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Tesco Case Study
by Allan Breese, Retail Director, Taylor Nelson Sofres Superpanel
Email: mailbox@namnews.com

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Over the past four years, the fastest growing grocery retailers have undoubtedly been Morrisons and Asda.  Although not growing to quite the same degree, Tesco has nonetheless progressed well over this period; the main feature of this progress has been its consistency, with share growing by between 0.5% and 0.9% each year.

Over the same period, Sainsbury’s has seen its share drift downwards by around 1% and hence Tesco is now the market leader by nearly 6% – quite a remarkable performance considering that it was only a short five years ago that Tesco wrestled the number one slot from Sainsbury’s.

In recent times Tesco has not dramatically changed its approach.  The foundations were laid four to five years ago with the launch of Club Card, improved customer service (one in front, assistants to help with bag packing etc.).  This was the basis of the winning formula that is still successful today.  This is not to say that Tesco has stood still.  Firstly they continue to open new stores at a steady rate – the very large Tesco Extras (where they can get space and planning permission) down to the convenience end with Metros and Expresses.  Secondly they have remained price competitive.  At a time when there is serious price competition between the major multiples, Tesco has stayed ahead of the game.  Currently there is price deflation in groceries of around 2-3%, whereas Tesco’s deflation has been nearer 4% in recent periods, showing that they are now more price competitive than they were.  In addition, they have doubled the numbers of lines in the Tesco Value range to 460.  They have also moved from a promotions strategy to EDLP in ‘staples’ markets although this, in itself, does not appear to have affected the relative price position.  

Thirdly they have extended their remote shopping services (including the Internet) and, with the exception of Iceland, now have the best coverage of all the major grocery retailers.  This is still very small business and is currently not contributing significantly to Tesco’s growth – however they are well placed to take advantage if and when this form of shopping takes off.  All these factors have helped Tesco to maintain momentum in its share growth, which continues to increase in the short term – achieving another all time high of 24.7% in the latest quarter and exceeding 25% for the first time ever in the four weeks to June.

Tesco’s main source of growth has been the increase in its customer base – today nearly 41% of all households in Britain visit their stores at least once every four weeks (representing nearly nine and a half million households), compared to just under 40% a year ago.  Furthermore these customers are now visiting Tesco’s more often – an average of 3.9 visits every 4 weeks compared to 3.8.  So footfall is driving the business up, but basket sizes have fallen slightly to under £26; this is hardly surprising if prices are falling and consumers continue to bring the same volume of goods on each shopping trip.

Tesco continues to invest in own label by increasing the number of lines on both their premium Finest range and on Tesco Value.  Despite this, along with the rest of the market, private label levels have fallen to below 42% – this is because of increased promotional activity being more focused on brands and there being much product innovation on the branded side in some categories.

So, Tesco undoubtedly has momentum behind its consistent share growth.  Like the ocean going oil tanker, it would be difficult to stop its progress.  Furthermore, the gap with its nearest rivals continues to widen and hence it will be a very long time before any of the other major players threaten its number one position.  If current trends are anything to go by, it will be Asda that is most likely to mount this challenge backed by Wal-Mart’s massive resources.  However, the Tesco management clearly recognise that growth at this level in Britain can’t go on forever.  

Hence we are now seeing Tesco put substantially increasing proportions of its investments overseas.  They now have over 100 stores in Eastern Europe – mostly hypermarkets over 100,000 sq ft, with a further 17 stores planned in the next year.  In addition, Tesco are known to be looking at opportunities in the far east in countries such as China and Taiwan.  With such heavy emphasis on overseas development, is there a danger that they could take their eye off the ball in the UK, with the oil tanker slowly grinding to a halt?

ANNUAL RETAILER SHARES
% share of Grocers

Tesco

22.0

22.9

23.4

24.2

Sainsbury's

19.7

19.8

19.1

18.6

Asda

13.3

14.1

14.8

16.3

Safeway

10.3

10.2

10.0

10.1

Morrisons

3.9

3.9

4.5

5.1

52 w/e July

1997

1998

1999

2000

Source, Superpanel Till Roll Share of Trade

QUARTERLY TESCO SHARES
% share of Grocers

Tesco

23.9

24.2

23.9

23.9

24.4

24.7

12 w/e

02/05/99

25/07/99

17/10/99

06/02/00

30/04/00

23/07/00

Source: Superpanel, Till roll Share of Trade

For further information contact Allan Breese, Retail Director, Taylor Nelson Sofres Superpanel. Tel.: 0208 967 4558.

Date article published: 06/09/2000

Email: mailbox@namnews.com

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