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 / First Quarter 2002 / Issue 26(originally published by Booz & Company)


Welcome to Tesco, Your Glocal Superstore

The stores have a similar look, both in the U.K. and abroad. They are located mostly on the fringes of cities, to lower costs. They offer large parking lots for customers’ convenience. Tesco also pushes its wide selection and distinctive service at every store. Shelves are stocked with dozens of brands, far more than at most hypermarkets. Baby-friendly shopping carts are available worldwide. At all its locations, Tesco stresses the same principles of good service, backing them up with training sessions that are dictated from the head office in London.

Tesco’s export of its online business model is also a good example of smart application of best practices. With its clear success in the U.K., the company is applying the same patient and practical approach and implementation principles to its rollouts of online service in the U.S. and Asia.

In a break with the traditional multinational model, Tesco has found that headquarters can be an importer, as well as an exporter, of best practices. In the U.K., the company is following a marketing formula it perfected overseas. Tesco is also applying more specific lessons of customization — learned mostly abroad — to its domestic market. Modern Britain is a European melting pot, with varying concentrations of immigrants in different areas. At the company’s Leytonstone store outside London, store manager Nick Tatum has taken care to stock items that appeal to a large immigrant customer base. For its Indian consumers, the company stocks Masala curry paste; for Muslims, it offers Halal meats, which meet the dietary requirements of Islamic law. Afro-Caribbean shoppers are happy to find Rubicon exotic juice, a brand they recognize from home.

“Tesco has created a virtuous circle by exporting their U.K. format overseas, and fine-tuning it to local markets,” says Richard Hyman, chairman of U.K.-based research firm Verdict Research Ltd. “Then, they take the relevant strands of that learning and reapply them to the U.K. Hypermarkets in the U.K. have a very different feel based on what Tesco has learned abroad.”

For instance, Mr. Hyman points out that prior to globalization, Tesco relied on impulse buys for sales of its non-food items. “Non-foods were just there for the ride,” he says. “You’d be there to buy food, realize you could use a corkscrew, and pick one up. Now, you can imagine someone going to Tesco specifically to stock up on items for a newly acquired flat.”

So far, Tesco’s foreign foray looks successful. In the first half of 2001, its worldwide sales rose 14 percent to £11.5 billion ($16.8 billion) before taxes, on the back of a 46 percent increase in non-U.K. revenues. Profits grew 14 percent to £481 million ($701 million).

But much could still go wrong, and not all industry analysts are cheering Tesco’s international strategy. Last April, Mark Wasilewski, an analyst at ABN Amro Holding NV, annoyed the company’s management by expressing doubts about the future profitability of the non-U.K. stores. Mr. Wasilewski cited the risks of international expansion and disappointing sales in Poland, which, in 2000, fell into an economic recession. He pointed out that despite Tesco’s investing £1.7 billion ($2.5 billion) in developing countries, its earnings from emerging-market stores were still slim — just £3.5 million ($5 million) before taxes in 2000.

In part, Mr. Wasilewski and other retail industry watchers are increasingly concerned with rising retail competition in emerging countries. In Poland, for instance, a market that just a decade ago was wide open to new chains, there are now 95 hypermarkets, 730 supermarkets, and 936 discount retail outlets.

And the record for global retailers is mixed at best. France’s Carrefour, the granddaddy of international discount stores, is losing market share in Spain and France, and has been hit by economic troubles in Brazil and Argentina. Netherlands-based Royal Ahold, which has made major acquisitions in the U.S., is now cautious about further international growth; management has said it will not enter any new countries in the foreseeable future.

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  1. James A. Gingrich, “Five Rules for Winning Emerging Market Consumers,” s+b, Second Quarter 1999; Click here.
  2. Michael Flagg, “In Asia, Going to the Grocery Increasingly Means Heading for a European Retail Chain,” Wall Street Journal, April 4, 2001
  3. Peter Martin, “The Fall of the House of Marks,” Financial Times, October 2, 2001
  4. Robert Peston, “Still Hungary: The Champion of the Checkout,” Sunday Times of London, September 23, 2001
  5. Andy Reinhardt, “Tesco Bets Small — and Wins Big,” Business Week, October 1, 2001
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