tesco

Q1) Why Tesco has been so successful?

Pile it high ,sell it cheap

• For price sensitive customers

Leaky set three clear objectives:-• 1. Win in grocery retailing in U.K

• 2. Expand into non-food business

• 3. grow tesco’s int. footprint

Leaky was concentrati

ng on :-

Customer

satisfaction

Motivating store mang. Motivati

ng employe

es

Tesco’s club card

Cash back and redeemable vouchers

Acted as a research tool that enabled Tesco to better shape the assortment in

each store to respond to needs of its surrounding neighborhood.

Q2 ) which successful factors are or not transferable to U.S?

U.S Market size- $600 billionGrowth potential is impressive and

tempting.Us grocery retail market is mature

and cluttered.Many experienced companies are

battling for market share.Groceries are conveniently sold in

many outlets (including mass merchandisers and drug stores) beyond mainstream grocery stores.

So, Tesco should enter into this with same mission , objectives and values but with more accuracy in execution of store format.

Time pressed customers can quickly find out what they need in stores that are considerably smaller then average supermarket but larger than convenience store where consumer might stop for snacks etc.

Q3)- Was Tesco smarter to enter the U.S market? In California, Arizona and Nevada?

Although U.K grocery retailers had a poor track record in U.S .

But Tesco had reasons to be optimistic:-

1) Tesco had a strong record of successful international expansion(except japan)ex-5

2) U.S consumers were showing interest in wellness and health conscious food choices and Fresh and Easy were offering fresh food at affordable price.

Exhibit-5

3) German grocer ALDI has proved to be progressive retail store in U.S because of low price and private labels and Tesco is following both the statergies. 4) Wal-Mart regarded as a logistics expert was also following the same centralized model.5) Tesco also decided to do greenfeild investment.

6) California had higher per capita income then US as a whole and was offering a rapidly growing market.7) California was the major fruit and vegetable growing state in US, making for easy sourcing of fresh produce. So F&E built a $100 million distribution centre in riverside country.8) Market research was done. 9) Perhaps as with many british companies, the common language made tesco a little confident in approaching the US market.

Q4- what is the Fresh and Easy preposition?

1) Fresh 2)EasyBoth these attributes possibly contradict each other. format which Tesco is following is

not appropriate with the pelt or the value which they are trying to attach with the pelt.

in california car culture is famous where almost everyone drives to stores.

Does F&E deliver on easy?

8am to 9pm store timings instead of 24hrs.

Frequency of shelf stock outs was high because of overnight inventory stocking plan.

Customers questioned the freshness of packed food.

Looked like hospital décor.Store label was not considered as a

familiar brand.

Did not except American Express card.

Lack of customer reward point.

Q5) Is economic recession to blame?

Well we don’t think so that economic recession is to be blamed,as it is clearly mentioned in the case study that F&E mang. was using the recession as an excuse for not meeting its announced store rollout plan.

Reason being:-Food is recession proof than consumer

durables.Consumers may be more easily enticed to

switch by a strong value proportion.Site leases and construction cost may

have been lower during recession.

Q6)- Assess F&E financial performance against the plan?

F&E operating expenses are projected to be lower for the following reasons:-

1) Efficient store construction & fit-out costs following a standard design

2) 30% lower cost energy.3) Cemented floors,easier to maintain

with low labour.4) Prepackaged produce and reusable

plastic containers, reducing shelf stocking cost.

5) Self check out reducing need for front-end cashiers.

6) Limited store hours.7) Everyday low pricing.

As per exhibit-12 F&E cost of goods (75-77%) is

higher than typical US supermarket (75.3%) because of the emphasis on freshness.

Operating profit of F&E 5% is higher than supermarket (1.8%). So this provides a cusion for F&E to lower prices if necessary.

Targeted weekly sales were $2,00,000

Avg weekly sales per store= $50000 to $60000

75% below the targeted level.

Exhibit - 13Shows Current position of F&E

stores.

Tesco invested $100 million in its distribution centre.

F&E store is projected to generate the sales of =$2,00,000/weak or $10 million/yr

With 145 stores F&E will generate annual revenues of $1.45 billion

Fy 2009-10 529.5 billionAvg. revenues are 42% of

expectations.

Tesco presented its initial investment as a $2 billion, five year plan in nov,2006.

this include:-$ 200 million for distribution centres.$1.5billion for 500 stores i.e avg $3million

each store but they are spending $2 million each store.

But any brand entering into a cluttered market will take time to succeed…..a typical store might take 3 years to achieve break-even volume(as per thump rule).so, it is difficult for F&E to reach its original target.

Exhibit- 12

Customer will make 75 visits per year & spend $15 per visit.

Therefore amount spent by a customer in 1 yr = 75 * $15= $1125Store sales= $10 million/year(given)Therefore F&E needs= 8,888 shoppers/ store = 1.7 million for 200 storesSupermarketCustomer = 59visits/year & spend $41 / visitTherefore 59* $41= $2419 (much higher than F&E)

Thank you

Thank you