Strategic Direction

Emerald Article: The secrets of Tesco's expansion success: How the UK's largest supermarket is creeping up on Carrefour and Wal-Mart

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To cite this document: (2005),"The secrets of Tesco's expansion success: How the UK's largest supermarket is creeping up on Carrefour and Wal-Mart", Strategic Direction, Vol. 21 Iss: 11 pp. 5 - 7 Permanent link to this document: http://dx.doi.org/10.1108/02580540510630650 Downloaded on: 09-11-2012 References: This document contains references to 1 other documents To copy this document: permissions@emeraldinsight.com

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The secrets of Tescos expansion success

How the UKs largest supermarket is creeping up on Carrefour and Wal-Mart

he UKs supermarket customers have long known the secret of Tescos success. Living up to their advertising strapline of Every little helps, consumers have ocked to their stores for not only well-stocked, cheap provisions, but an increasing number of goods and services from TVs to insurance, deckchairs to mobile phones.

The strategy of developing market share for goods outside the usual supermarket arena led to Tesco surpassing its once-rival Sainsburys to become the biggest supermarket in the UK, recently garnering over a quarter of market. Famously, 1 in every 8 spent by the British public on groceries is now spent at Tesco, with the company garnering revenues of 37.1 billion in its nancial year to 2005. However outside the UK, the supermarket rms success has lived in the shadow of larger, more high prole international operators such as Wal-Mart or Carrefour. Their international expansion programs have garnered plenty of attention, however it was only Tescos 2003 move for Japanese convenience store operator C Two that much of the retail world woke up to what the group was up to. Could the established world order be about to change? How had this happened?

Humble beginnings
Getting its name from founder TES Cohen, Tesco has risen from one small shop to one the worlds ten biggest supermarket chains, in addition to being an increasingly major convenience store operator. In fact, it is ironic that a company that started life on the high street is now moving back there in the UK, driven by planning regulations which means that very few new large superstores will be built. The only room for expansion, therefore, is on street level, and Tesco has already left its larger store rivals way behind on this strategy. This example of early adopter behavior is one of the key reasons why Tesco has been so successful so far in its international expansion. This so-called internationalization has not been the subject of wide academic study, and little has been learned about strategies in retail, where differing global markets and market conditions can prove very difcult for expanding rms. In particular, a gap has been identied where the retailer reviews its past decisions and uses this for future actions

Early lessons
The analysis of this information gap can be summarized in three questions: 1. What are the components of the experience? 2. What lessons can be learned? 3. How does the experience affect future strategy?

DOI 10.1108/02580540510630650

VOL. 21 NO. 11 2005, pp. 5-7, Q Emerald Group Publishing Limited, ISSN 0258-0543

STRATEGIC DIRECTION

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 What is apparent from the completed study is that despite concerns from analysts and shareholders about its internalization strategy, and despite negative local press and resources issues, Tesco got it right.

A detailed conceptual and empirical study was compiled on Tesco using in-depth interviews with key management personnel in mergers and the buy and sell-side of the company in order to address these questions. It is an attempt to understand the growth of Tesco overseas, which began in the late 1970s with the purchase of a small operation in the Republic of Ireland. The small-scale nature of this rst foray was seen as one of its weaknesses, and the company was eventually sold on in the mid-1980s. There followed a long period of market analysis which culminated in the acquisition of the medium-sized supermarket group Catteau in France.

Third dimension
Over the course of the completed study using the interviews, three dimensions of experience were identied as informing Tescos strategic behavior regarding internationalization, each of which provides further insight and lessons for other expanding businesses. This gave the company its rst lesson: First Buy successful companies abroad, not ones that need turning around: There followed a strong expansion overseas in the 1990s, with ever more signicant movement into growing markets such as Hungary and the Czech Republic, Thailand and South Korea. Here Tesco was buying into successful companies, but also ensuring neighboring markets were targeted and that its expansion strategy included eventual market domination. Hence the second lesson for internationalization success: Second It is all about market synergies and market share: Internal strategic processes. One of the chief concerns for retail strategists is market selection. Tesco decided to enter into markets where local competition was soft, hence the initial forays into Eastern Europe and South East Asia, away from the harsh gaze of other expanding giants such as Wal-Mart. Tesco also adapted to opportunistic events, and decided on different entry modes in order to develop knowledge. Hence the next lesson: Third You will never learn anything until you open some kind of store somewhere: External strategic processes. Tesco were comparatively weak internationally compared to bigger, more experienced rivals, despite their increasing dominance in the UK, but it nevertheless decided on an aggressive, organic expansion strategy in its target markets that left some analysts wondering about its long-term prospects. However after sticking with the strategy, it has been paying off, with its vulnerable period seen as a necessity for long-term growth internationally. It also had problems over planning procedures in foreign countries, particularly Ireland, but negotiated with central government for mutual benet. Also key were Tescos dealing with shareholders, who were initially wary of risking their investment abroad, and there were reports that the City held back expansion within European in the 1990s. However as initial forays such as Catteau became successful, however gradually, soon the debate surrounded the pace of expansion. Tesco initiated a

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public relations exercise to get shareholders more on board with their internationalization strategy, although this was seen through by many, and exerted debatable inuence. Internal operation functions. Many international ventures founder on the failure to commit enough human capital to a project, and this constituted Tescos next lesson. Fourth Use strength and size at home to secure the best human resources overseas In order to compete with the likes of Carrefour in their own jardin, Tesco had to make sure it had the very best people on hand to drive its expansion. Experience with nancial capital and marketing were also imperative, ensuring that the correct strategies and knowledge was on hand in foreign markets. This is particularly the case in the latter category, where expansion can be seen as an invasion by the home press. While Tesco almost inevitably suffered some bad press initially, the adoption of an intensive PR campaign once business success started to develop overseas highlighted the need for an evolutionary marketing strategy.

Getting it right
Apart from the obvious conclusions that retailers have to be reactive to sudden shifts in foreign market behavior and that expansion is not predictable to straightforward, what is apparent from the completed study is that despite concerns from analysts and shareholders about its internalization strategy, and despite negative local press and resources issues, Tesco got it right. Its overseas operations are growing rapidly, it is quickly becoming the key player in several expanding markets, and where other competitors have taken on large going concerns or concentrated on just a handful of markets, it has widened its net. Therefore should one or two areas reach saturation or hit difcult trading conditions, there are other areas where growth is still rapid. Tesco showed that during its internationalization development it was not afraid to make mistakes because it knew it would learn from them. Its reaction may have been slow sometimes, but it had condence that it would overcome any problems. It has a long way to go before it overhauls Wal-Mart as the worlds biggest grocer but analysts said the same about overhauling Sainsburys in the UK market 15 years ago and now Tesco is almost double its size. Keywords: Retail trade, International business, Multinational companies, Management strategy

Comment
This is a very detailed, in-depth study in internationalization which will be of direct interest to any manager in a company planning and executing expansion strategies outside their own. The lessons to be learned are not retail-specic, and Tescos success could form the blueprint for other companies in a wide range of elds to expand into new economies.

Reference
Palmer, M. (2005), Retail multinational learning: a case study of Tesco, International Journal of Retail Distribution & Management, Vol. 33 No. 1, pp. 23-48, ISSN 0959-0552.

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