How Tesco became Britain's No 1 retailer

Tesco trolleysNearly one pound in seven spent in Britain passes through Tesco's tills, but while many like to shop there the supermarket giant - famous for its claim to be "Britain's biggest discounter" - remains largely unloved.

Shoppers seem genuinely fond of some retailers like John Lewis. Another British retail institution, Marks & Spencer, is affectionately known as "Marks & Sparks" - I can't imagine anyone coming up with an affectionate sobriquet for Tesco.
"None of the big four [supermarkets] can consider themselves to be 'loved' - although it can be argued that Morrison's in-store specialists and the Sainsbury's shopping experience make them less likely to be targeted by unhappy consumers," said Jon Copestake, retail analyst at the Economist Intelligence Unit.

That said, people don't need to "love" a retail brand to shop there. M&S has seen gone through tough times over the past decade, and even though Woolworths ("Woolies") was a much loved high street favourite, it went under. "At the end of the day people vote for retailers with their feet and wallets, not with their hearts," Copestake added.

Tesco has come a long way since Jack Cohen set up a market stall selling groceries in London's East End in 1919. He made sales of £4 and a profit of £1 on his first day.

The name comes from the initials of TE Stockwell - who was a partner in the firm that supplied Jack with tea five years later - and CO from Jack's surname. In 1929, he opened his first Tesco store in Burnt Oak in north London, and in 1947 it floated on the stock exchange with a share price of 25p.

First superstore
Tesco soon started buying up rival shops - it acquired 70 Williams and 200 Harrow stores in the 50s, followed by 97 Charles Philips shops and the Victor Value chain the 60s. Its stores were becoming bigger and in 1968 Tesco opened its first 'superstore' in Crawley in West Sussex. As Tesco and rivals rolled out stores across the country, supermarkets radically changed the way people shopped.

Soon Tesco started selling more than just groceries. Its first petrol stations opened in 1973 and by 1991, the company had become Britain's biggest independent petrol retailer. A major milestone was reached in 1979 when annual sales hit £1 billion - 26 years later, profits totalled £2 billion.

Until the 1990s, Tesco lagged Sainsbury's, the country's leading grocer. But after launching the slogan 'every little helps,' along with the Tesco Value range and the Tesco Clubcard (which has been widely copied on the high street), the company managed to overtake its arch rival in the trolley wars and claim the top spot, with 14% of the grocery market.

The Leahy era
In 1997, Terry Leahy became chief executive and over the next 14 years at the helm built Tesco into the world's fourth biggest retailer. When Leahy - frequently voted Britain's most admired business leader - took charge, Tesco's profits were £750 million with sales of £15 billion. By the time he left in 2011, profits had swelled to £3.8 billion and sales to £68 billion.

Leahy took the company from its British base into 13 countries around the globe, shrank some Tescos into convenience-size stores (Tesco Express) while expanding others (out-of-town stores) into mega stores (Tesco Extra) that sell anything from food to clothes and even washing machines. He also introduced the Finest range to appeal to well-to-do shoppers, and launched a banking arm. Today there isn't much that Tesco doesn't sell - from broadband, phones and music downloads to insurance and credit cards.

The Leahy era came to an end in 2011 when he handed over the reins to Philip Clarke, who set out a new vision for the supermarket chain. But some of Leahy's actions stored up trouble for his successor, notably Tesco's ambitious foray into the United States with the Fresh & Easy chain in 2007.

Tesco is rarely out of the headlines and has come under attack over a range of issues, from the way it handles suppliers, obtains planning permission for new supermarkets and forces small shops out of business to how it treats its staff. It is Britain's biggest private sector employer and employs nearly half a million people worlwide.

Corporatewatch says a Competition Commission report on supermarkets in 2000 found that Tesco paid the lowest prices to its suppliers. Critics such as the Tescopoly Alliance claim thousands of small farmers have gone under as a result. Tesco has always insisted that consumers are benefiting from low prices, and it makes a point of buying British rather than importing from overseas.

Under attack
Last month a central London Tesco Express store - opposite the Houses of Parliament - had to close for an hour when a dozen Right to Work campaigners staged a sit-down protest. It was sparked by a job ad which looked for permanent workers at a Suffolk store in exchange for expenses and jobseeker's allowance. The campaigners chanted: "Tesco bosses hear us say, we won't work if you won't pay," and held up placards that said "Tesco. Exploitation. Every little helps."

Tesco blamed an IT error for the ad and amended it. The work placement was offered under the government's back-to-work scheme which is linked to payment of benefits - but Tesco said the impression that it was trying to replace full-time workers was mistaken. It has asked the government to change its flagship unemployment scheme and make it voluntary, after receiving a barrage of angry messages from customers on Facebook and Twitter accusing it of making huge profits from forced unpaid work. Tesco was so stung by the criticism that it is now offering to pay all benefits claimants in its stores.

Copestake said: "Tesco has certainly suffered from some high profile brand-damaging consumer campaigns. Generally these have related to the aggressive land-buying and store opening plan that the firm has operated over the last two decades. More recently issues have come from sourcing and the low prices paid to suppliers, as well as the recent, but relatively minor 'workfare' twitterstorm. Asda too, has faced opposition thanks to its ownership by Wal-Mart and question marks over ethical sourcing."

A 2008 investigation by the Daily Telegraph into Tesco's Discounter House revealed how the company squeezes lower prices out of suppliers. At the onset of the recession, hundreds of suppliers were summoned to the 1970s building near Tesco's headquarters in Cheshunt, Hertfordshire, to renegotiate contracts. Rather than dealing with their usual Tesco buyer, they were made to watch a company presentation before being ushered into makeshift cubicles for individual negotiations. Needless to say Tesco buyers struck a hard bargain.

Shock profits warning
But now there are some signs that the wheels are starting to come off the juggernaut. Tesco saw its share of the UK grocery market dip below 30% for the first time in seven years in January, when it issued its first profit warning in decades. It has since dipped further, to 29.7%. Tesco has been losing ground to Asda and Sainsbury's and the discounters such as Aldi, Lidl and Iceland. While Tesco is still far ahead of its rivals the gap is starting to close: Asda, the No 2, has a 17.5% share of the market, while Sainsbury's has 16.6%.

The shock profits warning - which was blamed on a bungled pricing strategy in the crucial Christmas period - wiped £5 billion off the group's market value. Tesco's £500 million "Big Price Drop" was quickly dubbed the "Big Price Flop" by analysts.

Its financial arm Tesco Bank recently postponed the launch of its current account until next year. The supermarket group also had to bid saynoara to its Japanese business last year, bringing to an end an eight-year battle to break into the market. The big question is what will happen to Fresh 'n' Easy in California, which has been struggling from day one, and can Tesco's rivals give it a run for their money in the UK?

"Tesco is determined to push through a much accelerated investment programme in order to get the business leading once again," said Panmure Gordon analyst Philip Dorgan. He said one of two things will happen: his base case is that Tesco will see profits fall further, but a "platform will be created for future growth".

"The other scenario is that Tesco will fail and the result will be several years of profit declines... The debate has moved on to just how far profits will fall and for how long." However, he believes that Tesco is "fixable". "It won't be a rapid turnaround, but it can be done."

What do you think - is Tesco really in crisis? Let us know in the comments.
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