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B207 Reading 21: Tesco PLC Strategy and Environment Case Study - Coggle…
B207 Reading 21: Tesco PLC Strategy and Environment Case Study
Context and Tesco's Growth Strategy (The Leahy Era)
Grocery Retail Sector:
Dominated by the 'big four' (Tesco, ASDA, Sainsbury's, Morrisons), accounting for over $75\%$ of UK retail grocery sales in 20131. High-end (Waitrose, M&S) and discounters (Aldi, Lidl) are gaining market share2.
Historical Growth:
Tesco grew rapidly, achieving market leadership in the UK3.
Sir Terry Leahy's Focus (CEO 1997-2011):
The customer.
Reaching the number one spot in UK grocery retailing.
Identifying and developing new long-term growth in non-food, service, and international expansion.
Strategic Assets:
Developed the Clubcard loyalty scheme (marketing intelligence database) and expanded services into banking and mobile phones.
2. Failed International Strategy (US Entry)
Venture:
Launched Fresh & Easy in the US (California, Nevada, Arizona) in 2007.
External Environment Failure
: The launch coincided with the US recession and subprime mortgage crisis, which massively impacted consumer shopping habits, shifting them toward price sensitivity.
Internal Failure (Product/Positioning):
Customer Confusion:
The brand positioning was unclear. Stores were smaller than US competitors.
Mismatched Targeting:
Fresh & Easy opened in affluent areas, but customers expected a focus on basics and low prices.
Customer Resistance:
Customers complained about small portion sizes, short expiry dates, and failed to warm to the idea of self-service checkouts
Result: Tesco pulled out of the US market by 2012, writing off £1.2 billion.
3. Environmental Shift and Declining Performance (2011 Onwards)
Changing Social/Economic Factors (Post-2011):
A marked change in consumer shopping habits occurred due to economic downturn and modern lifestyles.
Shift to Convenience: Shoppers moved from the large weekly shop to a convenience model (mini-shops, stopping off on way home).
Conscious Consumption: Consumers became more conscious about food waste and were less responsive to large-scale promotions (e.g., 'buy one get one free' on fresh food).
Market Squeeze:
Tesco's strategy of operating in the middle ground (hypermarket focus) was squeezed from both sides:
Upmarket Rivals (Waitrose) saw sales increase.
Discounters (Aldi, Lidl) saw dramatic sales increases (27.3% and 18.1% respectively).
Result:
Tesco reported its first drop in profits in 20 years in 201319. Market share dropped from 30.1% (2013) to 28.8% (2014).
4. Financial Scandal and Management Response
The Scandal (2014):
A shortfall of £263 million in expected half-year profit was discovered.
Cause
: Tesco booked income from deals with suppliers earlier than it should have, while pushing back costs.
Legal/Ethical Factors:
Led to investigation by the FCA and Serious Fraud Office (SFO); four executives were suspended.
Management Change:
CEO Philip Clarke was replaced by Dave Lewis (the first external CEO in over 90 years).
Response (Lewis Era):
Lewis launched a program called 'Feet on the Floor' requiring office staff and executives to work in stores once a fortnight to boost staff morale and improve understanding of the customer experience.