opportunity of achieving a market Document Language: tures via land-use zoning, to regulation of store-opening penetration level in Taiwan where the subsidiary would English (U.S.) Change hours, retail formats, and 'below cost' selling. In Thailand, become self-reinforcing in terms of profits. as development of large-format hypermarkets became more difficult, Tesco transferred its UK-developed small- The asset swap market exit solution store operating skills and began infilling its hypermarket In late 2005 Tesco announced an innovative strategic framework with dense networks of small-format (Express) divestment solution to its problems in Taiwan. The solution convenience stores, first in metropolitan Bangkok, sub- involved a cross-region swap of retail assets with its rival Convert sequently in other leading cities. Those stores also had Carrefour, whereby each firm would simultaneously secure the additional benefit of being unrestricted by opening scale and benefit from strengthened market positions in hours' regulation introduced to limit trading hours of different countries. It was agreed that in Taiwan Tesco's larger-format stores. Additionally, it developed a novel six stores and two development sites would be trans- low-build-cost "Value' store format - essentially a stripped- ferred to Carrefour whilst, in exchange, in Central Europe down small hypermarket embedded within a local vendor Carrefour would transfer 11 stores in the Czech Republic Edit PDF market - to provide an entry vehicle for development and four stores in Slovakia to Tesco. The deal clearly in low-income rural 'up country' towns where expansion had competition and consumer welfare implications as using conventional large-format hypermarkets was polit- it enhanced the dominance of the market leader in each Create PDF ically unfeasible. Finally, it invested considerable effort country. Ultimately it was approved in Taiwan and the in working with local communities to counter mounting Czech Republic but in Slovakia was blocked by the Anti- regulatory pressures - explaining the value of the benefits Monopoly Office. Nevertheless, the Slovakian element of Comment (employment, supply chain modernisation, infrastructure the swap was relatively small, and Tesco was able to exit its investment, skills training, export gateway opportunities) only unsuccessful Asian operation, learn valuable lessons it offered to the Thai economy, and stressing the potential for other Asian market entries, and simultaneously to coexistence of 'traditional' and 'modern' components of strengthen its market position in Central Europe. Relative Convert, edit and e-sign PDF the retail system. failure had been transformed into modest success by an forms & agreements agile and innovative strategic divestment. Failure in Asia - Taiwan Tesco entered Taiwan in 2000, developed six stores, and A high risk gamble in the USA Free 7-Day Trial exited the market in 2005. In simple terms, several of the In February 2006, after a year of intensive but closely elements which had been key drivers of Tesco's success guarded market research by a CEO-selected team of 22. C O ENG 11:13 PM Cloudy US 12/12/2022 3tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In 662 (5 of 7) - + 74.8% 662 TESCO Search 'Redact' managers despatched to Los Angeles, and building on more profitably offered Tesco the opportunity to explore a US than a decade of in-depth investigation of the potential market entry focused around 'convenience'. Additionally, and characteristics of the market, Tesco announced its it recognised that the model of dense networks of 10,000 intention to commit f1.25 billion over five years to enter square feet of high visibility corner-location stores success- Export PDF the western USA. The entry vehicle was to be a chain of fully used by US drug retailers (chemists) such as Walgreens convenience' focused neighbourhood stores, later to be could be used to structure a chain of smaller format food called Fresh & Easy Neighborhood Markets. The decision stores on a mutually reinforcing network logic. represented a significant shift in Tesco's previous 'emerging In terms of retail offer, Tesco recognised that opportu Adobe Export PDF market'-focused internationalisation strategy. As the CEO nities existed to exploit the extensive experience of UK of Fresh & Easy was to stress, the US represented: 'the first food retailers in chilled prepared-meals development and Convert PDF Files to Word mature, well-served market, that we have opened into, so operation of the cool-chain distribution/logistics systems or Excel Online actually [Fresh & Easy] is not filling a vacuum and has to required by those products. US food retailers, and in turn earn its place'. It was also, very clearly, a high risk decision the US food manufacturing industry, had traditionally as the US market had a long record of proving to be the offered few of these products to customers and the special Select PDF File 'graveyard' of overambitious expansion by UK retailers. As ist distribution/logistics and quality control/traceability a result, the entry announcement generated widespread systems necessary to support extensive retail offers of that tesco case.pdf X scepticism of Tesco's ability to succeed where so many type were underdeveloped. As a result opportunities existed others had failed. Indeed, even sympathetic analysts to develop a chain focused on offering high quality but questioned Tesco's ability to achieve the targets (e.g. store affordable fresh and chilled prepared meal products Convert to productivity) implicitly set for the US venture. The con- served by a short lead time responsive distribution system sensus view in Credit Suisse's (2007) terms was: 'it may supplying higher levels of own label products than typical Microsoft Word (*.docx) be fresh, but it won't be easy'." amongst US food retailers. Tesco's decision to enter the US also represented an In respect of the threat posed by Wal-Mart, Tesco important reversal of its previous view of the likelihood of recognised that impact to have been particularly strong Document Language: success in the market. Indeed, it had consistently resisted on the weaker US regional supermarket chains - driving many opportunities to enter the USA via acquisition of significant consolidation of those chains. Additionally, it English (U.S.) Change regional food retailer chains of conventional large-format recognised the traditional supermarket sector was essen- supermarkets - not least because of their track record tially being squeezed between the Wal-Mart-led supercentre of low profitability and the threat posed to them by the operators and a new group of discount retailers operating decade-long supercentre-driven transformation of Wal-Mart smaller format stores and achieving much higher levels from purely general merchandise to US food retail market of profitability than the supermarket chains. In particular Convert leader. The change in Tesco's as sment related to its grow- the stores of the Albrecht family - di on the east coast and ing skills in small format store operation, its belief in the Trader Joe's in the west - provided Tesco with evidence competitive potential of dense networks of 'convenience'- that the threat of Wal-Mart could be accommodated. The focused neighbourhood stores providing an innovative innovative Trader Joe's in particular offered a model of retail offer, and evidence that the Wal-Mart threat could be what was possible in the metro markets of the western countered in the type of urban markets Tesco had targeted USA, operating with exceptionally high sales densities and Edit PDF for its US expansion. profitability. Moreover, it was exactly those urban markets Tesco's small format retail skills had developed in the which, as a result of escalating community resistance, UK as a competitive response to tightening regulation - Wal-Mart was finding it most difficult to enter with its both planning regulation which made large format out-of- huge supercentres. Create PDF centre stores become increasingly difficult to develop and competition regulation which blocked large-scale acquisi- Dimensions of Tesco's market entry and expansion tions but offered an opportunity for growth by acquisition In November 2007, Tesco opened its first Fresh & Easy Comment in the convenience store market. In part, however, those stores in Southern California. They averaged 10,000 skills had been developed proactively to gain competitive square feet and carried a tightly edited range of 3500 SKUs advantage in a rapidly expanding 'convenience culture' with a focus on fresh and chilled prepared-meal products. Convert, edit and e-sign PDF market. By the mid-2000s, the result was that Tesco had Served by a 'short lead time' integrated food preparation/ forms & agreements 700 Express convenience stores in the UK, supplemented distribution system, they were based around entirely by a range of other smaller format stores, e.g. 15,000-square feet urban 'Metro' stores and, additionally, had begun to export the Express format to its international subsidiaries. ' SKU= Stock Keeping Unit, i.e. a unique identifier for each distinct Free 7-Day Trial Growing confidence in its ability to operate small formats product. 22. C ENG 11:13 PM Cloudy OLDer US 12/12/2022 3tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In T 663 (6 of 7) - + 74.8% Y TESCO 663 self-scanning checkouts. Described by Fresh & Easy's CEO have jointly invested $170 million in processing plants Search 'Redact' as 'designed to be as fresh as Whole Foods, with the value of adjacent to Tesco's DC and feed into the DC both shelf- Wal-Mart, the convenience of Walgreens, and a product ready packaged produce and also 40 per cent of the range of Trader Joe's'," the stores were rapidly rolled out prepared meat, poultry, fruit and vegetable ingredients in Southern California, Phoenix and Las Vegas, and a year used in the food preparation facility. Export PDF later exactly 100 had opened. Significant features of Tesco's US experience include: 4 A surprisingly muted initial competitive response. Entry of one of the world's largest retailers into the home 1 Attempts to engage with an online consumer culture. In market of the global leader (Wal-Mart), and into cities Adobe Export PDF contrast to its previous international market entries, highly contested by leading US domestic operators, Tesco has proactively adopted digital/viral marketing could be predicted to produce a fierce competitive Convert PDF Files to Word techniques to address the challenge of defining, launch- response. Given the inability to protect the 'front region' or Excel Online ing and embedding the Fresh & Easy brand. Determined innovations underlying its US chain, Tesco essentially efforts have been made by the firm to use blog and text- had to attempt to lay down store networks as rapidly as messaging based communication with online commun- possible before drawing that anticipated response. Select PDF File ities of customers and potential customers. Although Within a year of Fresh & Easy's launch Wal-Mart had occasionally these efforts have rebounded on the firm, begun to trial a chain of small format stores closely tesco case.pdf X Tesco has continued to explore these methods and to modelled in terms of size, SKUs and neighbourhood transfer learning into its wider international operations. orientation on the Tesco stores. However, by late 2009 those 'Marketside' stores remained confined to just four Convert to 2 Establishing brand visibility and maximising development locations in Phoenix. Although scaling up of the trial opportunities via investment in underserved communities. was anticipated, Tesco had been given unexpected time An important component of Tesco's entry into Los Angeles Microsoft Word (*.docx) to continue developing its store network density and to has been its commitment to develop stores in low respond to 'front region' innovations (ranging, signage, income/ deprived and ethnically segregated communities store atmospherics) in the prototype Marketside stores. Document Language: - visibly underserved by its major US competitors. Transferring the development-coalition and community- 5 The reputational gamble of the CEO. One of the defining English (U.S.) Change specific retail operating skills gained since the late 1990s characteristics of Leahy's strategic realignment of Tesco n opening 'urban regeneration partnership' stores as a multinational operator had been his ability to in deprived areas of many UK cities, Tesco quickly engineer that transformation largely under the radar developed stores in Compton, South Central and sim- of hostile public scrutiny and retain financial market ilar areas of Los Angeles. Its continuing commitment support for the strategy. That was never likely to be pos- to investment in underserved communities has, on the sible with an entry into the USA. Despite the relatively Convert one hand, gained strong local community support and modest scale of the f.1.25 billion five-year US investment increasing national recognition, leading to a more rapid (compared to annual international capital expenditure establishment of brand identity than might otherwise in 2008/09 of f.2.1 billion) the firm, and its CBO in have been expected. On the other hand it has provided a particular, was acutely aware of both the reputational rallying point for a variety of groups (notably retail labour risks and potentially transformational consequences of unions strongly opposed to Tesco's decision to operate the US venture in the case of either success or failure. Edit PDF ts US stores on a non-unionised basis) antagonistic to We've carefully balanced the risks. If it fails it's its market entry . embarrassing. It might show up in my career [but] Create PDF Integrated food production/distribution supported by it'll cost an amount of money that is easily affordable follower-suppliers. To ensure reliable availability of high by Tesco - call it fl billion if you like. If it succeeds quality prepared food products critical to its vision of the then it's transformational." Comment Fresh & Easy brand in a context where it had concerns Leahy has, in effect, been required to publicly place about prevailing quality/traceability standards of local his considerable 'reputational equity' on the line and third-party production, Tesco has been obliged to take has found it necessary to repeatedly signal strategic the unusual step of managing its own food preparation. 'commitment' to the US venture. Convert, edit and e-sign PDF It has developed an 80,000 square feet 'food preparation' forms & agreements facility alongside its distribution centre (DC) in Riverside, Success or failure in the USA - the jury remains out and has been supported by the simultaneous move to By late 2009 Tesco had opened more than 130 stores in the California of two of its leading UK suppliers - Nature's USA. In the face of a global economic crisis with origins Free 7-Day Trial Way Foods and 2 Sisters Food Group. These companies in the sub-prime US housing market, the growth of some 22. C 11:13 PM Cloudy OLDCHO ENG US 12/12/2022 3tesco case.pdf - Adobe Acrobat Reader (64-bit) X File Edit View Sign Window Help Home Tools tesco case.pdf X ? A Sign In T 664 (7 of 7) 74.8% 664 TESCO Search 'Redact' of the previously fast expanding western US markets future development sites with limited competition, the core targeted by Tesco had been decimated. The pace of Fresh positioning of the 'brand' described by US Retailing Today & Easy's store openings had been slowed and the opera- (November 2007) as occupying: 'the white space where Export PDF tions of the chain had been subject to a period of intense the combination of good food, good value, convenience reappraisal. Start-up losses were running at a higher and environmental sensitivity that matters to the emerging level than planned, and the UK media was eagerly seeking American consumer converge' retained its logic, and who opportunities to announce a rare lapse in Tesco's seem- would be prepared to bet against Leahy's reputational Adobe Export PDF ingly unstoppable global expansion. Long term sceptics commitment to the venture. amongst the equity analysts continued to argue that Tesco Convert PDF Files to Word was likely to 'head for the exit' and quit the US, writing off References: Mason, T., The Times, 17 November 2007. or Excel Online El billion of investment in the process. Exstein, M., et al. [2007] 'It may be fresh but it won't be easy". On the other hand, economic recovery was beginning Credit Suisse Equity Research, 14 February. to emerge in the USA, the recession had provided oppor- Financial Times, 1 December 2007. Select PDF File w Leahy, T. (2007) 'Fresh but far from easy', The Economist, tunities for Tesco to build its store networks and acquire 21 June. [Available at www.economist.com.] tesco case.pdf X APPENDIX Tesco's leading multinational retail rivals Convert to Wal-Mart: The world's largest industrial corporation in terms of sales ($379 billion in 2008/09) and the leading multi- national retailer. Wal-Mart operates outside its US base in 14 international markets, including Argentina, Brazil, Canada, Microsoft Word (*.docx) China, Japan, Mexico, the UK, and announced entry into India via a joint venture in 2006. Although widely viewed as essentially a large-format, 'big box' retailer, Wal-Mart has increasingly become a multi-format retailer in parts (particu- larly Latin America) of its international portfolio. Has enjoyed mixed fortunes internationally. Highly successful in Mexico Document Language: and Canada, it strengthened its position elsewhere in South and Central America with acquisitions from Ahold. Less successful in parts of Asia and Europe (with the exception of its Asda chain in the UK) it was forced to exit Germany and English (U.S.) Change South Korea having failed to achieve market scale. Carrefour: The world's second largest retailer [but with annual sales in 2008/09 approximately one-third of Wal-Mart), this French firm was the pioneer retail multinational. In the late 1980s it entered emerging markets in East Asia (notably Taiwanl and South America (Brazil and Argentina] achieving 'first-mover' advantages and substantial profits. By the late 1990s, after its merger with French rival Promodes, it had operations in over 30 countries across Asia, South America and Convert elsewhere in Europe. During the 2000s it has divested operations in several markets in which it had failed to achieve scale, but remains a widely dispersed retail multinational operating both large-format hypermarkets, supermarkets, and also small-format 'discount stores u Royal Ahold: Leading Dutch retailer which by the late 1990s/early 2000s had an extensive international presence in the USA, Latin America, East Asia, Scandinavia and Southern/Eastern Europe, promoting itself as a distinctive global operator. Its aggressive growth strategy and tolerance of high financial leverage lost the confidence of financial markets Edit PDF and in 2003 Ahold was the focus of a major corporate financial scandal. Subsequently Ahold was forced to sell many of its operations in Latin America, Asia and Europe to protect its 'core' retail chains (Stop & Shop, Giant and Albert Hein] in the USA and the Netherlands. LO Create PDF Metro: Second largest European retailer, this German firm has stores in over 30 countries across Asia Central, Eastern and Southern Europe, with foothold positions in North Africa. Distinctively in many markets, it operates solely via a bulk purchase 'cash & carry' format - under either the Metro or Makro fascias. The cash & carry (self-service warehouse] format, Comment which is targeted towards registered business customers only and in which Metro is the global leader, has frequently allowed it to enter markets le.g. India in 2003] as a 'wholesaler' where regulation restricts FDI by conventional retailers. Convert, edit and e-sign PDF Aldi: German retail group, privately owned by the Albrecht family and divided into two divisions, Aldi Nord and Aldi Sud, forms & agreements together operating over 8000 smaller format 'hard discount' stores in 20 countries across Europe, the USA and Australia In the USA an Albrecht family trust also owns the innovative Trader Joe's chain concentrated in Southern California which provided a model of the possibilities for Tesco's US subsidiary. Free 7-Day Trial 22. C ENG 11:13 PM Cloudy US 12/12/2022 3