TESCO plc, which has been in operation for almost 90 years and is headquartered in Cheshunt, is the nation's largest grocery and general merchandise retailer. From its humble origins as an East End market booth in 1929, the company built its first storefront and never looked back. In the decades that followed, that initial store in Burnt Oak, Middlesex expanded into an international network with 4,331 outlets and 470,000 employees as of the 2008-2009 fiscal year. Both organic expansion and acquisitions, such as 70 Williamsons sites, 200 Harrow Stores, 212 Irwins stores, the 97-store Charles Phillips network, and the Victor Value chain, catapulted the chain to the top of its industry in the United Kingdom (TESCO plc, 2009a). As of the most recent TNS Worldpanel retail audit, the chain held a 31% share of the UK market, roughly double that of second-placed Asda (16.8%) and Sainsbury's (16%). (Taylor Nelson Sofres, 2008).
Internationally, TESCO presently ranks third in the globe, behind Wal-Mart (the largest privately-held corporation by revenue and personnel size) and Carrefour of France. Beginning in 1977 with an odd foray into Indonesia (with which the United Kingdom shares no colonial, religious, linguistic, or ethnic ties), TESCO waited 15 years before resuming its globalization efforts with a token outlet in Carrefour's home market, dozens in Ireland, the rest of Europe, and (via the joint venture route) South Korea and Thailand. After the turn of the century, TESCO increased its presence in Asia (China, Japan, Malaysia), aggressively invaded Turkey, and will begin testing its presence in Croatia this year. By the end of 2007, 115 brick-and-mortar stores had been opened by a 2001 California company that capitalized on the rising American preference for internet shopping (wine, in this instance) (Tesco plc, 2009b).
Despite the fact that more than half (53%) of all TESCO stores are located outside of the United Kingdom, the 2,400 or so stores in the country still account for nearly three-quarters of total staff (260,000 versus 106,000 abroad) due to the variety of store types bearing the TESCO name in-country, an ever-expanding product line, and the many ancillary businesses the chain has entered. Almost half (46%) are unionized, significantly higher than the average of 29% for the entire UK labor force. The majority of union members are associated with the USDAW shop workers federation, while the Transport and General Workers Union represents a relatively small number of workers in distribution and storage (Eurofound, 2009).
Relevant Operational Parameters
At least four aspects of TESCO's operations have an impact on any analysis of management styles and organizational behavior. These are the shopper service priorities of any retail organization, with the current corporate strategy, multicultural staff, and half-hearted corporate social responsibility initiatives contrasted with TESCO's defensive reputation management.
TESCO has pursued a five-pronged corporate strategy of consistent revenue/turnover growth since approximately 1997: a) seeking organic growth for the core food and mass merchandise business; b) emphasizing food and non-food business equally; c) expanding into high-opportunity business lines as consumer buying trends dictate; and d) penetrating new foreign markets. Along the way, the corporation embraces the new corporate social responsibility ethic: community service and environmentally friendly operations; yet, it is by no means a trendsetter in this regard.
The retail mix in the United Kingdom best exemplifies the organic growth and equal emphasis on food and non-food industries strategy. Throughout the majority of the first half of the twentieth century, TESCO sold only food and beverages. In the years following World War II, the product selection gradually expanded to include the now-familiar non-food categories: home care and furnishings, clothing, electrical appliances, consumer electronics, personal care and cosmetics, and health care.
Tesco Superstores and Tesco Extra are two of the huge store formats that are primarily located in the suburbs and definitely outside of the city. The former sell primarily groceries and a small number of non-food items, whereas Tesco Extra devotes almost equal space to groceries and the remainder of the chain's product line, including clothing, gadgets, and entertainment.
Nevertheless, it is clear that the firm intends to have a national presence that is widespread. The two most common shop styles, TESCO Express convenience stores selling food, beverages, and daily necessities, and the even smaller One Stop, account for more than half of TESCO's 2,800 locations in the United Kingdom. These smaller formats sacrifice higher margins for locational convenience because their per-square-foot turnover is lower than that of larger superstores.
Tesco Metro stores are located around halfway between superstores and Express outlets in terms of floor size. Size is influenced in part by the property sizes available in central or inner-city regions and on small-town main streets. In addition, there is a natural dread of competition with superstores on the fringes of metropolitan centers.
Tesco has effectively expanded its product offering to include non-grocery items in order to increase "share of wallet" within its dominating customer base. Thus, many hypermarkets and even Metro stores in the city center now offer medical and dental insurance, gasoline from forecourt pumping stations, technical help and warranty consultation for home appliances and consumer electronics. In addition, the company has already diversified into garden centres after acquiring Dobbies Garden Centres and continuing to operate the chain under that name; retail banking (a joint venture with the Royal Bank of Scotland that provides consumer banking: savings accounts, credit cards, loans, mortgages, and 'bancassurance' or insurance sold in bank branches); and Internet service provider, mobile phone service, and voice-over-Internet Protocol (VoIP) calling services.
Tesco has not been hesitant to capture synergies in light of its expansive service offering. The collaborations with cellular service providers encourage sales associates in the larger store formats' consumer electronics areas to push unit and subscription bundles. The store's website supports in-store sales of music CDs with economically priced downloads of single titles or tracks, without the need to pay for bandwidth. For customers who are hesitant to purchase game or movie DVDs in-store since they may only watch them once, the retailer offers unlimited DVD rentals transacted online and sent by mail for a monthly membership cost of no more than £17.97. (TESCO Entertainment, 2009).
This admittedly brief examination of essential operational characteristics has not addressed price as a strategic or competitive component. Logic dictates that people should be interested in chains with a reputation for low prices. This is a reflection of the fact that supermarkets aggressively price some items, known as "loss leaders," which are typically featured in "food day" or sale advertisements. However, such pricing offerings mask others that are either parity-priced or premium-priced; these are the origins of the company's uninterrupted net profit development. Without generally high margins, it would be impossible to continue investing in new local locations or international joint ventures.
Consider the following: In response to a claim by industry publication The Grocer that a 33-item shopping list revealed that ASDA was cheaper than Tesco (Trinity Mirror, 2006), the chain released the results of a business intelligence tracking tool indicating that they were priced comparably on 60 percent of items and cheaper on 26 percent. Constant price monitoring is performed, with the way of presenting adjusting only to the prices of comparable market baskets. In the most recent poll, conducted on January 30, 2010, Tesco asserts that its prices are lower for 1,150,000 typical baskets across the United Kingdom than those of Asda (950,000). (TESCO, 2010a).
Recommendations for Improving Leadership and Teamwork
The primary value proposition
Given the nature of the retail industry, which consists primarily of acquiring identical products from established manufacturers and displaying them to advantage in strategically-located stores, the quality of leadership at the director level in Tesco depends on a keen sense for maintaining a diverse product selection, identifying high-traffic store locations, and maintaining price competitiveness.
Leaders of Tesco must have an in-depth understanding of the market in order to continue extending the company's product offerings in response to new consumer demands while preserving the company's key competencies. Diversification into plants and gardening supplies, gasoline, mobile phones, subscription plans, prepaid mobile credits, and credit cards has made sense thus far because they are high-volume, low-cost sales of the type for which the chain's systems are already optimized. In addition, it made logical for the Extra and Superstore models to give one-stop shopping to customers.
Keeping store managers and chain directors abreast of evolving consumer tastes is essential for equipping them with the ability to identify new product prospects. There are a variety of sources for information, including trade and consumer journals, trade shows, competitive store checks, formal survey research, and academic consultants. The Organisational Development (OD) nerve hub of Tesco cannot afford to let individual directors develop and thrive on their own due to the company's size and geographic dispersion. In addition, market developments and competitive counterattacks occur too swiftly to offer directors the luxury of annual "executive retreats" and strategic planning conferences. Rather, OD must assume responsibility for executive information systems, restructure these to permit daily updates by those at the forefront of business intelligence and store operations, and ensure that these are appropriately categorized before being disseminated across the entire organization on the same day.
Second, directors must always be on the lookout for possibilities to open new stores in reaction to demographic and socioeconomic developments. As the population moves away from London and other cities with significant unemployment, it is more important than ever to identify places where a new Extra or Superstore may be self-sufficient. Thankfully, internet mapping tools, pedestrian traffic counts, and quarterly updates from the Census Bureau aid in the development of this essential ability. In the International Division, the selection of new countries to penetrate appears to be characterized by reluctance to take on entrenched competition despite favorable attitudes towards things British (e.g., Australia, Singapore, the Philippines, and the former Caribbean colonies) and by a failure to penetrate the majority of the European Union despite the obvious currency-conversion and logistical efficiencies afforded by geography and customs integration. While it is reasonable for Tesco to state that they would prefer to open more stores in markets where they already have "strong market positions," avoiding economic powerhouses such as Germany, France, Italy, and Spain seems particularly foolish. Clearly, at the strategic level, Tesco's directors require an entirely new strategy for evaluating foreign expansion priority areas (see e.g. Brewer, 2001).
Price checks and all other aspects of competitor/business information are only one of the managerial goals of retail chain directors. Maintaining customer loyalty requires competitive pricing, but sending hundreds of mystery shoppers each week is an expensive endeavor. Given that there is a point at which the cost of generating business intelligence information exceeds the benefit for managerial decision-making, it seems prudent to re-orient directors toward: a) the statistical efficiency of collecting smaller sample sizes; or b) switching to monitoring each other's online prices on the assumption that these are valid indicators of in-store selling price.
Given the perilous times and unending recession, the merchandise directors should be encouraged to use inventive price positioning across the product spectrum, as there will always be thrifty customers in the stores. House brands (also referred to as 'no name' or 'private label brands') have been around for decades (Stohs, 1999; Liang, 2009), but other chains have already segmented their offerings into bargain-basement, mid- and premium-price offerings via suitable branding and labeling (as their suppliers, the manufacturers of fast-moving consumer goods, have traditionally done) and adroit placement on store shelves. The creative challenge for managerial planning and brainstorming is to extend this accomplishment to all categories: produce, canned food, beverages, consumer electronics, insurance, warranty plans, deposit accounts, loyalty programs, apparel, detergents, and so on. Wherever customer engagement with a product category is low enough to make bargain seeking a sensible trade-off, segmented house brands should be appealing.
Adopting the nimble logistics for which Wal-Mart is renowned can also serve to keep prices down. For instance, the world's largest retail chain reduces its warehousing expenses by requiring suppliers to attach UCC/bar code or radio frequency identification (RFID) tags to their products before they leave the manufacturer's facility. When goods arrive at the various Wal-Mart distribution centers in the United States, barcode or RFID readers in the loading bay itself connect to the supply chain and distribution servers, and the goods are immediately cross-loaded onto the trucks that will transport them to their final store-destinations (Casestudyinc.com, 2010).
Collaboration in the Service Industries
There are three primary degrees of teamwork formation in the retail industry. The first is enhancing the skills and self-awareness of team leaders so they may better manage their workforce units (Trainer Active, n.d.).
Customer service must be the primary emphasis of teamwork, especially on the sales floor and during planning sessions. Because they do not manufacture the products they sell and are not necessarily responsible for their quality, service is the driving force behind all retail enterprises. A store provides shoppers with ease, value pricing, comfort, and an overall very enjoyable purchasing experience.
There are numerous team building exercises and experiential strategies. Given the aforementioned primary objective of encouraging innovation and collaboration to provide superior customer service, the following training objectives should be prioritized: customer orientation, transactional skills, self-awareness, growth through reflection, and identification with the chain's objective for retaining customer loyalty.
Excellent Corporate Citizenship
Practicing sustainable competition may require the biggest cultural, leadership, and appeal to the rank-and-file shifts necessary for teamwork. Tesco's vision statement includes a tiny nod to corporate citizenship: "…put community at the center of everything we do" (TESCO plc, 2009c). The Secretary-General of the United Nations has urged businesses to follow the triple bottom line of "People, Planet, Profits" in that order of importance. This implies Tesco must do far more (and be seen to do so) to care for its employees, give back to the communities in which it operates, and move aggressively toward ecologically friendly operations. Tesco has confined its charitable contributions to a nationwide youth football competition, an educational assistance program that distributes computers to schools, and relatively small (relative to competitors) payments from pre-tax revenues to charities and community organizations.
Since Tesco is now a multinational corporation, learning to deal with multicultural teams in Europe, Asia, and the Americas necessitates comprehensive management training at home prior to traveling to overseas posts. The increasing diversity of the British workforce is in no way reflective of the cultural hurdles that must be overcome elsewhere. To drive overseas affiliates towards Tesco's strategic goals and to operate successfully with foreign workers used to their own customs requires an in-depth understanding of the culture of each country. What is deemed impolite in the United Kingdom may be considered normal in the United States. Thomas (2008) warns that in many European and Asian economies, there are cultural tendencies toward a comfortable work-life balance.
International market selection: constructing a model from Australian case studies. Brewer, P. (2001). Journal of International Business.
Casestudyinc.com (2010), Walmart's supply chain management techniques. Web.
Eurofound (2009) Tesco, United Kingdom: Make employment profitable and appealing. Web.
Liang, N. (2009). House brands are here to stay in supermarket chains. Web.
Stohs, N. (1999) A stroll through the aisles of the supermarket's past. Milwaukee Newspaper.
Taylor Nathaniel Sofres (2008) An overview of the British grocery market. Web.
TESCO Entertainment (2009) rented DVDs and video games. Web.
Annual report and review for TESCO plc in 2009a. Web.
Additional information on TESCO plc's preliminary performance for 2008/09 Web.
TESCO plc (2009c) Our values. Web.
TESCO plc (2010a) Web site for TESCO baskets.
Thomas, D. C. (2008) Cross-cultural management. London, Sage.
Team building training exercises, Trainer Active, 2010 Web.
(Trinity) Mirror, The (2006) TESCO until "slowest." Internet.