TESCO CASE STUDY

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TESCO CASE STUDY

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Tesco Case Study

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TESCO CASE STUDY

Contents
Introduction.................................................................................................................... 4
Main Body..................................................................................................................... 4
Conclusion................................................................................................................... 18
Reference list................................................................................................................ 20

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Introduction
Tesco PLC is a British based retailer and is currently the third largest retailer in the world.
Tesco was founded by a British businessman named Jack Cohen in the year 1919. Tesco PLC is
currently operating in more than 12 countries with more than 6784 stores. According to the
statistics it earned revenue of more than 53.557 billion pounds and net income of 0.970 billion
pounds in the year 2014 (John Fernie, 2004).This essay will access the financial performance of
Tesco, it will discuss the key developments and events that have taken place in the organization
since 2010. Challenges facing Tesco will be explored and current and future opportunities
identified.
Main Body
The Tesco profits overstating scandal was one of the biggest retail scandals in the history
of UK. In September 2014 the new CEO of the company informed that its company profits were
artificially increased by almost 250 million in first six months of the year 2014-15.It was later
revealed that the company had decided to fire four senior executives. It was also revealed that it
was basically done by showing wrong business costs in the financial statements. This scandal
was revealed by the forensic accountants and auditors through their strict auditing techniques
(Sindphuria 2013).
According to the details, Tesco PLC lost about half of its profits for the year 2014-15 due
to this scandal. The new Tesco chief Dave Lewis was extremely worried about the scandal and
promised to reveal further details about the scandal to the media.

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Sir Terry Leahy joined the company in the year 1979 and resigned in the year 2011 as the CEO
of the company. Experts agree that his revolutionary leadership changed the brand loyalty and
customer trust on Tesco (Pradhan 2010). He revamped the marketing strategy of the company
and made the company one of the most successful retailers in the world. He introduced
innovative schemes to the company such as customers club card loyalty programs.
After the resignation of the Sir Terry Leahy, the downfall of the company started and in 2014-15,
the company lost about 250 million pounds in profits due to bad policies. So we can clearly say
that this incident was one of key developments in the history of the Tesco PLC.
This was one of the most important events in the history of the Tesco PLC since the year
2010.In April 2013, Tesco decide to pull out of the United States of America. The company lost
profits of more than 1.2 billion pounds in five years of its operations in the country.
The reasons for this loss was poor sales estimates by the company and they started the operations
of the company in the US during the recession (Rafiq 2014), which means the purchasing power
of its ideal consumers was at its lowest point.
In the year 2015, Tesco management announced that it would make a bold overhaul in its
company structure. Experts called it the most revolutionary overhaul in the 96 years history of
the company. According to the plans, Tesco was to close down its 43 unprofitable stores and
scrap expansion plans. As per Tescos estimates the company would save at least 250 million
pounds a year (Roberts,Berg 2102).

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Assessment of TESCO financial performance in comparison with that of Wal-Mart and

Carrefour
Profitability ratios
Profitability ratios are used to analyze the Profitability capability of the company. It is
also used to analyze the growth of the revenue and costs of the company in the given financial
year.
Carrefours performance is better than all the companies as far as profitability ratios are
concerned. In the year 2013 its Tax rate, Net margin ratio, asset turnover ratio, return on assets,
financial leverage, return on equity and return on invested capital were
38.01%,1.65%,1.72%,2.83%,5.55,16.48%,6.20% respectively. In the year 2014 its Tax rate, Net
margin ratio, asset turnover ratio, return on assets, financial leverage, return on equity and return
on invested capital were 35.27, 1.64, 1.71, 2.80, 4.98, 14.66 and 5.54 respectively.
In the year 2013 Walmarts performance was little less than Carrefour as its Tax rate, Net
margin ratio, asset turnover ratio, return on assets, financial leverage, return on equity, return on
invested capital and interest coverage ratio were
31.01%,3.62%,2.37%,8.57%,2.66,23.02%,14.54% and 12.43% respectively. In the year 2014 its
Tax rate, Net margin ratio, asset turnover ratio, return on assets, financial leverage, return on
equity, return on invested capital and interest coverage ratio were
35.87,3.36,3.34,7.86,2.69,21.00,13.36 and 11.56 respectively.
Tescos performance was worse as compared to all other companies. In the year 2013 its
Tax rate, Net margin ratio, asset turnover ratio, return on assets, financial leverage, return on
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equity, return on invested capital and interest coverage ratio were

29.29%,0.19%,1.28%,0.25%,3.01,0.72%,1.54% and 5.40% respectively. In the year 2014 its Tax
rate, Net margin ratio, asset turnover ratio, return on assets, financial leverage, return on equity,
return on invested capital and interest coverage ratio were
15.36%,1.53%,1.27%,1.94%,3.41,6.21%,5.06% and 6.05 % respectively.
Solvency ratios
Solvency ratios are used to measure the financial strength of the company. They are also
used by the analysts to measure the ability of the company to meet the short term obligations in
the given financial year.
Walmarts performance was better than all other companies as far as solvency ratios are
concerned. In the year 2013, Carrefour as its current ratio, quick ratio, financial leverage and
debt to equity ratio were 0.83, 0.20, 2.66 and 0.54 respectively. In the year 2014 its current ratio,
quick ratio, financial leverage and debt to equity ratio were 0.88, 0.20, 2.69 and 0.58
respectively.
Carrefours performance is better than Tesco as far as solvency ratios are concerned. In
the year 2013 its current ratio, quick ratio, financial leverage and debt to equity ratio were 0.84,
0.49, 5.55 and 1.19 respectively. In the year 2014 its current ratio, quick ratio, financial leverage
and debt to equity ratio were 0.76, 0.40, 4.98 and 0.91 respectively.
Tescos performance was worse as compared to all other companies. In the year 2013 its current
ratio, quick ratio, financial leverage and debt to equity ratio were 0.69, 0.44, 3.01and 0.60
respectively. In the year 2014 its current ratio, quick ratio, financial leverage and debt to equity
ratio were 0.73, 0.43, 3.41and 0.63 respectively.
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Efficiency ratios
Efficiency ratios are used to measure the efficiency of the companies to convert their
assets into cash.
Tescos performance was better than all other companies as far as efficiency ratios are
concerned. In the year 2013, Carrefour as its days sales outstanding, days inventory, payables
period, cash conversion cycle, receivables turnover ratio, inventory turnover ratio, fixed asset
turnover and asset turnover ratio were 10.20, 22.03, 36.08,-3.98,36.36%,16.55%,2.47% and
1.28% respectively. In the year 2014 its current ratio, quick ratio, financial leverage and debt to
equity ratio were 20.88, 22.43, 36.37, 6.94, 17.48, 16.27, 2.58 and 1.27 respectively.
Carrefours performance is better than Walmart as far as solvency ratios are concerned. In
the year 2013 its days sales outstanding, days inventory, payables period, cash conversion cycle,
receivables turnover ratio, inventory turnover ratio, fixed asset turnover and asset turnover ratio
were 10.37,34.76,78.64,-33.50,35.20 %,10.50%,6.78% and 1.72 % respectively. In the year 2014
its days sales outstanding, days inventory, payables period, cash conversion cycle, receivables
turnover ratio, inventory turnover ratio, fixed asset turnover and asset turnover ratio were 10.70,
36.80, -33.30, and 34.12%, 9.92%, 6.53% and 1.71% respectively.
Wal-Marts performance was worst as compared to all other companies. In the year 2013
its days sales outstanding, days inventory, payables period, cash conversion cycle, receivables
turnover ratio, inventory turnover ratio, fixed asset turnover and asset turnover ratio were 4.94,
43.76, 38.76 ,10.03 , 73.85 % ,8.34% , 4.10% and 2.37% respectively. In the year 2014 its days
sales outstanding, days inventory, payables period, cash conversion cycle, receivables turnover
ratio, inventory turnover ratio, fixed asset turnover and asset turnover ratio were 5.15, 45.19,
38.48 ,11.86 , 70.85 % ,8.08% , 4.06% and 2.34% respectively.
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Marketing ratios
Marketing ratios are used by the company to measure the value of the company .WalMart is the best performer in the year 2013 and 2014 as far as marketing ratios are concerned. Its
Earning per share in the year 2013 and 2014 were 5.04 and 4.90 respectively.
Carrefour is the second best performer in the year 2013 and 2014.Its Earnings per share
in the year 2013 and 2014 were 0.36 and 0.35 respectively.
Tesco is the best performer in the year 2013 and 2014 as far as marketing ratios are
concerned. Its Earnings per share in the year 2013 and 2014 were 5.04 and 4.90 respectively.
Impact of the regulatory authorities on Tesco
After the profit scandal is the 2014, UK government has decided to implement new
regulatory strategies against retail companies like Tesco. These regulations are making very
difficult for Tesco to comply with these regulations.
TESCO response to significant developments within the retail market
Tesco responded the developments in the retail sector by introducing following
technological advanced and innovative products.
Tesco living brand
Tesco introduced a new brand by name of living brand in the year 2014.It is a very
innovative food brand which helps customers to control their sugar, fats and salts. This brand
offers more than 230 products with wide range of food products.

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Latest checkout system

Last year Tesco introduced a new checkout system that automatically products loaded
onto the conveyor. This latest checkout system was introduced to save customers from long
queues and also to increase the standard of the customer service.
Face scanners
In the end of 2013, face scanners technology was introduced by the Tesco at the gas
stations. This technology was introduced by the company to show advertisements according to
the customers requirements. It scans the eyes of the customers to measure their age and sex.
UK as a regulatory authority
UK retail regulatory climate is lighter than other countries mostly due to diverse nature of
the UK retail industry. Currently UK government is working on improving the regulatory climate
and deregulation is the main component of the current governments regulatory strategy. So
government has introduced new regulatory policies such as one in, two out rule and red tape
challenge policy.
UK financial conduct authority as a regulator
Most of the financial experts are not satisfied with the financial conduct of the UK
government. These experts give examples of fraudulent practices of the Tesco in last few years.
Tesco Company as fooling its shareholders by overstating its profits but UK government failed to
track down that fraudulent practice on time. Because of that fraud hard-earned money of many
shareholders went down the drain. So UK government has to improve its regulatory policies to
make an impact on the regulatory climate of the United Kingdom.

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International accounting standards as a regulator

Last year IASB and FASB introduced a new global revenue standard for the retail
companies all over the world. According to this standard companies have to record differently of
the income from contracts. The main objective of this revenue is to improve the recording
procedure of the income and to show transfer of goods in the income.
Tesco SWOT analysis
SWOT analysis is a very useful strategic tool to analyze the internal strengths and weakness of
the company in most effective way.
Strengths
Tesco is a global brand with retail outlets in more than 12 countries
It has been included in the list of 100 most valuable brands last year
Weaknesses
After the resignation of the Terrence Leahy, company is facing lots of internal and external issues
Last year Tesco was involved in the profit scandal which is hurting its reputation very badly
Opportunities
Tesco should take advantage of the E-commerce business opportunities.
Threats
Tesco is facing imminent threat from competitive companies like ASDA and Aida etc.
Response of the Tesco for Pestle factors?
Following is the response of the Tesco for the PESTEL factors.
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Energy Conservation
Tesco lays special emphasis on the energy conservation and also on introducing
environment friendly policies. It introduced Britain manufactured automated recycling machine
which makes easier for the customers to recycle. The cost was introduced in the 49 lotus stores
situated in Thailand. It incurred expense of 3.1 million to the company.
Technological Innovations
Tesco introduced different types of innovations to counter rising competition in the retails
sector. In last few years it has started using persuasive technology to improve the shopping
experience of its esteemed and valued customers. Tesco introduced different types of mobile
apps to address the customers requirements and needs.

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Significant development in the retail sector

Digital Retail Industry
Digital retail industry is growing at a rapid pace. Popular E-commerce companies are like
amazon, eBay and Alibaba (Hutchison 2013). According to the latest statistics, online retail sales
have crossed $1 trillion mark last year and now it is $1471 billion. So this means that online
avenue offers a huge opportunity for the large companies like Tesco PLC to earn extra revenue
from their online operations. If we talk about the digital retail industry, B2C is the most popular
revenue generation sector for the online companies. With the increasing use of handheld and
mobile devices among the consumers, scope of the online retail industry is increasing with every
passing day.
Predicting trends
Retail companies can easily predict trends about the consumer buying behaviors and
attitudes by using the large online databases and social media trends. These retail trends data is
mostly gathered by using different types of apps and software. These applications and software
are maintained by third party software companies. They monitor online selling and buying
behaviors of the consumers. These software and applications are playing an important in
providing help to the large companies in devising concrete marketing strategies.
Inventory management
Large retail companies can easily maintain the large inventories by using different types
of software programs. Revel iPad POS, Windward System five and Tofino are the three most
popular inventory management software. They provide easy to use, customized and interactive

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inventory management solutions to the retail companies ( Bergh,Behrer 2013). These software
are properly customized according to the needs of large and small companies alike.
Tescos response to the PESTEL Factors (significant development)
Tesco HUDL is a tablet computer introduced by the Tesco Company. It was introduced in
the market in the year 2013.It is using the latest Android kit Kat operating system of the Android.
The tablet is currently priced at 129 in the market.
Opportunities for Tesco PLC
Tesco PLC has hired new management in the second half of the 2014.This new
management at the TESCO has revamped its business strategy to take advantage of opportunities
as they present themselves. This proactive new management will help Tesco to cope with its
challenges and to identify new opportunities.
Brazil is one of the largest economies of the world. Tesco can easily invest in the growing
market potential of the Brazil which can add to Tescos financial progress .N-11 countries like
Vietnam, which has recently been rated as number 28 of most attractive markets by the
renowned investment research firm named AT Kearney, are an ideal market for Tesco. Tesco can
take advantage of Vietnams economic growth and retail market potential. Tesco can also invest
in other N-11 economies such as Pakistan and Bangladesh.
India is one of the fastest Asian economies in the world. It offers tremendous
opportunities for retail companies like TESCO mainly due to high consumer base in last few
years. TESCO is already one of the largest investors in the Indian economy. It has planned to add
5-6 retail outlets this year. It can still invest in the growing Indian retail sector to get maximum
benefits from its growing retail sector.
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Tesco has considerable investment in the online retail business but it has to invest more to
compete with big players like Amazon and eBay. Tesco has to invest in improving the
infrastructure of its online business and devise innovative discount strategies to attract customers
on a large scale (Deborah Morley, 2014) by giving more offers to the customers.
According to the latest figures, more than 50 million Muslims are living in the European
countries, which is more than 6 percent of the total population of the European countries. Tesco
can easily make use of this opportunity by offering halal food to the Muslims in UK and other
European countries (Boone,Kurtz 2014) which would increase its revenues (Schniederjans,Cao
2002).
Tesco should increase its investment in the European market as its UK market share is
shrinking. It can invest in countries like Poland, Ireland, France and Germany as this will help it
to improve its financial performance (Donnellan 2013).
TESCO adopted its corporate governance code
The corporate governance policies of the Tesco Plc.
Tescos corporate governance code that underlies good governance consists of a board of
committees whose role is to ensure the effective operation of the board and to make sure that it is
working within its parameters and limits. The function of the corporate responsibility committee
is to make sure that board is functioning according to the latest standards of corporate
governance.
The audit committee is appointed to make sure that audit is carried out according to the
national and international financial standards. It is responsible for keeping a strict financial
control on the company and to keep on improving its auditing and accounting processes.
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(Haerifar 2013). Tescos code of business conduct is used to manage and control the working of
the company. This code provides complete direction to the employees about the key issues and
responsibilities to them. It helps the company and all its employees to comply with all the rules
of the company and it also guides the employees about their exact roles.
Tescos corporate governance code that underlies good governance consists of a board of
committees whose role is to ensure the effective operation of the board and to make sure that it is
working within its parameters and limits. The function of the corporate responsibility committee
is to make sure that board is functioning according to the latest standards of corporate
governance.
The audit committee is appointed to make sure that audit is carried out according to the
national and international financial standards. It is responsible for keeping a strict financial
control on the company and to keep on improving its auditing and accounting processes.
(Haerifar 2013). Tescos code of business conduct is used to manage and control the working of
the company. This code provides complete direction to the employees about the key issues and
responsibilities to them. It helps the company and all its employees to comply with all the rules
of the company and it also guides the employees about their exact roles.
Tesco has fully and effectively adopted the corporate governance principles and its performance
is better than its competitor companies. But Tesco has to improve its internal management
through strict financial control.

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Conclusion
The digital retail industry is growing at a rapid pace and has increased profits for popular
E-commerce companies like amazon, eBay and Alibaba (Hutchison 2013). According to the
latest statistics, online retail sales have crossed the 1 trillion US dollars mark in 2014 and as of
May 2015 the figure was 1471 billion US dollars. Tesco should explore E- Commerce, as it
offers an opportunity for growth in revenues. Tesco needs to improve its marketing strategy to
compete with these online players. It has to effectively use online advertising and social media
platforms to compete with these companies.
Tescos revenue and profit showing a sharp decline due to its bad policies and increased
competition. Tesco profit scandal 2014 was the worst scandal faced by the company in its
history. This scandal badly damaged the reputation and brand value of the company.
Market experts believe that Tesco PLC has to improve its managerial and marketing policies in
order to compete. It must conduct research about the changing global shopping trends to devise a
concrete and effective marketing policy to tackle the rising competition in the retail market.
Tesco is facing different types of challenges such as falling brand value of the company,
the slow economic growth of UK economy and rising competition in the international retail
market. These challenges are badly affecting the morale of its the employees. Other than these
challenges, current retail business environment is also offering Tesco numerous opportunities.
These opportunities include growing online retail market, growing Asian economies and
including halal products in European countries (Poole 2014).
Tesco PLC has seen a steep decline in its sales in the last few years (Miryala 2015). Experts
believe that this trend clearly shows a decrease in customer trust. New management needs to
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improve the brand value and regain customers trust on the brand. It can be improve by offering
quality products at affordable prices and by offering discounts.
The UK and European economy is growing with a very slow pace. According to the latest
figures, the UK economy grew by 0.3 percent in the first quarter of 2015 and the European
economy grew by 1.5 percent during the same period. Due to this slow growth rate of the UK
and European market (Turban et al. 2015). Because of this slow growth, Tesco should focus on
other international markets and set up in emerging markets such as Africa and the Middle East. It
has faced cultural differences in China which it needs to overcome.
However, Tesco PLC has shown a slight recovery in the year 2015.Its sales have been
increased by 1% in the month of March 2015 (Pour,Mehdi 2006).The two most important
reasons for this increase is falling sales of its competitors like ASDA and also improvement its
product quality .

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