lOMoAR cPSD| 46836766 The Rise fall of and Tesco Early years UK Core Market -
In the early 1990s Tesco was the UK’s second largest food retailer, lagging behind the market
leader Sainsbury’s in terms of sales density, turnover growth and profitability. Over the next
decade it managed a remarkable transformation – repositioning itself from its discount roots
into a mass market customer- focused retailer serving all segments of the UK market. By
judicious acquisition of some smaller rivals, and by innovative and flexible store
development programmes which by the mid- 2000s had transformed it into a genuine multi-
format operator with 72 per cent of its UK stores in smaller convenience/ supermarket
formats of less than 15,000 square feet, it first captured market leadership in the UK then
progressively accelerated its lead over closest rivals Sainsbury’s and Asda/ Wal- Mart. By
2007, on a conservative definition of the UK grocery market, its share was 27.6 per cent – lOMoAR cPSD| 46836766 1
almost twice as large as Asda/ Wal- Mart and Sainsbury’s with 14.1 per cent and 13.8 per cent respectively.
Tesco, as the increasingly dominant market leader, progressively refocused its operations
and capital investment in an attempt to secure long- term growth through high market share
– diversifying into non- food products and retail services (personal finance, telecoms, online
shopping channels) and, most significantly, expanding out of its home market via one of the
most comprehensive and sustained international diversifications ever attempted by a UK company.
Overseas Markets and International Strategy – Some Successes & Failures
After commencing the first stage of international expansion in Europe – entering the
emerging post- Soviet consumer markets of Central Europe in the mid- 1990s– Tesco
launched the next stage of its strategy in 1998. It committed to an Asian expansion
programme, initially entering Thailand, Japan and South Korea. Tesco’s subsequent
expansion in Asia was dramatic. Just 10 years later it had 1047 stores, accounting for 33 per
cent of the firm’s global operating space, in the region. South Korea provided Tesco with its
second largest market by sales after the UK. Significantly, Tesco had signalled its
commitment to develop businesses in two of the world’s key twenty- first century economies, China and India.
On the other side of the world, Tesco had announced entry into the western USA in 2006. By
the end of 2008, a year after opening its first store, it had already rolled out a chain of 115
stores together with a 675,000 square feet distribution centre with capacity to serve over 500
stores in Southern California, Arizona and Nevada.
Failure in Asia – Taiwan
Tesco entered Taiwan in 2000, developed six stores, and exited the market in 2005. In
simple terms, several of the elements which had been key drivers of Tesco’s success in
Thailand and South Korea were absent in Taiwan. In particular, Tesco entered the market in
which one of its major multinational retail competitors, Carrefour, had been operating for
more than a decade and had built a strong and, in practice, unassailable market dominance. lOMoAR cPSD| 46836766 2
2011 As problems start to surface
Tesco had made big steps in becoming an international operator, but it is worth noting that
66% of sales and profits were still generated from UK stores, so there was still some way to
go before Tesco could truly describe itself as ‘global’.
In April 2011 Philip Clarke took over as CEO over Tesco after spending all his working life
with the company latterly as director of the international businesses. It was an inauspicious
time to step up, as Tesco’s market share in the UK had dipped below 30% for the first time
since 2005, with both Sainsbury’s and Asda gaining market share at Tesco’s expense. While
the financial markets in general were climbing, the company’s share price was more than 10
percent down from its 2010 peak. Clarke had the task of revitalising the UK offer as well as
growing the international offer. In one of his first statements in 2011, Clarke emphasised the
importance of internationalisation: ‘Our international business is growing pretty fast and
it’s growing well. It’s been my focus for the past six years and in some ways we’re just at
the beginning. We’re going to globalise the best that we do.’ Yet by December 2012 Clarke
had to admit defeat in America: ‘The business has failed, let’s face it’. Tesco announced it
wanted sell or close its Fresh & Easy stores and the US subsidiary’s CEO, Tim Mason, had
departed the company altogether.
In May 2013, Tesco, the UK’s largest retailer announced annual sales for 2012–13 of £72
billion), barely changed from the previous year. Profits were £3.4bn, down from £3.8 billion
the year before. Tesco’s internationalisation strategy was also suffering due to aftermath of
harsher economic conditions relating to 2007-9 global financial crises. What Went Wrong in US?
Tesco established its first US-store in 2007 under the name Fresh & Easy. During its
international expansion, Tesco appeared to overlook the importance of understanding the
target market. It could be argued that, in trying to get a foothold in a market that was already
so saturated, Tesco was destined for failure. Tesco was clearly aware of this, and repositioned
the brand as “Fresh and Easy”. Rather than focusing on convenience and price, the idea was
to focus on convenience and fresh organic food.
However, trying to establish a store with a healthy image in a nation where the population
loves fast food and soda was always going to be difficult. Organic stores and lifestyles are a
well-known trend in Europe, but it appears this trend has not yet spread to the USA. As well lOMoAR cPSD| 46836766 3
as possible mis-targeting, Tesco assumed the USA would be similar to the UK, and ignored
cultural differences. The Fresh & Easy stores offered a range of British products, but didn’t
focus enough on local American products. The self-checkout system seemed strange to a
nation used to a high level of customer service in supermarkets. The US customers love to
fill their freezers with frozen food, something Fresh & Easy ignored at the beginning. By the
time they introduced frozen food, it was too late. Americans like to have coffee and freshly
baked bread in the grocery stores: again not offered at Fresh & Easy at the beginning.
In comments gathered by the BBC, Americans said the marketing and advertisement was
not appealing. Although Tesco launched a huge social media campaign, it did not advertise
on TV or other media– where Americans expect to see adverts and offers.
What Went Wrong in Japan?
After only nine years, Tesco left the Japanese market in 2011. The supermarket giant said
Japan was a difficult country to trade in due to high costs, and that customer demands were
difficult to meet. Tesco’s explanation only tells part of the story, since they didn’t appear to
fully consider the cultural differences between the UK and Japan. Japan’s culture is quite
different to the UK. The country has many family-owned and long-established grocery
stores, which form a hub of the community, valued for the personal touch they offer. Another
cultural oversight relates to the fact Japanese customers prefer high quality products and
excellent service during their shopping experience. As Tesco stores tend to be large in size,
it’s almost impossible to offer high levels of customer service to every shopper. Although
Japanese customers love to buy western products from Europe and the USA, it is still
important to present them in a way that will appeal to the Japanese mind-set.
Investing in foreign markets can be profitable when thorough planning and research is
carried out. There are still risks, because each country has such specific sensitivities, and
understanding these cultural differences is key to international success. The USA and Japan
may be seen as quite similar in culture to the UK but as Tesco discovered; their supermarket
buying habits are sometimes very different. But analysts argue Tesco's expansion in
emerging markets such as China, Thailand and India has led them to neglect their UK lOMoAR cPSD| 46836766 4
business. "Tesco went on an acquisition and diversification spree, but at the same time it
under invested in existing stores in the UK and lost its focus on food