Tesco: the UK biggest supermarket Essay

Custom Student Mr. Teacher ENG 1001-04 14 April 2016

Tesco: the UK biggest supermarket

Company Overview

COMPANY OVERVIEW
Tesco PLC (Tesco or ‘the company’) is a food and grocery retailer. The company primarily operates in Europe and Asia. It is headquartered in Hertfordshire, the UK, and employed 519,671 people, on an average, in FY2012.

The company recorded revenues of £64,539 million (approximately $103,223.7 million) in the financial year ended February 2012 (FY2012), an increase of 6.8% over FY2011. The operating profit of Tesco was £3,985 million (approximately $6,373.6 million) in FY2012, an increase of 1.7% over FY2011. The net profit was £2,806 million (approximately $4,487.9 million) in FY2012, an increase of 5.7% over FY2011.

KEY FACTS
Head Office

Tesco PLC
Tesco House
Delamare Road
Cheshunt
Hertfordshire EN8 9SL
GBR

Phone

44 1992 632222

Fax
Web Address

http://www.tescoplc.com

Revenue / turnover 64,539.0
(GBP Mn)
Financial Year End

February

Employees

519,671

London Ticker

TSCO

Tesco PLC
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Tesco PLC
Business Description

BUSINESS DESCRIPTION
Tesco is the UK’s largest retailer and one of the world’s leading retailers. The company operates its retail business through various store formats ranging from small convenience stores to supersized hypermarkets. Its multi-format retail stores comprise Tesco Extra hypermarkets, Tesco supermarkets, Tesco Metro city center stores, and Tesco Express convenience stores. These stores offer grocery items, general merchandise as well as other non-food items such as electrical products. At the end of FY2012, the company operated 6,234 stores in 14 countries located in Europe, Asia and North America.

The company operates through two business lines: retail operations and Tesco Bank. The retail operations business line includes retailing and associated activities across the UK, Asia, Europe and the US.

The UK is Tesco’s largest market. The company operated 2,979 stores in the country at the end of FY2012.
In Asia, the company operates in South Korea, Thailand, China, Malaysia and India. At the end of FY2012, the company had 1,719 stores in Asia. In India, Tesco has an exclusive franchise agreement with Trent, the retail arm of the Tata Group. Tesco has been developing Trent’s retail format Star Bazaar in the country. In Thailand, the company operates stores under the Tesco Lotus banner. Tesco entered the South Korean market in a partnership with Samsung in 1999. Now, Tesco operates through multi format stores in the country. Tesco also has operations in Japan; however, in September 2011, the company announced plans to exit from this region.

Besides the UK, the company operates in the following European countries: Republic of Ireland, Poland, Hungary, the Czech Republic, Slovakia and Turkey. At the end of FY2012, Tesco operated 1,351 stores in these countries.

In the US, Tesco operated 185 stores at the end of FY2012.

The company sources majority of the products from China. Tesco’s international sourcing headquarters are based in Hong Kong. In addition, the company sources more than £300 million ($479.8 million) worth of products from suppliers in India each year and has sourcing offices in Bangalore and Delhi. Tesco also has an international sourcing office in Istanbul which enables it to export Turkish products to its stores across the world.

Tesco Bank is engaged in offering retail banking and insurance services in the UK. At the end of FY2012, it had more than 6.5 million customer accounts across a range of financial products and services. The segment offers consumer credit (including credit cards and unsecured loans), savings accounts, insurance and mortgages.

Tesco PLC
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Tesco PLC
Business Description

The company is also engaged in other retailing services that include online retail channels, www.tesco.com and Tesco Direct. The company is engaged in grocery retailing online at www.tesco.com. Tesco Direct offers general merchandise, clothing and electricals for sale through the internet and catalogue channels. Tesco also offers women’s, kids and men’s clothing online at www.clothingattesco.com. Additionally, the company operates dunnhumby which offers consumer insights, market related research and also supports the Tesco Clubcard. dunnhumby provides these services to external clients as well.

Tesco PLC
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Tesco PLC
History

HISTORY
Tesco was established in 1919. The company introduced the Tesco brand name on tea packets in the 1920s. Tesco opened its first store in 1929 in Burnt Oak, Edgeware in the UK. Its first self-service supermarket was opened in Maldon in 1956. The company established its gasoline station services in 1974.

The company continued its international expansion in the 1990s with the opening of stores in Poland, Hungary, Slovakia and the Czech Republic. During the same period, the company ventured into Taiwan, Thailand and South Korea. Tesco launched its website in 2000. In the following year, the company entered into a strategic relationship with Safeway, an operator of supermarkets in the US, to take the tesco.com home shopping model to the US. In the same year, Tesco entered the Malaysian market.

In 2002, Tesco purchased T&S, a UK based convenience retailer, and HIT, a hypermarket operator in Poland. In the same year, the company was awarded a contract by Xansa to support its supply chain systems. The project included business process and systems re-design, with focus on the supply chain management. In 2003, the company purchased a small Turkish hypermarket chain, Kipa. It also entered the Japanese market in the same year. Also in 2003, Tesco Telecom entered into an agreement with Cable & Wireless, Servista and Vertex Customer Management to introduce a new telecom service.

The company purchased the family-run chain, Admin store, in 2004. In the same year, Tesco formed a 50-50 joint venture with Ting Hsin, the parent company of Ting Cao which operated the Hymall chain of stores in China. Following the joint venture, Tesco acquired 50% of Ting Cao’s equity in Hymall. Also in 2004, Tesco partnered with Jam Warehouse, a South African information technology (IT) company, to build an automated New Product Development system. The system helped in reducing administration around project tracking and approvals and generated process performance metrics to drive continuous improvement.

Also during 2004, Tesco entered into an agreement with Hughes Network Systems Europe (HNSE) to install a solution in order to deliver in-store advertising and information on customer-facing screens at 100 of the company’s UK based stores. HNSE, together with Instrumental Media Group (IMG), delivered the full solution to the company. IMG was responsible for the content shown on the screens, while HNSE was the complete system integrator. In addition to providing the transport infrastructure through its DIRECWAY, a two-way satellite broadband platform, HNSE also has overall responsibility for the installation, operation and maintenance of the entire implementation, inclusive of the screens. Further in 2004, Tesco signed a contract with Infonet to provide and manage a multiprotocol label switching (MPLS)-enabled internet protocol (IP) virtual private network secure communications network. Under the terms of the agreement, Infonet rolled out an IP MPLS network in support of seven main Tesco offices in the UK, India, the Czech Republic, Thailand, Hong Kong and Korea.

Tesco PLC
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Tesco PLC
History

In addition, more than 2,000 of Tesco’s mobile employees started using Infonet’s mobility services for secure, ubiquitous remote network access in 2004.

Tesco and Consensus Business Group entered into a sale and leaseback joint venture for the company’s UK property portfolio in 2005. Tesco and Carrefour swapped their assets such as stores in the Czech Republic, Slovakia and Taiwan in the same year. As part of the agreement, 11 Carrefour stores in the Czech Republic and four stores in Slovakia were transferred to Tesco. In return, Carrefour received six Tesco stores and two sites in Taiwan. Also in 2005, Tesco acquired 21 former BP Safeway gasoline stations from William Morrison and adapted them to the Express convenience store format.

During 2005, the company entered into a new IT services contract with Xansa, which included a minimum revenue commitment over the three years to 2008. Services provided as per the terms of contract included application management, software development and program and project management for a wide range of Tesco’s critical IT systems covering distribution, stock replenishment, products and pricing through to daily shelf-edge labeling.

Xansa also supported Tesco’s UK and Republic of Ireland payroll systems.

Tesco launched a new internet telephone service in 2006. The company also launched a range of horse riding products in the UK. In the same year, it launched a new fishing range which included rods, reels, nets, tackle and bait boxes as well as a junior starter kit. Tesco acquired Leader Price, a polish convenience retailer, in 2006. In the same year, Tesco launched Tesco Direct, a non-food retail segment for selling non-food items to its customers. Further, the company launched an organic clothing range by designer Katharine Hamnett.

It also opened its flagship environmental store in Wick, Northern Scotland. Tesco launched in-store apple zones in 12 stores in the UK. In early 2007, Tesco entered into a joint venture with British Land to lease out 21 of its supermarkets. Later in the year, the company launched milk directly sourced from farms under the brand name ‘local choice’ milk in its stores across England and Wales. The company launched Tesco Book Club in partnership with Random House in mid-2007. Around the same time, Tesco.com launched a new online property venture, Tesco Property Market. Tesco also acquired Dobbies Garden Centers of Scotland and rolled it out as a national chain in 2007.

Further in 2007, the company extended agreement with Xansa for more than three years, covering the support and development of Tesco’s applications together with consultancy services. In South Korea, Tesco acquired 36 hypermarket stores from the E-Land Group in 2008. In the same year, the company acquired 50% shareholding in Tesco Personal Finance Group from The Royal Bank of Scotland. Later, during the year, the company took full control of Tesco Personal Finance Group following approval from the UK Financial Services Authority. Also in 2008, the company sold three of its stores in a joint venture with the independent Tesco Pension Scheme in which the scheme took a 50% stake. Also, four more stores were sold to a PRUPIM annuity fund client in a sale and leaseback deal during 2008.

Tesco PLC
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Tesco PLC
History

Further in 2008, the company signed an exclusive franchise agreement with Trent, the retail arm of the Tata Group based in India, to supply products and offer retail expertise and technical capability to support the development of Trent’s business.

Tesco awarded a five-year contract to Cable & Wireless to provide IT network infrastructure services to the company, in 2008. Under the contract, Cable & Wireless would provide data, fixed and mobile voice telecommunications services and streamline the existing systems into a single IP network. Cable & Wireless was also responsible to connect nearly 1,800 Tesco sites, including stores, regional offices and distribution centers.

Internationally, the network directly connected Tesco’s operations in 14 countries including China, India, Japan, the US, Republic of Ireland and Turkey. Later in 2008, Eircom was awarded a five-year contract by Tesco to implement a next-generation network based on its MPLS platform. The network was implemented in Tesco’s 110 retail and distribution sites around the country, connecting these sites with the company’s Ireland’s head office and integrating them with its global IP platform in the UK.

Fresh & Easy Neighborhood Market opened four new stores in 2009. These stores were the first Fresh & Easy stores to open in Pasadena, Oxnard and Santa Barbara County. In the same year, Tesco introduced over 1,000 new Fresh & Easy products in larger pack sizes and new lines of national brand quality products at its stores.

In 2009, Tesco and Fortis formed a partnership to provide motor and household insurance. The partnership gave Tesco responsibility for retail pricing, sales and marketing, customer service and new product development providing greater control of the insurance products sold under the Tesco brand. Fortis undertook underwriting and claims management. Tesco entered into a partnership with DreamWorks studio for the exclusive rights to sell animated Madagascar Christmas film in 2009. Along with the film, the company also developed the license by offering customers a range of merchandise, including cuddly toys, gift wrap and confectionery.

Also in 2009, the company formed a joint venture with a syndicate of Asian investors, including HSBC Nan Fung China Real Estate Fund, Singapore’s Metro Holdings Ltd and Hong Kong’s Nan Fung Group. The joint venture was formed to develop shopping malls in China. This joint venture was in line with Tesco’s long-term strategy of establishing its presence in China. Later in 2009, Tesco.com launched new Wine App, developed by Cortexica Vision Systems. The application directed the users to Tesco Wine by the case enabling them to buy their selection directly from their mobile phones.

In 2010, Tesco launched a solar electricity and hot water service, offering customers the opportunity to generate their own electricity and slash home energy bills. In the same year, the company updated its grocery application to include a barcode reader enabling customers to add items to their online shopping basket more quickly. Towards the end of 2010, Tesco Bank expanded in Edinburgh with the purchase of a second headquarter building.

In March 2011, Tesco awarded a two year contract to Speedy, a UK based provider of equipment rental and support services, for the supply of framework (including small tools, building equipment

Tesco PLC
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Tesco PLC
History

and general plant) to the company’s supply chain contractors in the UK and Ireland. In the same year, the company launched a new online website TescoCars.com for the sale of cars directly to the customers eliminating middlemen. The new website also offers dedicated after-sales support from a nationwide network of more than 1,000 independent garages to its customers. In July 2011, Tesco invested more than £30 million (approximately $46.3 million) in a new training academy in Asia which will train 24,000 staff each year from across the region.

In September 2011, the company made NCR SelfServ Checkout service available at its stores across Central and Eastern Europe. The service allows customers to scan, bag and pay for goods themselves. In October 2011, the online clothing business of Tesco in the UK extended its delivery service to include international markets beginning with the European Union. In December 2011, Tesco rolled out free Wi-Fi Service in Tesco’s Extra stores nationwide. As part of its commitment to be a zero carbon business by 2050, Tesco Lotus opened Asia’s first zero carbon store in Bang Pra, Thailand in December 2011.

Tesco launched its online grocery shopping service for customers in Prague (the Czech Republic) in January 2012. The new service, the first in its Central European business, offers more than 20,000 lines of fresh and frozen food and groceries, as well as non-food items such as toys, stationery and accessories. In the same month, the company announced a new franchise concept for its F&F brand in order to make it a major global brand. Tesco will coordinate with local partners in order to bring F&F brand to customers through stand-alone stores within shopping malls and units within department stores and hypermarkets.

In April 2012, the company launched a new range of low-priced food under the new brand ‘Everyday Value’, replacing Tesco Value. In the following month, Tesco, in partnership with Fawaz Abdulaziz Al Hokair & Co, opened its first F&F franchise store in Saudi Arabia. Tesco launched a new online portal, Tesco Connect, for its suppliers in June 2012. This helps suppliers to identify product trends and prepare for upcoming promotions, as well as to respond quickly to changes in customer demand. In the same month, the company purchased WE7, a digital music platform. This move will help Tesco to offer a wider choice for the growing number of customers intending to access music instantly on any device, at any time.

Further in June 2012, Tesco entered into an agreement with Aeon, one of the largest retail groups in Japan, to sell 50% of its shares in Tesco Japan to Aeon. This will result in the formation of a joint venture with Aeon. As part of this, Tesco will also invest a further £40 million ($64 million) as a joint venture partner to finance further restructuring. Post this investment, Tesco will have no further financial exposure to the Japanese business or its operations. In September 2012, Tesco acquired Mobcast, a digital book platform provider.

This acquisition will further strengthen Tesco’s digital entertainment offering. In the following month, the company launched its online grocery shopping service for customers in Bratislava and several surrounding towns. The new service offers Slovak customers nearly 20,000 lines of fresh and frozen food, groceries and non-food items such as toys, newspapers and magazines, and basic household items.

Tesco PLC
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Tesco PLC
History

Tesco launched a new commuter zone on its grocery website in November 2012. This zone enables its customers to shop through mobile devices during working week. It also enables customers to choose a convenient delivery slot that suits their weekly routine, with no extra delivery cost for Delivery Saver customers. In the same month, Tesco launched Easy Entertaining, an online one-stop-shop for customers’ party needs.

In January 2013, Aviva signed a three-year deal to become Tesco Bank’s fifth private motor insurance provider. Aviva will also provide life protection products, including life insurance and critical illness cover. In the same month, Tesco relaunched its baby offering under the Tesco Loves Baby brand to grow its baby market share as part of its efforts to improve the performance of its non-food business. Tesco’s Baby and Toddler Club was also relaunched as the Tesco Loves Baby Club, with a new website containing advice and information for parents and parents to be.

Tesco PLC
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Tesco PLC
Key Employees

KEY EMPLOYEES
Name

Job Title

Board

Philip Clarke

Group Chief Executive

Executive Board

1155000 GBP

Laurie McIlwee

Chief Financial Officer

Executive Board

1137000 GBP

Richard Broadbent

Chairman

Non Executive Board

281000 GBP

Patrick Cescau

Senior Independent Director

Non Executive Board

120000 GBP

Gareth Bullock

Director

Non Executive Board

82000 GBP

Stuart Chambers

Director

Non Executive Board

100000 GBP

Karen Cook

Director

Non Executive Board

82000 GBP

Ken Hanna

Director

Non Executive Board

94000 GBP

Ken Hydon

Director

Non Executive Board

100000 GBP

Deanna Oppenheimer

Director

Non Executive Board

Jacqueline Tammenoms
Bakker

Director

Non Executive Board

Mike McNamara

Chief Information Officer

Senior Management

Chris Bush

UK Managing Director

Senior Management

Jill Easterbrook

ROI, One Stop and New Business
Director

Senior Management

Kevin Grace

Group Commercial Director

Senior Management

Bob Robbins

Group Business Improvement
Director

Senior Management

Rebecca Shelley

Group Corporate Affairs Director

Senior Management

Ken Towle

Online Food and Internet Retailing
Director

Senior Management

Alison Horner

Group Personnel Director

Senior Management

Gordon Fryett

Chief Executive Officer, Europe and Senior Management
Group Property Director

Benny Higgins

Chief Executive Officer, Tesco Bank Senior Management

Trevor Masters

Chief Executive Officer, Asia

Senior Management

Matt Atkinson

Group Marketing and Chief Digital
Officer

Senior Management

Adrian Morris

Group General Counsel

Senior Management

Jonathan Lloyd

Company Secretary to the Board

Senior Management

Tesco PLC
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Compensation

82000 GBP

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Tesco PLC
Key Employee Biographies

KEY EMPLOYEE BIOGRAPHIES
Philip Clarke
Board: Executive Board
Job Title: Group Chief Executive
Since: 2011
Age: 51
Mr. Clarke has been the Chief Executive Officer at Tesco since 2011. Prior to this, he was the Asia, Europe and IT Director. Mr. Clarke joined the Tesco Management Training Programme and then spent nine years in store management. He also held a number of positions in commercial and marketing. In 1994, Mr. Clarke was appointed Stores Director and a year later promoted to Regional Managing Director, before joining the company’s Board as Supply Chain Director and a year later added IT to his responsibilities.

Laurie McIlwee
Board: Executive Board
Job Title: Chief Financial Officer
Since: 2009
Age: 49
Mr. McIlwee has been the Chief Financial Officer at Tesco since 2009. He has also been a Director at the company since 2009. He joined the company in 2000 as the UK Finance Director and after four years became Distribution Director. Prior to Tesco, Mr. McIlwee worked for PepsiCo in a variety of Finance and General Management roles in the UK, the US, Central Europe and the Middle East. He is a Fellow of the Chartered Institute of Management Accountants and a member of The Hundred Group of Finance Directors.

Richard Broadbent
Board: Non Executive Board
Job Title: Chairman
Since: 2011
Age: 58
Sir Broadbent has been the Chairman at Tesco since 2011. He has also been a Director at the company since 2011. Sir Broadbent began his career at HM Treasury before joining Schroders in 1986. In 2000, he was appointed the Executive Chairman at HM Customs and Excise. Sir Broadbent also joined the Management Board of the UK Civil Service, serving in both roles until 2003. In 2003, he was appointed to the Board of Barclays and became Senior Independent Director in 2004 and

Tesco PLC
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Tesco PLC
Key Employee Biographies

Deputy Chairman in 2010. Sir Broadbent stepped down from the Board of Barclays in 2011. He joined the Board of Arriva in 2004 and served as its Chairman from 2004 to 2010.

Patrick Cescau
Board: Non Executive Board
Job Title: Senior Independent Director
Since: 2010
Age: 63
Mr. Cescau has been the Senior Independent at Tesco since 2010. He was appointed a Director at the company in 2009. Mr. Cescau was the Group Chief Executive at Unilever from 2005 to 2009. Prior to that, he was the Chairman at Unilever plc and the Vice Chairman at Unilever NV. Currently, Mr. Cescau also serves as a Director at International Consolidated Airlines Group, and INSEAD. He also serves as the Senior Independent Director at Pearson.

Gareth Bullock
Board: Non Executive Board
Job Title: Director
Since: 2010
Age: 58
Mr. Bullock has been a Director at Tesco since 2010. He has also been a Director at Tesco Bank since 2012. Mr. Bullock was the Group Executive Director at Standard Chartered until his retirement in 2010. Currently, he is also the Senior Independent Director and Chairman of the Remuneration Committee at Spirax-Sarco Engineering.

Stuart Chambers
Board: Non Executive Board
Job Title: Director
Since: 2010
Age: 55
Mr. Chambers has been a Director at Tesco since 2010. He has also been a Director at Tesco Bank since 2012. Mr. Chambers was the Group Chief Executive at NSG Group from 2008 to 2009. Prior to NSG’s acquisition of Pilkington in 2006, he was the Group Chief Executive at Pilkington. Previously, Mr. Chambers held a number of senior roles at Pilkington and the Mars Corporation. Currently, he also serves as a Director at Smiths Group and Manchester Airport Group. Mr. Chambers has also been the Non Executive Chairman at Rexam since 2012.

Karen Cook

Tesco PLC
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Tesco PLC
Key Employee Biographies

Board: Non Executive Board
Job Title: Director
Since: 2004
Age: 58
Ms. Cook has been a Director at Tesco since 2004. She is also a Managing Director at Goldman Sachs International and the President of Goldman Sachs, Europe. Ms. Cook is also a member of Goldman Sachs’ European Management Committee and of the Partnership Committee. She will retire from Tesco’s Board on February 23, 2013.

Ken Hanna
Board: Non Executive Board
Job Title: Director
Since: 2009
Age: 58
Mr. Hanna has been a Director at Tesco since 2009. He is the Chairman at Inchcape and a Non Executive Director at Aggreko. Mr. Hanna was previously the Chief Financial Officer at Cadbury. Prior to that, he was an Operating Partner at Compass Partners and Chief Financial Officer and then Chief Executive Officer at Dalgety. Mr. Hanna is also the Chief Financial Officer at United Distillers and Avis Europe.

Ken Hydon
Board: Non Executive Board
Job Title: Director
Since: 2004
Age: 67
Mr. Hydon has been a Director at Tesco since 2004. He retired from the position of Finance Director at Vodafone Group in 2005. Mr. Hydon is also a Director at Reckitt Benckiser, and Pearson. He was a Non Executive Director at The Royal Berkshire NHS Foundation Trust from 2005 until 2012. Mr. Hydon will retire from Tesco’s Board on February 23, 2013.

Deanna Oppenheimer
Board: Non Executive Board
Job Title: Director
Since: 2012
Age: 53
Ms. Oppenheimer has been a Director at Tesco since 2012. She has also been a Director at Tesco Bank since 2012. From 2005 to 2011, Ms. Oppenheimer held various senior roles at Barclays,

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Tesco PLC
Key Employee Biographies

including Chief Executive of UK Retail and Business Banking, Vice Chair of Global Retail Banking and Chief Executive of Europe Retail and Business Banking. Prior to Barclays, she was Marketing Director and later President of Consumer Banking at Washington Mutual. Ms. Oppenheimer also serves as a Director at Catellus and Plum Creek Timber.

Jacqueline Tammenoms Bakker
Board: Non Executive Board
Job Title: Director
Since: 2009
Age: 58
Ms. Bakker has been a Director at Tesco since 2009. She served as the Director General at the Ministry of Transport in the Netherlands from 2001 to 2007. Previously, Ms. Bakker held senior positions at Quest International, McKinsey & Co and Shell. Currently, she is also a Director at Vivendi.

Mike McNamara
Board: Senior Management
Job Title: Chief Information Officer
Age: 48
Mr. McNamara is the Chief Information Officer at Tesco. Previously, he was on the Board of Tesco.com from 1999 to 2006. Mr. McNamara was appointed the UK IT Director for the stores business in 2006 and worldwide Head of Operations Development and IT in 2007. Prior to Tesco, he served at Accenture and British Telecom.

Chris Bush
Board: Senior Management
Job Title: UK Managing Director
Since: 2013
Age: 47
Mr. Bush has been the UK Managing Director at Tesco since January 2013. He joined the company in 1982 and has held various positions, including Store Manager, Stores Director and International Support Office Director. In 2004, Mr. Bush was appointed the Chief Operating Officer of Tesco Homeplus and later became Chief Executive Officer of Tesco Malaysia in 2006. In 2010, he was appointed Chief Executive Officer of Thailand and in 2012 took up the role of Chief Operating Officer UK.

Jill Easterbrook

Tesco PLC
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Tesco PLC
Key Employee Biographies

Board: Senior Management
Job Title: ROI, One Stop and New Business Director
Since: 2012
Age: 41
Ms. Easterbrook has been the ROI, One Stop and New Business Director at Tesco since 2012. She joined the company in 2001 as a Business Development Manager. In 2003, Ms. Easterbrook was appointed the Business Development Director. In 2005, she was appointed to the role of Store Director after completing the Store Director Academy. Ms. Easterbrook was appointed the Director of the Corporate Affairs in 2007, and Group Strategy Director in 2008. She assumed the Director for Clothing Direct role in 2011 and the Commercial Director, UK Clothing role in 2011.

Kevin Grace
Board: Senior Management
Job Title: Group Commercial Director
Age: 46
Mr. Grace is the Group Commercial Director at Tesco. He joined the company in 1982 and has held a number of roles, including Support Office Director, Chief Operating Officer of South Korea, Chief Executive Officer of Poland and UK Property Director.

Bob Robbins
Board: Senior Management
Job Title: Group Business Improvement Director
Age: 55
Mr. Robbins is the Group Business Improvement Director at Tesco. He joined the company in 1975 and has held a number of roles, including Chief Executive Officer of Asia, Chief Executive Officer of Central Europe, and Strategy and Development Director Asia. Mr. Robbins also held a number of retail, marketing and general management roles at the company.

Rebecca Shelley
Board: Senior Management
Job Title: Group Corporate Affairs Director
Since: 2013
Age: 47
Ms. Shelley has been the Group Corporate Affairs Director at Tesco since January 2013. Prior to joining the company in 2012, she served as a Partner at Brunswick. From 2000 to 2007, Ms. Shelley worked at Prudential, most recently as Group Communications Director and before that as Group

Tesco PLC
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Tesco PLC
Key Employee Biographies

Investor Relations Director. Prior to joining Prudential, she was the Director of Investor Relations and Corporate Communications at Norwich Union.

Ken Towle
Board: Senior Management
Job Title: Online Food and Internet Retailing Director
Age: 47
Mr. Towle is the Online Food and Internet Retailing Director at Tesco. He joined the company in 1985 and has held a number of roles, including various UK operations roles and President and Chief Executive Officer of Tesco China.

Alison Horner
Board: Senior Management
Job Title: Group Personnel Director
Age: 45
Ms. Horner is the Group Personnel Director at Tesco. In 2003, she moved to the UK and Ireland operations where she held a number of line management roles including Operations Director. Ms. Horner joined Tesco in 1999 as a Personnel Manager.

Gordon Fryett
Board: Senior Management
Job Title: Chief Executive Officer, Europe and Group Property Director Age: 58
Mr. Fryett is the Chief Executive Officer, Europe and Group Property Director at Tesco. He joined the company in 1969 and since then has held a number of roles, including Operations Director, International Support Director, Chief Executive Officer of Republic of Ireland and UK Property Director. Currently, Mr. Fryett is also a Director at Seven Trent.

Benny Higgins
Board: Senior Management
Job Title: Chief Executive Officer, Tesco Bank
Since: 2008
Age: 52
Mr. Higgins has been the Chief Executive Officer at Tesco Bank since 2008. Before joining Tesco Bank, he served as the Chief Executive Officer of Retail Business at HBOS. Between 1997 and

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Tesco PLC
Key Employee Biographies

2005, Mr. Higgins was the Chief Executive of Retail Banking at the Royal Bank of Scotland. Prior to that, he was at Standard Life for 14 years.

Tesco PLC
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Tesco PLC
Major Products and Services

MAJOR PRODUCTS AND SERVICES
Tesco is a food and grocery retailer. The company’s key products and services include the following: Products:
Food
Electrical goods
Home and garden products
Toys
Sports and leisure products
Baby and toddler products
Health and beauty products
Clothing
Gifts and jewelry
Entertainment and books
Services:
Telecommunication services
Financial services (such as credit cards, loans, savings accounts, insurance and mortgages) Brands:
Tesco
Finest
Everyday Value
Lifespace
Homeplus
Tesco Lotus
kipa
Fresh & Easy
Tesco Bank
F&F
Tesco Loves Baby

Tesco PLC
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Tesco PLC
Revenue Analysis

REVENUE ANALYSIS
Overview
The company recorded revenues of £64,539 million (approximately $103,223.7 million) in FY2012, an increase of 6.8% over FY2011. For FY2012, the UK, the company’s largest geographic market, accounted for 66.5% of the total revenues.

Tesco generates revenues through two business lines: retail operations (98.4% of the total revenues in FY2012) and Tesco Bank (1.6%).
Revenues by business line
During FY2012, the retail operations business line recorded revenues of £63,495 million (approximately $101,553.9 million), an increase of 6.6% over FY2011. The Tesco Bank business line recorded revenues of £1,044 million (approximately $1,669.8 million) in FY2012, an increase of 13.6% over FY2011.

Revenues by geography*
The UK, Tesco’s largest geographical market, accounted for 66.5% of the total revenues in FY2012. Revenues from the UK reached £42,248 million (approximately $67,571.5 million) in FY2012, an increase of 5.3% over FY2011.

Asia accounted for 17% of the total revenues in FY2012. Revenues from Asia reached £10,793 million (approximately $17,262.3 million) in FY2012, an increase of 10.5% over FY2011. Europe accounted for 15.5% of the total revenues in FY2012. Revenues from Europe reached £9,826 million (approximately $15,715.7 million) in FY2012, an increase of 7.3% over FY2011. The US accounted for 1% of the total revenues in FY2012. Revenues from the US reached £628 million (approximately $1,004.4 million) in FY2012, an increase of 26.9% over FY2011. *The sum of the revenues by geography differs with the total revenues as it does not include revenues generated by the Tesco Bank business line.

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Tesco PLC
SWOT Analysis

SWOT ANALYSIS
Tesco is a food and grocery retailer. The company has been building a sustainable business model over the years through diversification into new geographies and value oriented retailing. International diversification helps Tesco to reduce its business risk as well as facilitate incremental sales through operations in growth markets. On the other hand, value oriented retailing builds on customer loyalty and helps to sustain revenue growth even in a difficult economic scenario. However, with the competition intensifying in the UK market, customer retention could become a primary concern for the company and can also lead to loss of market share.

Strengths

Weaknesses

Sustainable business model through diversification and value oriented retailing
Focus on developing non-food categories
Complementing retailing services

Product recalls could hamper the brand image of the company
Weak performance of Fresh & Easy brand
in the US

Opportunities

Threats

Strong growth in Chinese, Indian and
Thailand markets provides long term growth prospects
Growing use of online channel for making purchases
Strong private label portfolio enables the company to effectively differentiate

Intense competition affects customer retention adversely
Demographic factors and change in consumer shopping preferences leading to decline in customer traffic at hypermarkets
New legislations

Strengths

Sustainable business model through diversification and value oriented retailing Tesco, one of the leading retailers in the world, has been building a sustainable business model over the years through diversification into new geographies and value oriented retailing. In 2000, Tesco operated in markets that represented 8% of global Gross Domestic Product (GDP) and currently it operates in countries which together contribute more than 50% of the GDP. While in 1997 Tesco’s international business generated 1.8% of profits, this grew to 30% in FY2012. Presently, Tesco holds either number one or number two position in eight of the 12 markets outside the UK where it operates. International expansion has given the company momentum to grow well through the economic downturn. Furthermore, the company is replicating measures to gain market share on a global scale. In FY2011, Tesco has expanded its stores under the F&F banner in 10 markets and became the market leader in clothing in the Czech Republic, Hungary and Slovakia. Further, in April

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2012, the company opened its first F&F franchise store in Saudi Arabia. Wide spread operations of F&F helped Tesco gain from economies of scale. In Central Europe, 95% of the company’s clothing supplier base is the same as in Ireland and the UK, allowing Tesco to gain from bulk buying. Wide spread operations enable Tesco to share global best practices and drive efficiencies and sales. Another key factor that has helped the company to build a sustainable business model is its value oriented retailing. Clubcard, Tesco’s customer loyalty programme which was launched in 1995, is one of the longest running loyalty schemes in the UK. At the end of FY2012, Clubcard had approximately 16 million customers as its active members compared with 13 million at the start of FY2009.

It was also observed that benefits offered by Clubcard were one of the key reasons behind customers switching to Tesco for their weekly shopping during FY2011. Further, in September 2011, Tesco launched The Big Price Drop, investing more than £500 million (approximately $772.9 million) in lowering prices on over 3,000 everyday product lines. Big Price Drops target the products that customers buy on weekly basis. Through the value oriented approach, Tesco is driving the customer footfall which will facilitate continuous customer acquisition even in a low growth environment. In April 2012, the company launched a new range of low-priced food under the new brand ‘Everyday Value’, replacing Tesco Value. Through this new brand approach, Tesco is focusing on offering better quality, healthier food, and improved packaging at the same price. Thus, international diversification helps Tesco to reduce its business risk as well as facilitate growth through operations in growth markets. Additionally, value oriented retailing builds on customer loyalty and helps sustain revenue growth even during difficult economic times. Focus on developing non-food categories

Tesco has been expanding its offering in the non-food merchandise category, especially electrical products, in the recent times. The company partnered with DreamWorks studio in 2009, for the exclusive rights to sell the short animated Christmas film Merry Madagascar. This relationship was the first of its kind in the industry and gave Tesco an opportunity to sell over one million Merry Madagascar digital versatile discs. In the electrical products category, with competitive prices, a wide assortment and with 1,000 Tesco Tech Support advisors in over 200 of the company’s largest UK based stores to help customers make their choices, the company has rapidly grown its non-food business.

In 2010, one in every six microwaves and one in every four small-screen televisions (TVs) sold in the UK was from Tesco’s stores. Additionally, Tesco was the first UK supermarket to stock the Apple iPad and the Amazon Kindle, two of the most sought after technology products in the market, at its stores. Furthermore, the company ventured into the sale of cars in 2011, with the launch of a new online website TescoCars.com. The website also offers dedicated after-sales support from a nationwide network of more than 1,000 independent garages to its customers. Tesco enjoys several unique competitive advantages that have helped it to establish itself in the non-food retailing market. Tesco has superior retail destinations. Additionally, the company offers lower pricing as it enjoys superior bargaining power. Furthermore, Tesco leverages its online channel to offer superior range. Tesco Direct bridges the gap in range compared to the specialists with 23,000 products online, boosting Tesco’s range authority in a number of non-food categories and helping it to compensate for lack of a full non-food offer in locations where a Tesco Extra is not present. The

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SWOT Analysis

company also launched a clothing website, www.tesco.com/clothing, in FY2010. This website which includes F&F branded products and other well-known brands became popular among the customers. Tesco is currently the fastest growing online retailer in the clothing, footwear and accessories market in the UK. In the entertainment category, the company acquired 80% stake in blinkbox, London-based online video service, in 2011. With blinkbox, customers can stream and download TV shows and films with both ad-supported and paid-access models. Tesco is the leading supermarket in the UK for general merchandise, clothing, and electricals range.

Internationally, it holds number one or number two position in nine markets in the general merchandise, clothing, and electricals range. Growing its non-food business will be instrumental in Tesco’s future growth since the UK grocery market has reached a certain level of saturation. For Tesco to grow profitably it has become imminent to sell merchandise other than grocery items to existing customers rather than attracting many more new customers, which is very difficult as it has limited customer base to capture. Thus, retailing of non-food products will be one of the key growth drivers for Tesco as the UK market reaches maturity phase.

Complementing retailing services
Tesco has increased focus on its retailing services which comprises online
retailing, banking, telecom and market research. All of these services complement each other as well as Tesco’s core retail operations.

The company’s online retailing business includes online grocery retailing and Tesco Direct. In FY2011, the company upgraded its website, www.tesco.com, to launch an iPhone grocery application. The application has been very popular and accounted for more than 12% of customer traffic to its website in FY2011. Tesco Direct offers general merchandise, clothing and electricals through the internet and catalogue channels. The company’s has been investing towards the development of its multi-channel shopping facility through Tesco Direct. This includes ordering online and then pick up in-store or order in-store and have the goods delivered to their homes.

The company began offering financial services in the mid 1990s. Tesco Bank principally focuses on offering consumer credit (including credit cards and unsecured loans), savings accounts, insurance and mortgages. The number of transactions made through its credit cards increased by 57% since 2008. In FY2012, Tesco Bank credit cards accounted for 12% of all MasterCard and Visa credit card transactions in the UK compared to 9% in FY2009. The automated teller machine (ATM) transactions and travel money transactions grew by 9% and 12%, respectively, in FY2012. The bank had more than 6.5 million customer accounts at the end of FY2012. Also, around 1.5 million people insured their cars and homes with Tesco Bank at the end of FY2012.The car and pet insurance gross written premiums increased by 39% and 44%, respectively, since 2008. Customer accounts in loans and savings have increased by 30% since 2008.

Tesco also operates Phone Shops in Tesco’s stores across the UK. In FY2011, Tesco also expanded its Phone Shops network to Tesco’s Extra stores in Central Europe. Tesco also operates Tesco Mobile, a mobile virtual network operator in the UK, Ireland and Slovakia. The company entered the international calling card market in 2010. dunnhumby offers insights to various companies with respect to customer buying behavior by using sources such as transaction and loyalty cards as well

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Tesco PLC
SWOT Analysis

as overlay research, media and online data. The insights are then used by its clients to formulate their business strategies. Some of dunnhumby’s key clients include Casino, The Kroger Co., Procter & Gamble, Shell, Coca-Cola and Mars.

The retailing services have complemented the core retail business in several ways. According to a research conducted internally by Tesco in 2009, customers who use two retailing services spend four times as much in store than those who don’t use any services, and customers with a Tesco credit card spend 30% more on purchases compared with customers without a Tesco credit card. Furthermore, customers with two retailing services are 25% less likely to stop shopping at Tesco over a 12 month period than customers without services. Additionally, bank branches and phone shops drive more customers to Tesco’s stores. The company’s cost base is also positively impacted by these services. Tesco has to pay a significant amount of money to banks as interchange fees for card transactions. However, its own banking services save interchange fees on card transactions to some extent.

Integrated retail services offer a unique competitive advantage for Tesco and provide several opportunities to cross sell. Customers are increasingly expecting an integrated, multi-channel offer in which they can mix-and-match amongst delivery channels and ‘touch-points’ and the company’s services provide these advantages. Tesco is expanding retailing services globally to leverage on opportunities in other markets as well. These services will drive margins and will also contribute to revenues incrementally.

Weaknesses

Product recalls could hamper the brand image of the company

Tesco has recalled several products in recent times. In January 2013, the company recalled Everyday Value burger due to contamination with horse meat. In the same month, Tesco recalled some of their Finest Belgian Chocolate Salted Caramel and Hazelnut ice cream as a packaging error resulted in a batch of this product being incorrectly filled with Orange Blossom Honey and Almond ice cream. In August 2012, Tesco recalled its own-brand Prawn Masala and Pilau Rice due to incorrect ‘use by’ date. In June 2012, R&R Ice Cream voluntarily recalled its Chokablok ice cream multi-packs from customers who purchased the product in Tesco and One Stop stores in the UK due to their contamination with wood fragments. In February 2011, Tesco recalled four of its ready meals as some of the mashed potato contained in them may have been subject to metal poisoning. Frequent recalls indicate low quality controls and may erode consumer confidence in the company’s products. Weak performance of Fresh & Easy brand in the US

Tesco operates in the US through Fresh & Easy brand. At the end of FY2012, the company operated 185 stores in the US. Tesco has been operating in the US since 2007; however, the company has registered a weak performance in the country. The company carried out an extensive research, as well as built test stores to understand the shopping preferences of the US customers before entering

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SWOT Analysis

the market. Despite this, it failed to match its merchandise mix with the preferences and tastes of American shoppers. For instance, the US shoppers prefer to buy in bulk to save money, where as Fresh & Easy offered small pack sizes. Also, Fresh & Easy stocked British-style ready meals that were unfamiliar to the US shoppers and initially relied heavily on self-service tills. As American shoppers attach value to good service, this move of Tesco was not appreciated. Also, the company was not able to open stores in right places where its target market was concentrated. Such factors have been affecting the performance of Fresh & Easy stores in the US. As a result of declining performance, the company is considering plans to exit from the US. Tesco’s exit from the US market is indicative of its inability to adapt its operations to the local conditions in foreign markets. This could limit the growth avenues for the company.

Opportunities

Strong growth in Chinese, Indian and Thailand markets provides long term growth prospects Tesco’s business in Asian countries will benefit from the strong growth potential of these markets. According to industry estimates, the GDP of developing Asia is expected to grow by 7.2% in 2013. Asia’s retail sales are estimated to increase with China and India driving the growth. According to the National Bureau of Statistics of China, the total retail sales of consumer goods in the country reached CNY18,122.6 billion ($2,799.9 billion) in 2011, an increase of 17.1% over the previous year. From January 2012 to November 2012, the total retail sales of consumer goods reached CNY18,683.3 billion ($2,955.7 billion), a year-on-year increase of 14.2%. According to industry experts, China’s retail sales are estimated to increase from approximately CNY20 trillion ($3 trillion) in 2012 to approximately CNY26 trillion ($4 trillion) in 2016, representing an increase of around 30%. Key factors that are expected to contribute to the retail market expansion in China include positive economic trends, rising population and increasing wealth of individuals.

Tesco entered the Chinese market in 2004 and currently has a network of more than 120 stores. The company serves around 4.4 million customers every week. To leverage on the strong growth shown by the Chinese retail market, Tesco has been expanding its business in the country. The retail industry in India is also large owing to large population and is set to grow as several factors contribute. According to industry sources, India’s retail market is expected to grow at a rate of 15%–20% over the next five years led by several factors, including rising population, increasing wealth of individuals and increased construction of organized retail infrastructure. In India, Tesco has franchise agreement with Trent, the retail arm of the Tata Group. In association with its franchisee partner, Tesco has been developing its Star Bazaar hypermarket operation in India. Other Asian nations such as Thailand also hold a huge potential for growth. Tesco Lotus, the company’s business in Thailand, is one of its successful international businesses. Currently, Tesco operates 1,257 stores in Thailand.

Tesco’s efforts to build a strong network of stores in these countries will not only add to the company’s geographic diversification but also reduce business risk that comes with reduced exposure to mature European market. Presence in growth economies will also facilitate top-line growth.

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Tesco PLC
SWOT Analysis

Growing use of online channel for making purchases
The online channel has been gaining popularity in Europe. According to industry estimates, in 2011, online sales in Europe (including the UK) grew by more than 18% to approximately E200 billion (approximately $278 billion). The online sales in Europe are estimated to reach nearly E233 billion (approximately $324 billion) in 2012, representing an increase of 16% over 2011; it is estimated to account for 8.8% of the total European retail spending in 2012 by industry sources. Shopping over internet has been gaining strength in Europe due to several reasons, including the growing desire for convenience and search for better deals. Improved delivery and fulfillment options also encourage consumers to shop more online.

Internet has kept its popularity even during the economic recession as the channel has several counter recessionary characteristics such as low operational costs which can be passed on to the consumers. Consumers continue to look to the web for purchasing increasingly because of the benefits they find in using this channel. Tesco launched its online grocery business 12 years ago and has over the years invested in the growth of the channel. In 2011, the online clothing business of Tesco in the UK extended its delivery service to international markets beginning with nations in the European Union. Further in the year, the company launched a new online website, www.TescoCars.com, for the sale of cars directly to the customers eliminating middlemen.Tesco also updated its grocery application to include a barcode reader enabling customers to add items to their online shopping basket more quickly in 2011. Tesco’s penetration in the online retailing channel provides the company an opportunity to expand its addressable market and meet the customer needs effectively.

Strong private label portfolio enables the company to effectively differentiate The market trends suggest that the private label market is estimated to grow enabling Tesco to leverage on its strong portfolio. Tough economic situation in the European Union has resulted in the migration of customers towards private label offerings on an unprecedented scale. According to the industry resources, private label brands gained market share in 20 countries across Europe in 2012. Industry sources cite that more than 40% of the products sold in Switzerland, the UK, Spain, Portugal and Belgium were private label products. The penetration of private label goods is especially high in Switzerland, followed by Spain and the UK. In countries such as Poland, the Czech Republic, and Slovakia also private label goods have been gaining preference over the national brands.

Tesco has a strong line of offerings in the private label category. The company’s pillar brands comprising Finest and Everyday Value are the leading brands in the UK market. Each brand generates sales of more than £1 billion (approximately $1.5 billion) per year, more than that of Coca-Cola. The company further expanded it private label offerings with the launch of Parioli, its Italian food range, Lathams and ChokaBlok ice cream in the first half of FY2012. The company’s private label offerings in the non-food category have also been performing well. In January 2013, Tesco relaunched its baby offering under the Tesco Loves Baby brand to grow its market share in the baby market. Private label brands help in increasing customer traffic as they are priced low compared with the national brands. Additionally, private label brands also offer higher profits positively impacting retailers’ margins. Thus, strong portfolio of private offering enables Tesco to effectively differentiate itself and

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SWOT Analysis

also establish a strong presence in some of the fast growing markets amid the adverse economic conditions.

Threats

Intense competition affects customer retention adversely

Although the grocery industry in the UK is fairly consolidated, with majority of the market owned by just four players, it is fiercely competitive. Tesco faces severe competition from the retailers such as Sainsbury, ASDA, and Wm Morrison Supermarkets, as well as from numerous other small players and local store operators. These retailers have strong brand awareness and a long history of market presence. In addition, the company competes directly with larger retail players such as Wal-Mart Stores in many of the markets it operates. This retailer has large market presence and larger economies of scale, which provides greater power to negotiate for better margins with vendors. Tesco, in the times of economic downturn, has been losing the customer base.

Lower prices and sharper promotions are maintaining Tesco’s appeal to a broad customer base and driving robust sales growth. However, its grocery market share reached 30.7% in the 12 weeks to November 25, 2012, representing a decrease of 0.3% compared to the same period previous year. In comparison, Sainsbury’s grocery market share grew by 0.2% to 16.9% during the same period. Competition has intensified considerably and consumers are shopping around. With price becoming a more influential factor, key rivals taking a more aggressive stance on price and enhancing their private label ranges, the group of price sensitive shoppers is seeking out retailers offering merchandise at low prices. In addition, Tesco is also losing its share in China’s hypermarket industry as majority of the Chinese shoppers are opting for local produce. Global big box retail chains like Tesco are also facing problems to expand their store base in Asia due to complex local markets and slowing economies. Another competition that is brewing up is with the foray of Amazon into online grocery market. Amazon is a leading online retailer and has strong distribution and marketing, access to suppliers of all sorts of specialty items.

Although Tesco is a leading retailer in the food products segment and Amazon has little experience, in the online retail market, whether companies stand or fall is dependent on the quality of their technology and logistics. In that context, Amazon can be a formidable competitor. Already, electricals, books, music, all non-food key areas for Tesco, are exactly the product ranges in which Amazon has a strong position. Further, Amazon’s expansion of groceries it offers online during 2012 may also threaten the power that Britain’s supermarkets have over product suppliers. While in the UK, Tesco has been losing customers amid intense competition, with the entry of Amazon in the country’s grocery market, customer retention can become a primary concern for the company and can also lead to further loss of market share.

Demographic factors and change in consumer shopping preferences leading to decline in customer traffic at hypermarkets

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Against the backdrop of challenging trading conditions, hypermarkets with high focus on non-food sales have suffered. For most consumers, a revamped neighborhood store is easier and more convenient to reach than an out-of-town hypermarket. Also, a growing number of single person households means that more customers will be shopping for a single person, and the propensity for a large weekly shop at an out of town hypermarket will decline. Furthermore, the convenience of ordering online and having it delivered is also a growing threat for hypermarkets and supermarkets. Considering all these factors, market saturation in most European countries is nearing.

Although the degree of influence of these changes varies across the continent, the trend that saw shoppers going outside of local high streets for their shopping has, to an extent, been arrested. In response to these demographic changes and changes in consumer shopping preferences, Tesco took various measures during FY2011, including remodeling and conversion of some of the company’s old hypermarkets across Central and Eastern Europe. The company also extended its range of offering by introducing more than 5,000 products at hypermarkets. It has also introduced product-specialist employees at hypermarkets to improve customer service, and added complementary services such as Phone Shop, optical shops and pharmacy to provide customers with a wide range of general merchandise products. Thus, the change in customer shopping patterns can adversely impact the revenues of the company.

New legislations
The Groceries Code Adjudicator (GCA), which is in the final stages of its passage through parliament, is aimed at monitoring the actions of supermarkets exercising their power in the marketplace to impose unfavorable terms on suppliers. The GCA applies to the 10 UK retailers with a turnover in the groceries market of £1 billion (($1.6 billion) or more. The GCA will be authorized to impose financial penalties on supermarkets for coercing suppliers and farmers to reduce prices or undertake any such inappropriate measures. The authority will also be able to arbitrate disputes between retailers and suppliers, investigate complaints from direct and indirect suppliers, and penalize retailers if found guilty of breaching standard practices. Continuous monitoring of business practices through such
legislations could pressurize the grocery retailers’ operations.

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Tesco PLC
Top Competitors

TOP COMPETITORS

The following companies are the major competitors of Tesco PLC

ASDA Group Limited
J Sainsbury plc
Wm Morrison Supermarkets PLC
Wal-Mart Stores, Inc.
Lidl Dienstleistung GmbH & Co. KG
Netto Foodstores Limited
Waitrose Limited
Marks and Spencer Group plc
ALDI Group
Amazon.com, Inc.
Rallye SA

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Tesco PLC
Company View

COMPANY VIEW
A statement by Richard Broadbent, the Chairman at Tesco, is given below. The statement has been taken from the company’s Annual Report for FY2012.
Nearly six months after taking over from Sir David Reid, it is good to have this opportunity to share my perspective on recent developments which I will do under three headings: context; transition; and governance.

Context
There are many things that strike a newcomer to Tesco. This is a business with an unusual range and depth of core competencies; it has outstanding operational effectiveness; it understands deeply what it means to orientate a business around the customer; it is passionate, and successful, about developing talent from within; and it manages a complex operating environment with great team work.

It is also a business that is not afraid to learn and change, capacities perhaps more than any others which are essential to long-term growth. In this respect there are three areas in particular worth identifying.

First, Tesco is a business with significant strategic optionality. It has expertise and capital, human and financial, that can be leveraged in different geographies, in different sectors of retailing and through new and different channels, notably of course the internet. The development of these opportunities can make Tesco a stronger company and benefit the UK as a whole. And with such opportunity also comes responsibility – to ensure that the trade-offs between different investments are reached in a disciplined way; and that the optimum balance is struck overall between current returns and future growth.

Second, as the business grows internationally, it is important not only that we explain ourselves to the world but also that we listen and see ourselves as others do. Since arriving at Tesco last year I have visited many different parts of the business around the world, met many of our staff, talked to shareholders, suppliers, commentators, community leaders and to customers. This is the broader context of our business to which we need continuously to relate, openly, honestly and constructively for the
long-term benefit of our business.

Third, I have been impressed by the skills, commitment and values held by the people who work at Tesco and all of whom not only contribute to its success but make the company what it is. They are a great team and all those with a stake in Tesco have reason to admire and be grateful for their efforts. I would like to thank them, on behalf of the whole Board, for all that they do. Transition

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Tesco PLC
Company View

This has been a year of transition.
Philip Clarke took over as Chief Executive at the beginning of the year and he has been shaping both the organisation of the business and the management team which inevitably, after a long period of stability, are entering a period of change and development. This work takes time but is essential to our future as a strong and profitable company.

All successful companies go through periods of transition. Indeed, the capacity to change and develop over time is fundamental to truly world-class companies. The critical issue for those responsible is to fully acknowledge the need for and to manage change in a measured and timely fashion when it is called for.

We have moved to address performance issues in the UK. The challenge of refocusing the UK business to ensure it sustains healthy market leadership is important enough to make it worth giving up some profit in the short term to safeguard the business in the long term. We laid out in April how we intend to do this.

Elsewhere, we have continued the substantial re-orientation of the US business to give it the best possible opportunity to secure its future with all the potential for longer-term growth that would bring. We have announced our intention to exit from Japan. We are willing to invest for the long term but where we cannot see a profitable, scalable business earning good returns within an acceptable timescale, we prefer to pursue better opportunities. And we have slowed down the development of Tesco Bank to increase its focus on quality, service and risk management. These are substantial changes, in management, organisation and business and they need to be seen as part of a continuing process of moving the company forward, making changes where necessary to ensure long-term stability and sustainable profitability. Governance

Governance is the framework that articulates a company’s values and supports its behaviours. During the year, we updated our governance framework and processes. An important aspect of these changes was the creation of the Board Corporate Responsibility Committee to ensure that the Board maintains a strategic focus on corporate responsibility in its widest sense, reflecting the importance to the Group of how it engages externally. When a company has significant economic and social scale it is essential that it reflects on the full nature of its accountability for its activities, and how it should discharge that responsibility to the communities in which it operates. This will be an important focus for the new Committee.

There have been a number of changes to the Board. In addition to Sir David Reid, David Potts retired during the year, Richard Brasher stepped down from the Board in March, and Andrew Higginson will retire in September. We thank them all for their contribution to the business over the years. We are also pleased to welcome Deanna Oppenheimer to the Board as a Non-executive Director. Deanna brings valuable international, retail, banking and digital experience to our Board.

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Tesco PLC
Company View

Financial results
In the year, we delivered sales growth of 7.4%. Profit growth was modest, with a strong international performance largely offset by a reduction in UK profits. Trading profit grew by 1.3%, and profit before tax grew by 5.3%. Return on capital employed improved from 12.9% last year to 13.3%, and we continued our long record of dividend growth for shareholders, with the full year dividend up 2.1% to 14.76p.

The fact that in a year when economic headwinds have been evident in practically every part of the globe our business increased sales, profits, return on capital and dividends speaks for its overall resilience.

Looking ahead
Last year was a challenging one for the business and we are acutely aware that this was reflected for our shareholders in the share price. We will continue in 2012/13 to address long-standing business issues in the UK and elsewhere in order to secure future prosperity as well as ensuring that our financial and human resources are developed and deployed where they are able most effectively to generate future growth and returns.

If I have one overriding impression of Tesco after six months, it is that here is a truly international business, deploying its expertise across the world to drive opportunity, growth and returns, all of which ultimately benefit the UK. I look forward to being part of it.

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Tesco PLC
Locations and Subsidiaries

LOCATIONS AND SUBSIDIARIES
Head Office
Tesco PLC
Tesco House
Delamare Road
Cheshunt
Hertfordshire EN8 9SL
GBR
P:44 1992 632222
http://www.tescoplc.com

Other Locations and Subsidiaries
Tesco HSC
81 and 82 EPIP Area
Whitefield
Bangalore 560 066
Karnataka
IND

Tesco Stores (Malaysia) Sdn Bhd
Level 3 No.3
Jalan 7A/62A
Bandar Menjalara
52200 Kuala Lumpur
MYS

Tesco Stores CR as
Vrsovicka 1527/68b
100 00 Prague 10
CZE

TESCO-GLOBAL Aruhazak Zrt.
2040 Budaors
Kinizsi ut1-3
HUN

Tesco Poland
ul. Kapelanka 56
30 347 Krakow
woj. malopolskie
POL

Tesco Stores SR a.s.
Cesta na Senec 2
821 04 Bratislava
SVK

Fresh & Easy Neighborhood Market
2120 Park Place
Suite 200
El Segundo
California 90245
USA

dunnhumby UK
Aurora House
71 – 75 Uxbridge Road
London
W5 5SL
GBR

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Tesco PLC
Locations and Subsidiaries

One Stop Stores Ltd
Apex Road
Brownhills
Walsall
West Midlands WS8 7HU
England
GBR

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Dobbies Garden Centres Ltd.
Melville Nursery
Lasswade
Midlothian EH18 1AZ
Scotland
GBR

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