Tesco Group Food

By Group 1
 Why was Tesco so successful in the past?
Business model of Tesco in the initial years
● Expansion through opening of stores of varying formats and through acquisitions
● Addition of more and more product categories in the mix
● Fulfillment of “value for money” proposition through substantial investment in information systems and logistics and a strong multi-tiered store
brand program which lead to a steadily growing market share

Innovations
● Tesco Clubcard – A loyalty program through which Tesco leveraged the customer buying information from its 27 million international Clubcard
memberships to develop products and store assortments as per the local preferences in the international and domestic markets
● Tesco Bank – Tesco offered financial services like deposits, mortgages, credit cards, etc through the Tesco Bank
● Internet grocery sales started in 1997

International expansions
● Expanded into countries with scope for extensive growth and minimal competition from other global chains
● Entered Central Europe, Asia in the 1990s through rapid acquisition of local chains followed by opening new stores
● Had more retail presence outside the UK by 2005
● Entered US in 2007 through subsidiary called Fresh & Easy offering limited variety of store brand products

Dunnhumby
● Owned by Tesco, Dunnhumby was the leading customer science and loyalty marketing firm in the world and analyzed data of over 350 million
people across 28 countries as of 2013. Tesco was able to use the information to customize its offerings

Operational efficiency
● Store brand and fresh food grocery fare were sourced from thousands of suppliers which were overall taken care of by the commercial directors in
each of the 12 markets. They were also responsible for the in store decisions to satisfy local needs and also kept low retail prices to ensure Tesco’s
competitive advantage
 How have changes in consumer, competitive and supply environments
challenged this success
Changes in Consumer Factor
1. Customers shopping through multiple channels and the business needs to be available everywhere
2. Huge user related data getting generated, makes it important to build infrastructure to hold that kind of information
3. Increase in global demand of food and the consumer expectation about how the food was produced
4. Quality, safety, sustainability and ethical production are expected by customers

Changes in Competitive Factor

1. Rivals becoming more aggressive on pricing
2. Retail brands such as Lidl and Aldi providing huge discounts
3. Out of town stores becoming irrelevant because of high competition and relocate its assets on existing stores
4. Tesco lacked innovation as compared to its competitors

Changes in Supply chain environment

1. Increase in global demand and climatic changes has led to higher and more volatile commodity prices which demands new
channels of supply
2. Transactional model of Tesco resulted in tough price negotiations and frequent shifts in suppliers to cut the cost. This affected
the relations with the suppliers due to the fragmented supply chain
3. Lack of communication in providing accurate and timely forecast resulting in low efficiency from supplier’s side
4. Finalizing the orders was delayed to achieve operational efficiency resulting in extra inventory
5. Extremely short lead time to meet tight schedules also led to additional inventory holding costs
What are the implications of Group Food for the
distribution chain?

1. More time for the country based team to focus on product development and innovation
2. Sourcing hubs were set up where product audit was possible
3. Produce was more fresh and orders were easily carried out
4. Negotiations were ensured to be transparent through introduction of the buying specialists
5. Forecasting was more accurate and holistic hence demand estimation was more precise
6. Suppliers relationships were strengthened due to the commitment of long-term contracts
7. Less dependence on middlemen for produce, limited to performing coordination and consolidation
services
How might Group Food contribute to Tesco’s growth in the future?

•With the introduction of buying specialist, better negotiations can be achieved

•Relationships with suppliers and producers (as that of Hilton) will increase business

•Managing end to end demand and supply will help in decreasing wastage, inventory holding cost and reduce losses

•Relationship with farmers will help in focus on quality, sustainability and productivity which in long term will affect the business
positively

•Innovation by value addition to products and service offering will serve as competitive advantage

•Better use of space in stores, extra space can be re-utilized for other purposes

•Leveraging group scale can help in consolidated buying and thus lead to cost saving

•Applying sourcing skills can help review multiple options and buy products at dynamic pricing which can save a lot of money
What further advice would you offer Matt Simister?

•Identifying & developing newer international markets to reduce dependency on UK market

•Increasing share of food sourced from Group Food division

•Investing more on innovations like virtual grocery store & ‘click & collect’

•Emphasis on increasing number of ‘convenient’ grocery store rather than Hypermarkets in outskirts

•Increasing focus on online channel and Home delivery space

•Improving Transcontinental logistics for faster replenishment and making wider range of products available across geographies

•Increasing focus on local assortments and personalized offerings to drive sales

•Promoting the Tesco Clubcard program for improved customer engagement

Thank You!

Questions?