tesco logistics case study

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How Disruption Accelerated Digital Supply Chain Transformation

Sponsor content from GEP.

In 2020, when the pandemic erupted, Tesco—a leading British retailer of groceries and general merchandise—was staring at challenges it had never seen.

Having been designated an “essential” retailer, Tesco saw a huge rush to its stores while other outlets were temporarily closed. And as customers chose to buy from the safety of their homes, demand for online shopping grew at an unprecedented rate.

Tesco responded by more than doubling its capacity for online orders, to more than 1.5 million a week. To support this increase, it opened an urban fulfillment center—a small automated warehouse—within each store. The retailer plans to add several more fulfillment centers in the next 12 months to boost its online delivery capabilities.

Tesco’s online sales have increased by 77% since the pandemic began. The retailer could have easily missed this growth opportunity and taken a big hit on revenue, but it rose to the challenge by testing several approaches to modernizing its omnichannel retail operation and enhancing its digital sales capabilities.

Tesco, of course, isn’t the only enterprise that responded to the pandemic by pivoting to combat supply-chain disruption. Many enterprises accelerated the digitalization of their customer and supply-chain interactions by as much as three to four years.

It wasn’t only about turning retail space into warehouses to accommodate a broken supply chain. As traditional retail channels weakened, iconic brands, including Nike, added or expanded their online direct-to-consumer sales. Nike’s digital sales grew 79% after its brick-and-mortar stores shuttered in 2020.

A B2B Push from Inside Out

The e-commerce rush wasn’t limited to retailers. Many business-to-business (B2B) sales and interactions pivoted to e-commerce as well.

The pandemic catalyzed digital transformation at many global enterprises. Over 69% of leaders said social and economic disruption were accelerating their digital business initiatives, a 2020 board of directors survey by Gartner revealed. Many said their business changed more in the first few months of the outbreak than it had in the previous decade.

The push for digital has come from the inside out. Technology has helped internal teams rally to support customers and partners during the lockdown, free of the inertia and change-management issues often associated with such programs.

Even with an accelerated pace of digital transformation, enterprises have a long way to go. A recent Harvard Business Review Analytic Services and GEP study showed that more than 72% of companies believed their key supply chain capabilities—supply planning, demand planning , supplier risk management, warehousing and logistics, procurement, and inventory management—to be digitally immature.

The Time for Digital Transformation Is Now                                           

New technologies can provide comprehensive supply-chain visibility with real-time data and intelligence to help companies make timely and effective decisions based on shifting market dynamics.

Artificial intelligence (AI), internet of things (IoT), predictive analytics, and other transformative technologies can help enterprises respond to sudden shifts in demand and supply trends, and plan for such shifts in advance.

Enterprises must prioritize their digital supply-chain investments in three key areas: visibility, planning, and collaboration. They must look at upgrading or replacing their legacy enterprise resource planning (ERP) and supply-chain systems with next-generation cloud-based supply-chain platforms designed to support rapid innovation. Effective supply-chain collaboration , both within and outside the enterprise, is critical for increased agility and resilience. Over 66% of companies in the Harvard Business Review Analytic Services and GEP study said they will be focusing on improving collaboration.

While investing in the right technology is critical for supply-chain transformation, enterprises must also focus on helping their workforce become more digital-savvy. More than 50% of companies plan to invest in training to improve their employees’ skills in using digital tools. The key, however, is to look for technology solutions that have intuitive design and interfaces and don’t have a steep learning curve.

Disruptions like the pandemic are no longer rare and unpredictable “black swan” events. The high threat of natural disasters, political unrest, economic crises, and pandemics will continue, so enterprises must build the capabilities they need to mitigate such disruptions.

Enterprises that had developed strong digital capabilities in advance of the pandemic were better able to cope with the disruption with agility and resilience than those that hadn’t.

Now is the time for enterprises to assess their digital readiness and start investing—or accelerating their investments—in digital supply-chain transformation . A supply-chain digital-maturity assessment can help your organization identify gaps and improvement areas.

To learn how GEP’s comprehensive portfolio of software, strategy, and managed services can help your enterprise build an agile, intelligent, and resilient supply chain, visit   gep.com .

Technology and Operations Management

Mba student perspectives.

• Assignments
• Assignment: Digitization Challenge

Tesco: A digital transformation

Tesco is the leading grocer in the UK, accounting for 25% of all grocery sales offline and 43% of all grocery sales online [1]. In the last 15 years, Tesco has digitally transformed their customer experience, business model and operating model through investments in a state-of-the-art website with click-and-collect functionality, a digitalized in-store experience and a data-driven customer loyalty platform.

How is Tesco using technology to differentiate their Business and Operating Model?

Tesco has continually been investing in technology to develop an omnichannel customer experience and to maintain a competitive edge in an increasingly digitized UK grocery landscape. Three technological advancements that have created opportunities, as well as some challenges, for Tesco have been:

• Moving from ‘bricks and mortar’ to ‘bricks and clicks’ with the emergence of Tesco Direct, an online grocery platform with ‘click-and-collect’ functionality

In the early 2000s, the UK was prime for online grocery shopping and home delivery due to high technology adoption rates and areas of high population density. In 2000, Tesco was quick to respond to this opportunity, adapting their business model by establishing an online grocery channel, ‘Tesco Direct’ (Exhibit 1) [2]. By 2006, online sales were rapidly growing (CAGR of 23%) and in order to meet fulfilment demands, Tesco augmented their operating model by investing in ‘grocery dotcom centres’ [3], warehouses solely for online order fulfilment purposes equipped with innovative ‘goods to person’ picking technology (Exhibit 2) [4]. In 2011, to offer further convenience to customers and to improve business model profitability through lowering home delivery costs, Tesco led the competitive pack by offering an omnichannel ‘click and collect’ function, whereby customers placed orders online and collected bagged groceries at a collection point of their choice. Despite revenue upside, the shift to a ‘bricks and clicks’ omnichannel offering came with challenges for Tesco’s operating model: heavy investment in development of an online platform, investment in ‘grocery dotcom centres’ (approximately £1.5-3.5M per warehouse) [5], investment in a home delivery labour force and supply chain ordering difficulties due to inaccurate forecasting of online grocery orders given a lack of historical data.

Exhibit 1: Tesco Direct online website [2]

Pathways to Just Digital Future

Exhibit 2: State of the art goods-to-person picking technology [6]

• Implementation of a digitalized in-store experience

To improve the efficiency of Tesco’s operating model, Tesco invested in digital in-store initiatives. ‘Scan as you shop’ handheld devices (Exhibit 3) and self-check-out stations (Exhibit 4) were placed adjacent to the usual employee manned check-out stations to provide customers with the technology to perform the check-out function without involvement from Tesco employees [7]. From a business and operating model perspective, this results in efficiency cost savings as fewer employees are required to perform manual check-out [7]. However, self-checkout has not come without challenges – the lack of employee supervision has led to significant levels of fraud for Tesco (approximately ~£8M per year) [8]. Tesco is combating this thievery through digital receipt technology and specialized cameras at self-checkout stations to alert staff real-time to ‘irregular’ customer scanning activity [8].

Exhibit 3: Scan as you shop handheld device [9]

Exhibit 4: Self Service Checkout [10]

In addition, in-store video cameras, such as the ‘broccoli cam’ (Exhibit 5), detect when fruit and vegetable trays in the fresh foods aisles are depleted, sending instant messages to the shop-floor employees for immediate replenishment [7]. Electronic shelf-edge labels (Exhibit 6) circumvent the need for Tesco employees to change 5-10 million paper labels monthly, freeing up valuable employee time to focus on serving customers [7, 11]. Moreover, electronic shelf-edge labels allow for instantaneous price-changes throughout a given day, allowing Tesco to implement promotional prices at a moment’s notice. Finally, employees are equipped with portable smart badges which, upon scanning an item, provide employees with information on stock levels and further product details, allowing shop floor employees to answer customer queries live [7].

Exhibit 6: Electronic shelf edge labels [7]

• Development of Tesco Clubcard – a sophisticated data-driven customer loyalty scheme

The Tesco Clubcard loyalty scheme tags a unique customer ID to every purchase, resulting in the amalgamation of millions of customer purchasing data points [13]. Tesco leverages big data analytics and algorithms to adapt the supply chain and product offering to purchasing trends, predict future customer purchasing habits and generate personalized online and offline discounts [14]. This has created opportunities for Tesco’s business and operating model as approximately 16.5 million customers subscribe to Clubcard in the UK, driving greater customer lifetime value and loyalty through repeat purchases due to personalized discounts and allowing greater accuracy into forecasting customer demand by region and product category [5]. What additional steps Tesco should consider implementing?

Moving forward, Tesco needs to leverage smartphone technology to digitally innovate the in-store customer experience by equipping customers with knowledge and personalization in-store. For example, the existing Tesco App could be expanded provide a functionality to help customers locate specific items within superstores and to replace the ‘scan as you shop’ handheld devices for a seamless digital experience using digital wallets. This could create an operating model opportunity by further decreasing in-store headcount and costs. Finally, Tesco could overcome the difficulties users face scanning barcodes in self-checkout machines by utilizing innovative Toshiba technology which no longer requires barcodes [15].

[766 words excluding exhibits]

References:

[1] Planet Retail, www1.planetretail.net/, accessed November 2016

[2] Tesco Direct website, http://www.tesco.com/groceries/ , accessed November 2016

[3] ‘Tesco goes into the darkness’, Retail Gazette, http://www.retailgazette.co.uk/blog/2014/01/42030-tesco-goes-into-the-darkness , accessed November 2016 [4] ‘Insight supermarkets dark stores’, The Guardian, https://www.theguardian.com/business/shortcuts/2014/jan/07/inside-supermarkets-dark-stores-online-shopping , accessed November 2016 [5] Tesco annual report, https://www.tescoplc.com/media/264194/annual-report-2016.pdf , accessed November 2016

[6] Tesco ‘goods to person’ picking image,   http://www.expo21xx.com/material_handling/13440_st3_conveyor_elevator/default.htm , accessed November 2016~ [7] In-store innovation at Tesco, Tesco PLC presentation by CIO Mike McNamara, https://www.youtube.com/watch?v=noa4SmYhjTA , accessed November 2016 [8] ‘Tesco trials digital receipts and self scanner tech that aims to reduce theft; Marketing Week, https://www.marketingweek.com/2016/10/21/tesco-trials-digital-receipts-and-self-scanner-tech-that-aims-to-reduce-theft/ , accessed November 2016 [9] Tesco scan as you shop image, http://www.tesco.com/scan-as-you-shop/i/diagram.png , accessed November 2016

[10] Tesco self-check out image, https://www.engadget.com/2015/07/30/tesco-automated-checkout-voice/ , accessed November 2016

[11] ‘Tesco is back’, Forbes, http://www.forbes.com/sites/kevinomarah/2016/04/14/tesco-is-back/#5839eaca1c64 , accessed November 2016

[13] ‘Clubcard built the Tesco of today but it could be time to ditch it’, The Telegraph, http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10577685/Clubcard-built-the-Tesco-of-today-but-it-could-be-time-to-ditch-it.html , accessed November 2016 [14] ‘Tesco: how one supermarket came to dominate’, BBC News, http://www.bbc.com/news/magazine-23988795 , accessed November 2016 [15] ‘New Toshiba supermarket scanner does away with need for bar codes’, Digital Trends, http://www.digitaltrends.com/cool-tech/new-toshiba-supermarket-scanner-does-away-with-need-for-bar-codes/ , accessed November 2016

Student comments on Tesco: A digital transformation

I completely agree with the idea of Tesco using technology to enhance the customer’s experience in the store. I also think that Tesco’s biggest advantage is the vast trove of data it is now collecting on shoppers through its mobile app and loyalty program. There are benefits to both the brand and consumer of Tesco having this data.

On the consumer side, Tesco can use this to enhance the customer experience, as you mentioned above. For example, since Tesco knows what a shopper has purchased, and how frequently, on average, either that shopper or similar shoppers replace a specific item, Tesco could use this to remind shoppers to buy something that they may be running low on. They can also use this to delight shoppers by suggest recipes using things they’ve purchased or offering savings on things they might want to try. They will need to handle this carefully as to not venture into “creepy” territory.

On the brand side, Tesco can unite the data from the POS and mobile device to understand which products a shopper was considering, but did not ultimately purchase. This information is extremely valuable to brands and can help them target shoppers in a way that maximizes their spend.

Thanks for a great post! It’s interesting to see how advanced Tesco is compared to US grocery retailers, especially with its online delivery platform. I think the biggest advantage for Tesco here is the data they have been able to collect with its loyalty program. I agree with Katherine that the next step is creating personalized communication at the customer level to enhance the customer experience and increase traffic in stores. My concern here is Tesco’s ability to retain strong margins. Grocery retailers already face low margins, and I’m curious to know how these investments have impacted its performance.

Wow – this is so interesting. I had no idea that Tesco was doing so much…I especially love the Broccoli cam!

One concern I have is how whether consumers actually value all these additional digital applications. A Harvard Business Review article from 2014 (“Tesco’s Downfall is a Warning to Data-Driven Retailers” [1]) discussed Tesco’s declining performance despite all the investments they had recently made in digital technology and data analysis. They quoted a Telegraph article which said “…judging by correspondence from Telegraph readers and disillusioned shoppers, one of the reasons that consumers are turning to [discounters] Aldi and Lidl is that they feel they are simple and free of gimmicks. Shoppers are questioning whether loyalty cards, such as Clubcard, are more helpful to the supermarket than they are to the shopper.”

As a consumer I would agree…although the products discussed above sound interesting…how much do value do they really provide for myself as a shopper?

[1] https://hbr.org/2014/10/tescos-downfall-is-a-warning-to-data-driven-retailers

Great read CC! It’s amazing to know that a 100-year-old retailer such as Tesco has been investing capital and innovating to stay competitive in the digital age. I loved the simple yet far-reaching functionalities of the innovations you mentioned, especially ‘the broccoli cam’ and the electronic shelf labels.

It is well known that Clubcard was pivotal in establishing Tesco as a dominant player in UK [1] but it might be time to update the way it works. With the advent of smartphones, most consumers have their loyalty programs on their phones, with easy real time access to their benefits and rewards. Customers are also happier

Tesco also has a huge potential in updating its supply chain through digital initiatives. More and more firms are relying on technologies such as Sensors & geolocation, robotics, big data and cloud services to gain supply chain efficiencies and cost savings. [2] Things are clearly working in Tesco’s favor as they enjoy fastest growth in three years as Aldi and Lidl slow [3]. Hope they realize the huge potential that digitization has to offer and keep evolving

[1] http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10577685/Clubcard-built-the-Tesco-of-today-but-it-could-be-time-to-ditch-it.html

[2] https://www.atkearney.com/documents/10192/6500433/Digital+Supply+Chains.pdf/a12fffe7-a022-4ab3-a37c-b4fb986088f0

[3] http://www.telegraph.co.uk/business/2016/11/15/tesco-enjoys-fastest-growth-in-three-years-as-aldi-and-lidl-slow/

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• Logistics in Tesco: Past, Present and Future

Table of contents:

Logistics in Tesco Past, Present and Future

Introduction, tesco in the past establishing control over distribution, direct to store delivery, centralization, composite distribution, vertical collaboration, the present tesco supply chain today, the changing business, the current network, current initiatives, the future evolution or revolution.

David Smith and Leigh Sparks

The business transformation of Tesco in the last 25 or so years is one of the more remarkable stories in British retailing. From being essentially a comparatively small ‘pile it high, sell it cheap’ downmarket retailer, the company has become one of Europe’s leading retail businesses, with retail operations in countries as far-flung as Ireland, Poland, Malaysia and Japan. In the United Kingdom its loyalty card and its e-commerce operations are generally considered to be world-leading, and its expertise in these fields is much in demand (Humby, Hunt and Phillips, 2003).

Accounts of this transformation by those involved are widely available (Corina, 1971; Powell, 1991; MacLaurin, 1999). Tesco is the focus of much academic, analyst and commentator consideration (for instance Seth and Randall, 1999; Burt and Sparks, 2002, IGD, 2003a). Some aspects of the Tesco operations have been discussed in public by their executives (such as Kelly, 2000; Mason, 1998; Jones, 2001; Jones and Clarke, 2002; Child, 2002). This literature points to the fundamental transformation of the retail business to meet changing consumer demands and global opportunities. Tesco has become dominant in its home market (Burt and Sparks, 2003) and closely watched on the international stage.

The visible component of this transformation is in the location and format of the retail outlets and in the range of products and services that the company offers in-store and online. Customers are also aware of the change through the constant reinforcement of the corporate brand. Less visible however is the logistics transformation that has underpinned this retail success story. It should be obvious that the supply chain required to deliver to lots of small high-street stores in the 1970s, selling comparatively simple products, was vastly different to the current supply chain in delivery of the breadth of products in a modern Tesco Extra hypermarket, or in the availability required to run Tesco Express convenience stores, or the warehouse worlds and weekly shopping on Tesco.com. This logistics and supply chain transformation has received far less public consideration, although some academic analysis is available (Sparks, 1986; Smith and Sparks, 1993; Smith, 1998; Jones and Clarke, 2002).

This chapter presents a summary of this logistics and supply chain transformation in Tesco. It draws heavily on this public literature, although a series of interviews with managers and directors at different levels in the company has also informed the work. The paper aims to describe, analyse and draw lessons from the logistics journey Tesco has undertaken.

The current retail position of Tesco is far removed from the origins of the company. Tesco made its name by the operation of a ‘pile it high, sell it cheap’ approach to food retailing. Price competitiveness was critical to this and fitted well with the consumer requirements of the time. The company and its store managers were essentially individual entrepreneurs. The growth of the company saw considerable expansion until by the mid-1970s Tesco had 800 stores across England and Wales. This entrepreneurial approach to retailing, epitomized by Sir Jack Cohen, was put under pressure however as competition and consumer requirements changed. Tesco itself had therefore to change.

The emblematic event signifying the beginning of this transformation was Operation Checkout in 1977 (Akehurst, 1984). Dramatically, trading stamps were removed from the business, prices were cut nationally as a grand event and the business received an immediate considerable boost to volume. Stores were re-merchandized as part of Operation Checkout, and consumers began to see a different approach to Tesco retailing. After this initial repositioning event and phase, Tesco began to better under- stand its customers, control its business, and move away from its solely down-market image (Powell, 1991). This retail transformation brought into sharp focus the quality and capability of Tesco supply systems and the relationships with suppliers.

Such concerns have remained critical during the almost irresistible rise of Tesco in the 1980s and 1990s. By moving away from its origins, Tesco changed its business. Initially the focus was on conforming out-of-town superstores, but since the early 1990s a multi-format approach has developed, encompassing hypermarkets, superstores, supermarkets, city centre stores and convenience operations. The Tesco corporate brand has been strongly developed (Burt and Sparks, 2002) and international ambitions have emerged. In all this, the distribution and supply of appropriate products to the stores has been fundamental.

There have been four main phases in the reconfiguration of the distribution strategy and operations. First, there was a period primarily of direct delivery by the supplier to the retail store. Second, there was the move, starting in the late 1970s, to centralized regional distribution centres for ambient goods and the refinement of that process of centralized distribution. Third, a composite distribution strategy developed, starting in 1989. Fourth, the 1990s witnessed the advent of vertical collaboration in the supply chain to achieve better operating efficiency.

Tesco in the mid-1970s operated a direct to store delivery (DSD) process. Suppliers and manufacturers delivered directly to stores, almost as and when they chose. Store managers often operated their own relationships (Powell’s ‘private enterprise’, 1991: 185) which made central control and standardization difficult to achieve. Product volumes and quality were inconsistent. This DSD system fell apart under the pressures of the volume increases of Operation Checkout.

As Powell comments, quoting Sir Ian MacLaurin:

Ultimately our business is about getting our goods to our stores in sufficient quantities to meet our customers’ demands. Without being able to do that efficiently, we aren’t in business, and Checkout stretched our resources to the limit. Eighty per cent of all our supplies were coming direct from manufacturers, and unless we’d sorted out our distribution problems there was a very real danger that we would have become a laughing stock for promoting cuts on lines that we couldn’t even deliver. It was a close-run thing. (Powell, 1991: 184)

Powell continues:

How close is now a matter of legend: outside suppliers having to wait for up to twenty-four hours to deliver at Tesco’s centres; of stock checks being conducted in the open air; of Tesco’s four obsolescent warehouses, and the company’s transport fleet working to around-the-clock, seven-day schedule. And as the problems lived off one another, and as customers waited for the emptied shelves to be refilled, so the tailback lengthened around the stores, delays of five to six hours becoming commonplace. Possibly for the first time in its history, the company recognized that it was as much in the business of distribution as of retailing. (Powell, 1991: 184, emphasis added)

The company began to gain control of the problems through operational ‘fire fighting’, and while problems occurred, melt-down was avoided. It was clear however that changes to distribution would be needed as the new business strategy took hold.

The decision was taken to move away from direct delivery to stores and to implement centralization. The basis of this decision (in 1980) was the realization of the critical nature of range control on the operations. Store managers could no longer be allowed to decide ranges and prices and to operate mini-fiefdoms. If the company was to be transformed as the business strategy proposed, then head office needed control over ranging, pricing and stocking decisions. Concerns over quality of product also suggested a need to relocate the power in the supply chain. Centralization of distribution was the tool to achieve this.

Tesco adopted a centrally controlled and physically centralized distribution service (Kirkwood, 1984a, 1984b) delivering the vast majority of stores’ needs, utilizing common handling systems, with deliveries within a lead time of a maximum of 48 hours (Sparks, 1986). This involved an extension to the existing company distribution facilities and the building of new distribution centres, located more appropriately with the current and future store location profile. Investment in technology, handling systems and working practices allowed faster stock-turn and better lead times. Components of the revised structure were outsourced, allowing comparisons between contractors and Tesco-operated centres, to drive efficiency.

This strategy produced a more rationalized network of distribution centres, linked by computer to stores and head office. The proliferation of back-up stock-holding points and individual operations was reduced.

These centres were the hubs of the network, being larger, handling more stock, more vehicles and requiring a more efficient organization. Centralization produced the necessary control over the business and fitted with the changed retail strategy of the 1980s (larger company super- stores). Figures 6.1 and 6.2 show the changing store profile and the impact of the distribution changes on corporate stock-holding.

From 1984 the percentage of sales via central facilities has increased from under 30 per cent to over 95 per cent in 2002. By 2003, the annual distribution volume had increased to more than 1 billion cases delivered, out of 25 distribution centres, covering 7 million square feet of warehouse area, holding 9.9 days’ stock for stocked products. The scale of the ambient distribution centre increased: for example Thurrock, which opened in 2002, is 500,000 sq ft with a weekly assembly capacity greater than 1 million cases. A similar very large non-food national distribution centre is located in Milton Keynes with automation for selected product lines.

Centralization proceeded on a product line basis. By 1989 Tesco had 42 depots, of which 26 were temperature controlled. While this was a massive reduction from the plethora of small locations in the 1970s, it was still capable of improvement. Fresh foods were basically handled through single temperature, single-product depots. These were small and inefficient and were subject to only tactical operational improvements, allowing for example more frequent store deliveries and a more accurate idea of the cost of product distribution.

While stores received some improvements in the mid-1980s, there remained some disadvantages of the centralized network. For example, each product group had a different ordering system. Individual store volumes were so low that delivery frequency was less than desired and quality suffered. Delivery frequency was maintained, leading to high empty-running costs and increased store receipt costs. It was prohibitively expensive to have on-site Tesco quality control inspection at each location, which meant that the standards of quality desired could not be rigorously controlled at the point of distribution. It was also realized that this network would neither cope with the growth Tesco forecast in the 1990s nor, as importantly, be ready to meet expected high legal standards on temperature control in the chill chain.

The produce depot at Aztec West in Bristol opened in 1986 and represented the best of the centralized network. Tesco could have made further investment in single-product distribution systems, upgraded the depots and transport temperature control and put in new computer systems, but would still have achieved overall a less than optimal use of resources and cost-efficiency. A strategy of composite distribution was planned in the 1980s to take effect in the 1990s. A subsidiary requirement was the importance of ensuring continuity of service during the changeover period.

Composite distribution enables temperature-controlled product (chilled, fresh and frozen) to be distributed through one system of multitemperature warehouses and vehicles. Composite distribution uses specially designed vehicles with temperature-controlled compartments to deliver any combination of these products. It provides daily deliveries of these products at the appropriate temperature so that the products reach the customers at the stores in the peak of freshness. An insulated composite trailer can be sectioned into up to three independently controlled temperature chambers by means of movable bulkheads. The size of each chamber can be varied to match the volume to be transported at each temperature. The composite distribution network in the UK, including Northern Ireland, now has ten centres, replacing the 26 single temperature centres in the ‘centralized’ network. Half these centres are operated by specialist distribution companies, again enabling comparison of performance.

Composite distribution provides a number of benefits. Some derive from the original process of centralization, of which the composite system is an extension. Others are more directly attributable to the nature of composite distribution. First, the move to daily deliveries of composite product groups to all stores in waves provides an opportunity to reduce the levels of stock held at the stores, and indeed to reduce or obviate the need for storage facilities at store level. The result of this is seen at store level in the better use of overall floorspace (more selling space) and in stock terms by a continuous reduction (see Figure 6.2).

The second benefit is the improvement of quality, with a consequent reduction in wastage. Products reach the store in a more desirable condition. Better forecasting systems minimize lost sales due to out-ofstocks. The introduction of sales-based ordering produces more accurate store orders. More rigorous application of code control results in longer shelf life on delivery, which in turn enables a reduction in wastage. This is of crucial importance to shoppers who demand better quality and fresher products. In addition, however, the tight control over the chain enables Tesco to satisfy and exceed the new legislation requirements on food safety.

Third, the introduction of composite delivery provided an added benefit in productivity terms. The economies of scale and enhanced use of equipment provide greater efficiency and an improved distribution service. Composite distribution strategically provides reduced capital costs and operationally reduces costs through for example less congestion at the store. Throughout the system there is an emphasis on maximizing productivity and efficiency of the operations, enabled by tactical involvement in various new technologies.

The introduction of composite delivery was not a simple procedure. Considerable problems were encountered, requiring Tesco to work closely with suppliers and distributors. The move to composites led to the further centralization of more product groups, the reduction of stock holding, faster product movement along the channel, better information sharing, the reduction of order lead times and stronger code control for critical products. Such changes are easy to list but hard to implement and achieve.

There were also issues that existed post-composite. The need to maintain continuity of service to retail stores, which means that the implementation of improvements must be invisible, affects abilities to change. The cost of primary distribution remained within the buyer ’s gross margin and was not identified clearly and separately. This cost had to be substantiated indirectly by talking to suppliers and hauliers. In other words clarity and transparency were not achieved. Finally and most importantly, certain sectors of the supplier base were fragmented and not fully organized for the needs of retail distribution, despite the concomitant development of retail brand products. That fragmentation made the task of securing further permanent improvements difficult. While many suppliers could reorganize their procedures to meet the changed timing demands of composite delivery, some could not.

This composite structure is essentially the backbone of the current network. In order to increase the volume capability of the composites, Tesco implemented a change to its frozen strategy by commissioning a new automated frozen distribution centre at Daventry. This national frozen centre services Tesco stores by delivering through the composite distribution centres. This enabled the composite frozen chambers to be converted to chill chambers, thus releasing extra volume capability to service Tesco business growth.

The discussion of the phases of supply chain reconfiguration thus far has essentially focused on structural change to the distribution network. Implicit in this is some alteration to the linkages with suppliers and distribution specialists, but in many ways this was ancillary to the internal changes. Once the basic network outline was settled, however, attention turned more fundamentally to vertical collaboration in the supply chain. Information sharing, electronic trading and collaborative improvements have become critical.

This sharing of information was part of a wider introduction of electronic trading to Tesco. In particular, Tesco built a Tradanet community with suppliers (Edwards and Gray, 1990; INS, 1991). Improvements to scanning in stores and the introduction of sales-based ordering enabled Tesco better to understand and manage ordering and replenishment. Sales-based ordering automatically calculated store replenishment requirements based on item sales, and generated orders for delivery to stores within 24 to 48 hours. This information was used via Tradanet to help suppliers plan ahead both in product and distribution. Delivery notes, invoices and other documentation were also be sent by Tradanet.

In 1997 Tesco gave a commitment to share information with its suppliers. Suppliers could obtain information provided they dedicated resources to focus on Tesco customer wishes and provided appropriate product offerings. This commitment complemented the change in commercial structure to focus on category management and ECR principles. Tesco moved from the traditional single point of contact with suppliers (the buyer and the national account manager) to a more complex interaction in which functions collaborated. A commercially secure data exchange system based on the Internet (Tesco Information Exchange – TIE) was established.

This concern with information provision for collaborative purposes inevitably turned attention on to the practices of primary distribution. The changes to control the supply chain had been concentrated mainly on the distribution centre to the retail store component, but realization began to emerge of opportunities elsewhere.

The purpose of examining primary distribution (manufacturer to distribution centre) was to identify and implement changes that were profitable to the supply chain as a whole. Frequently opportunities occurred through shared user solutions, which are different from the mainly dedicated solutions found in secondary distribution. Primary distribution required some change in approach and style, with Tesco letting go of direct control and allowing appointed hauliers and consolidators greater freedom over the shape of the least-cost, good service solutions.

Once the cost of primary distribution had been calculated, there was business motivation to apply logistics resources to identify opportunities to make improvements in the organization and structure of the inbound flow of goods. The purpose was to reorganize UK, European and worldwide sourcing and distribution networks. Tesco was then able to be proactive in negotiating more competitive distribution rates as a result of the negotiation scale, the command of the sourcing of products and its own expertise in distribution operations. These factors all contributed to enhanced operational efficiency and supply chain profitability. There was a valuable cost contribution that could be made by involving the operators in identifying more efficient ways of organizing primary distribution, and then helping bring those insights to the surface and create solutions that worked for all the segments of the supply chain. It was important in achieving this to work in a cross-functional style, and the primary distribution managers sat in the commercial areas with which they were working. This created a united focus on achieving good results for the business.

The restructuring, information sharing and primary distribution also focused attention on using assets more completely. Tesco’s 3D logistics programme sought to achieve a total supply chain perspective. This inevitably involved considering the flow of goods on shorter time horizons, allowing delivery and distribution to be reconfigured, creating more capacity in existing centres and aligning primary and secondary distribution.

An important part of this alignment relationship development has been the supplier collection programme. Tesco vehicles collect supplier products on their way back to the depot following a store delivery, saving costs and reducing emissions (DETR, 1997). Additionally, suppliers’ vehicles that had delivered to depots or were conveniently in the area were routed to take goods to Tesco retail stores on their way back to their home base. Such collaborations involve three-way partnerships among suppliers, logistics service providers and Tesco.

The overall objective was to create conditions in which the unit cost of distribution reduced year on year, and at the same time, the return on the capital invested in vehicles and centres increased through better coordination and stronger confidence in the information. The result was an important strategic alliance between primary and secondary distribution which examined the peaks and troughs in utilization to find those that were complementary. Alignment of time has been noted above, but other changes also brought full supply chain benefits. One specific opportunity was in the handling and movement of goods, with product increasingly ordered, produced and delivered in merchandise- ready units.

These phases of reconfiguration of the supply chain took Tesco from a position of being at the mercy of suppliers and inconsistent practice to the very leading edge of logistics expertise. Tesco distribution and supply chain was recognized as world class (McKinsey, 1998).

As Jones and Clarke (2002) point out, the process of change outlined above made huge strides towards modernizing Tesco’s supply chain. As a consequence of this, lead times to stores and from suppliers had been cut radically and stock holding reduced enormously (Figure 6.2). Massive progress had been made. However this progress was achieved at a time when Tesco had moved from a standardized, conforming, domestic retailer to one where the retail and supply challenges were multiplying.

These challenges involved internationalization, the development of successful home shopping and operational alterations at store level.

The real process of becoming an international retail operation started in the mid-1990s, when Tesco embarked on a long-term strategy of building a profitable large-scale international business. By 2003, Tesco had successfully established that retail presence in Northern Ireland, the Republic of Ireland, Hungary, Poland, Czech Republic, Slovakia, Thailand, South Korea, Taiwan and Malaysia. Tesco has recently purchased retail chains in Japan and Turkey. It has become the market leader in five of those international countries, in addition to being number one grocery retailer in the UK. That overseas operation now accounts for almost half the Tesco Group retail space and 20 per cent of retail sales (Tesco plc Annual Report, 2003). The approach is to use local knowledge to tailor the operation and not to spread the business too widely, although other markets remain possible (such as China and the United States – Child, 2002).

One of the lessons in internationalization that Tesco does not have to relearn is the importance of expertise in supply chain logistics. Its UK experiences have provided a solid base for supply chain operations in these international markets. While the extent and the approach vary depending on market circumstances (IGD 2003a), the core processes are being introduced and allowing efficiencies to be gained.

In 1995 Tesco conducted a home shopping pilot scheme at a single store. Customers could use a variety of methods to order, with these orders picked at the store by Tesco staff, and collected or delivered to the customer’s home or drop-off point. This pilot was extended to 10 stores in 1997, and a store-based picking operation was expanded nationally from 1999. By 2003 Tesco.com covered 96 per cent of the UK population geographically and had annual sales of £447 million. A fleet of 1,000 temperature controlled vans was delivering 110,000 orders per week, which is a 65 per cent share of the UK Internet grocery market. A similar approach is now established in the Republic of Ireland and in South Korea, where over 70 per cent of the population has Internet access. Grocery Works, which is a partnership between Tesco.com and Safeway Inc, has established coverage in parts of the western United States.

This store-based model was not the common approach adopted by competitors, and criticism of the approach was ‘vitriolic’ (Child, 2002). Jones (2001) in an interview with John Browett (CEO of Tesco.com) points to three key elements of the decision to use store-picking. First, Tesco realized that warehouse picking schemes could not make money. Second, customers wanted the full range of products, and economics showed Tesco needed the wide range to drive basket size. Third, geographic coverage from warehouses is insufficient. The Tesco.com experiment is now profitable, and has shown to some extent how supply chain systems can add value to the business in new ways. The Internet however places pressure on the accuracy of speed of supply chain systems, forcing even Tesco to look again at the processes (see later).

The retail base of Tesco has also changed domestically from the 1980s. The present-day Tesco is a multi-format retailer with formats ranging from Extra hypermarkets to small Express convenience stores. This variation has been compounded by retail operational changes. Store opening hours have been extended in many locations to encompass 24-hour opening. Service levels and quality thresholds have been enhanced. Non- food has become a much greater proportion of even standard store offers than before. Product ranges, operating times and service standards all combine to pressurize a supply system that was essentially developed for a simpler, more standard situation.

The extension to non-food lines, the growing internationalization of the business (including product sourcing) and the consumer demand for fresh products also come together to internationalize the supply chain. From being heavily domestic in nature, the procurement of products from overseas has become a key feature of the business. This breadth of supply again demands efficiency in the supply chain.

The current Tesco supply chain network is well documented (IGD, 2003b). This report shows that there are 25 distribution depots with a warehouse area of 7.3 million square feet and annual total case volumes of 1.17 billion. Centralized distribution accounts for 95 per cent of the volume. Of these 25 depots, 15 are run in-house by Tesco and the remainder are contracted to Wincanton (five), Exel Logistics (two), Tibbett and Britten (two) and Power Europe (one). National Distribution Centres (four) are combined with Regional Distribution Centres (ambient) (nine, of which four are ‘mega-sites’, three fast-moving sites and two medium-moving sites), Composite Distribution Centres (one) and Temperature Controlled Depots (11, including seven fresh foods, three fresh and frozen and one new frozen site). In additional there are 24 consolidation centres run by a variety of operators which feed into this system. The system operates almost 3,000 vehicles, covering 224 million km per annum. In short, this is an extensive, large-scale network of supply.

The operations of the components of this network have also undergone radical change. Performance is now much more rigorously monitored, mainly through the ‘steering wheel’ approach widespread throughout Tesco. Any distribution centre steering wheel focuses on Operations (safety and efficiency), People (appointment, development, commitment and values), Finance (stock results, operating costs) and the Customer (accuracy, delivery on time). Through such performance measuring at all levels, quality standards are maintained and enhanced.

Jones and Clarke (2002) point out that despite the successes of the reconfiguration of the Tesco supply chain in the 1980s and 1990s noted above, analysis of the chain pointed to a number of areas where benefits could still be achieved. In a much quoted example, a can of cola was followed in the supply chain from a mine (for the metal to make the can) to the store. It was discovered that it took 319 days to go through the entire chain, of which time only 2 hours was spent making and filling the can. This process involved many locations, firms and trips (Jones and Clarke, 2002; Jones, 2002, Jones, 2001). As Jones and Clarke note, ‘even in the best-run value streams there are lots of opportunities for improvement’ (2002: 31).

This can example is one illustration of the first step in a process under- taken by Tesco (Jones and Clarke, 2002). This first step involved the mapping of the traditional value stream. This mapping process demonstrated the stop–start–stop nature of the value stream (Figure 6.3). Second and consequently therefore, value streams that ‘flowed’ were created/designed (Figure 6.4). Third, arising from flow principles, Tesco began to look at synchronization and aspects of lean manufacturing by its suppliers. Finally, Tesco utilized its consumer knowledge from its loyalty card to rethink what products and services should be located where in the value stream (Humby et al , 2003). Jones and Clarke (2002) describe this process as the creation of a ‘customer-driven supply chain’. Others might use the term ‘demand chain’. This process is essentially where Tesco is currently in terms of its supply chain.

Clarke (2002) describes the five big supply chain projects that Tesco is currently engaged in (see also IGD, 2003a) and which derive essentially from the process outlined above:

Continuous Replenishment (CR)

CR was introduced in 1999 and has two key features.First, there is a replacement of batch data processing with a flow system, and second, using the flow system, multiple daily orders are sent to suppliers allowing for multiple deliveries, reducing stockholding through cross-checking and varying availability and quality. This approach has been extended since 1999 (Table 6.1) and has further potential both domestically and internationally.

In-Store Range Management

Based on customer behaviour data and stock-holding capacity analysis at store, Tesco can now produce store-specific planograms and store-specific ranging. The system is designed to improve store presentation as well as stock replenishment and availability. Tesco is able to provide the exact stock requirement for specific shelves in specific stores to its out-replenishment system. This system is being rolled out in 2003/5.

Network Management

Network management attempts to integrate and maintain the network assets and extend the life of the system. Two new sites in 2001 added 18 per cent to the capacity of the system. The frozen element of the composite system has been centralized in a new frozen centre, allowing chill and ambient expansion in the released space. Cross-docking is used at the regional centres for frozen and slow-moving lines. Consolidation centres provide fresh produce for cross-docking. These changes have produced a more integrated network which has made better use of the assets, extended the life of centres and improved performance by selecting the right ‘value stream’ for appropriate products.

Flow-Through

As noted above, flow-through or cross-docking is now more extensive. Product storage is now much reduced and increasingly distribution centres have no racking and do not store product. The importance of cross-docking is set to increase, given the substantial savings delivered from reduced stock holding. A different but nonetheless important aspect of flow-through is the use of merchandisable ready units to allow product to be put on sale in stores without extra handling. Such units (often called ‘dollies’) are increasingly common in fast-moving items, but can be used for many other items as well.

Primary Distribution

Primary distribution and factory gate pricing (FGP) is the area of focus for cost reduction in inbound logistics. Primary distribution is the term Tesco prefer, seeing the process as a ‘strategic change in the way goods flow... (and about) achieving efficient flows and not a pricing process’ (Wild, quoted in Rowat, 2003: 48). However cost reduction is a key driver behind the interest in primary distribution. Essentially, primary distribution is about control (and pricing) of the supply chain from the supplier despatch bay to the goods in bay of the retail distribution centre. It separates out the cost of transportation from the purchase price of the product itself, and by putting it into a separate primary distribution budget, it allows direct control and analysis by Tesco. By March 2003, 30 per cent of all Tesco inbound freight was under such agreements, which amounts to 300 million cases annually or 10,000 deliveries a week from 500 suppliers.

Prior to this initiative, the commercial buyer used to purchase products at a price which included the delivery by the supplier into the retail distribution centre. The gross margin, on which buyers are measured for performance, is the difference between this purchase price and the price charged to the consumer at the retail store. Hence, as can be imagined, removing the transport cost element from that purchase price impacts on the way the gross margin is calculated, and the commercial buyers have to adjust their targets accordingly. It is a major financial development within a retail organization to implement such a change and still retain strict control over the disciplines of making individual buyers accountable for achieving the new level of gross margins during the period of transition. Primary distribution is a strategy that requires the cooperation of the whole of the supply chain including the retail buyers. This Tesco achieved by bringing together cross-functional teams and by the full endorsement of the policy from senior directors including the chief executive.

Naturally the suppliers, and their transport service providers, went through quite major changes to their arrangements for the delivery of their goods to the retail distribution centres, as they implemented this policy planned by the primary distribution team at Tesco. It was now the retailer, not the supplier, that appointed which transport and distribution companies would do this work, at a price negotiated directly between the retailer and the logistic service provider. It is not surprising, therefore, that there was some adverse reaction in the industry, especially from those transport operators that had lost work as a result. As a result the remaining volume from those suppliers and manufacturers, which they still had to deliver to other retailers, was no longer at a volume and delivery pattern that was economical without raising costs. This, they said, was the direct result of the primary distribution decisions made by the retailer to reorganize the consolidation of product delivery.

The case put forward by the retailer was that to maximize competitive advantage, the whole supply chain needed to be aligned with the demand patterns of consumers, and that this must now include primary distribution. It further argued that it saw no justification for other retailers to benefit from the economies of scale derived from the major retailers, which ordered the majority of the volume. Factory gate pricing is a sign of a very mature retail supply chain. It provides both full visibility of the costs and the accountability to organize how the primary network is structured. It requires a high level of co-operation between suppliers and retailers to leverage the benefits of a fully controlled supply chain. The result for Tesco is significant cost savings and thus lower prices for consumers. For those involved with Tesco in this there are major opportunities for the most efficient distributors, and the manufacturers may see their jobs becoming simpler, through changed collection and back- hauling procedures. Tesco’s vision for primary distribution is an in-bound supply chain which is visible, low-cost, efficient and effective.

The current position for Tesco’s supply chain is therefore again one of change. The reconfiguration of the 1980s and 1990s has now been modified by the conceptual and intellectual approaches of the recent years. The ideas of how a supply chain should look, perform and be costed are sweeping through the existing system and those that supply product into it. In the same way that Tesco itself does not stand still, so too the supply system is having to adapt and change.

It is impossible to fully predict the future and to state categorically what the Tesco supply chain will look like in the coming years. Some things are known, however. The processes and procedures described above that have been put in place by Tesco have at least five more years to run. They will change the supply chain but represent the continuing evolutionary influence of developments already known. Likewise, work in the area of environmental aspects of logistics will continue to place pressure on retailers and suppliers to improve their performance. Key performance indicators at government and other levels are becoming more fundamental (for example DETR, 1999; DfT, 2003a, 2003b). Concerns about the environment and about aspects of recycling and reuse will continue to be influential.

Perhaps however the future could be more radical? While the concerns above will undoubtedly be maintained and influence supply systems, the processes put in place may also have more wide-reaching consequences. Tesco is at the beginning of understanding all the issues in primary distribution. Manufacturers likewise are only now getting to grips with some of these issues. Is the scene set therefore for a more fundamental examination of the supply relationships? Jones (2002) puts forward a variety of scenarios for grocery supply chains. All have at their heart a move away from the current system of bigger, centralized and dispersed to a model of faster, simpler and local. Such a system focuses on moving value creation towards consumers and eliminating non-value creation steps in supply. Information systems are simplified so as to avoid order amplification and distribution. The supply chain is thus compressed in space and time, producing and shipping closer to what is needed just in time. As Jones (2002) concludes, ‘We can not predict exactly what forms these developments will take.… Nevertheless there are huge opportunities for improving the performance of the grocery supply chain, for those willing to think the unthinkable.’

This chapter aimed to understand and account for the changes in logistics in food retailing by examining changes in Tesco logistics. The basic premise was that the transformation of retailing that the consumer sees at store level has been supported by a transformation of logistics and supply chain methods and practices. In particular, there has been an increase in the status and professionalism in logistics as the time, costs and implications of the function have been recognized. Professionalism has been enhanced by the transformation of logistics through the application of modern methods and technology. For all retailers, the importance of distribution is now undeniable. As retailers have responded to consumer change, so the need to improve the quality and appropriateness of supply systems has become paramount.

The Tesco study demonstrates many aspects of this transformation. In response to a clear business strategy, logistics and supply chains have been realigned. From a state of decentralization and poor control, the company has moved through centralization and composites which enabled control to be exercised stringently. These in turn have led to new methods and relationships in supply systems, both within Tesco and throughout the supply chain. Logistics does not stand still, and recognition of the need to think clearly about supply pervades the case study. The developments outlined above and the transformation described are not the ultimate solutions. As consumers change their needs, so retailing must and will respond. As retailing responds, companies will modify their operations, not least their logistics, or be placed at a competitive disad- vantage.

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• Retail Logistics: Changes and Challenges
• Relationships in the Supply Chain
• The Internationalization of the Retail Supply Chain
• Market Orientation and Supply Chain Management in the Fashion Industry
• Fashion Logistics and Quick Response
• Temperature-Controlled Supply Chains
• Rethinking Efficient Replenishment in the Grocery Sector
• The Development of E-tail Logistics
• Transforming Technologies: Retail Exchanges and RFID
• Enterprise Resource Planning (ERP) Systems: Issues in Implementation

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TESCO – British Retailer that redefined Grocery Shopping

The first time I visited a ‘Tesco Extra’ store was at midnight, making an emergency run for next morning’s breakfast. The store seemed to occupy the area of an entire football field in Ashby-De-La-Zouch, UK. Even at an ungodly hour, Tesco was well-lit with visiting customers.

Inside, there were never-ending aisles lined up with groceries, food items, clothing, electronics, and whatnot. It was easy to lose way and lose track of time in the colossal supermarket.

I thought to myself that this would be the only store of its kind in the county, but I was wrong.

Tesco has 4008 stores across the UK and Republic of Ireland , with 7005+ stores and franchises across the world. In Europe, Tesco has established itself in Hungary, Slovakia, Czech Republic, Poland and Turkey. In Asia it has stores in Thailand, South Korea, Malaysia, Japan and China.

TESCO is much more than a chain of supermarkets selling a million products. It’s a giant conglomerate, spanning across so many verticals. It’s the equivalent of one of the FAANG companies but in the Grocery & Retail sector. It becomes imperative for business enthusiasts like you and me to understand the business model of this retail giant called Tesco.

It’s considered a part of the ‘Big Four’ supermarkets alongside ASDA, Sainsbury’s, and Morrison’s in Europe.

The Birth of Supermarkets in Britain

Founded in 1919 by a war veteran – Jack Cohen , Tesco began as a grocery stall in the East End of London, making a profit of £1 on sales of £4 on day one. Tesco’s first store was launched in 1929, selling dry goods & its own brand of Tesco Tea. A hundred more Tesco stores were opened in the next 10 years.

With 100+ mom-and-pop stores in Britain, Jack wanted to expand his product range. He traveled to the US in 1946 and noticed the self-service system, where customers would select different products on the shop floor and finally checkout at a counter. Jack brought this concept back to Britain, giving birth to Tesco Supermarkets and changing the face of British Shopping. His motto was to “stack ‘em high, and sell ‘em low (cheap).”

Tesco has a wide range of supermarkets depending upon their size, range of products, and location. This also helps regulate their Supply Chain to reduce wastage.

Tesco Business Model is based on various verticals

Tesco has deep-rooted its businesses in the European market so well, it’s difficult to miss out on the Tesco hoarding anywhere. Its Businesses and subsidiaries are:

A glimpse into the Complex Supply Chain

A supply chain is one of the critical aspects of the business model of a giant retailer like Tesco. Tesco has its priorities set when it comes to procuring products from different parts of the world:

• Use expertise to offer a better range of products at reasonable prices
• Use economies of scale to buy more for less
• Leverage and maintain relations with global branded suppliers
• Grow the brand

It procures goods from over 44 countries, majorly China. A stock of up to 90,000 different products (30% are food & beverages) is transferred via the global sourcing office located in Hong Kong. Keeping wholesalers out of the loop, Tesco procures directly from suppliers. The conglomerate has developed and maintained long-lasting relations with suppliers’ world over—the main ones being General Mills, Kellogg, Mars, and Princes.

Tesco has set up a separate division to regulate its supply chain, “the machine behind the machine” – Tesco International Sourcing (TIS). It can be compared to the East India Company of the 18 th -19 th Century, catering to only one customer – Tesco.

TIS is connected to over 1000+ suppliers across 1200+ factories . It’s responsible for over 50,000 Tesco product lines in terms of quality control, sourcing, production, designing, timely delivery, and sorting trading/customs documentation.

All activities are coordinated centrally at TIS, with just 533 staff members. These staff members undergo rigorous training to detect & analyze Supplier-violations and conduct Auditing.

Tesco coordinates with TIS on a daily basis to procure products in the following ways:

• The local team uses customer insights to create a Product Brief (new or modified) specified for each region.
• TIS analyzes the product brief and develops a Product Sourcing Plan depending upon – stores that need this product and figuring out minimum transport time and cost, as per the region.
• The Plan is executed, and specific demands are handed out to Suppliers all over the world. Expert TIS Buyers make sure the best deal is made.
• Inbound logistics are consolidated at specific Tesco Depot to receive the product efficiently from Suppliers.
• Local teams then make sure the product is distributed to different Tesco stores from the Depots.

Tesco adding eCommerce to the mainstream business model

Being in the Top 50 retailers globally as of 2021 , Tesco’s annual revenue worldwide in 2020 was £58.09B , a 9.1% decline from 2019 (due to the Pandemic & disposing of its Asia operations , to focus on the core business in Europe).

It shifted from Brick & Mortar to Brick & Click stores. The Click+Collect functionality on its website accounts for 43% of E-grocery sales in the UK. The Click+Collect concept enables customers to place their orders online and collect their orders a few hours later at the nearest Tesco Depot. Tesco created these specialized Depots for online orders only.

Despite shutting down most its mall operations, Tesco survived 2020 through its online retail store Tesco.com , with double the orders. Its E-commerce net sales had shot up by 31% from 2019-2021.

A Global Operations & Technology Center in Bengaluru was also set up in 2004. This center serves as the backbone of distribution operations for Tesco worldwide. Its business functions are- Finance, Property, Distribution Operations, Customers & Product. The employees at this Center are Engineers, Analysts, Designers, and Architects.

Tesco’s Marketing Strategy

Tesco has always believed in acquiring loyal customers and regaining stakeholders’ trust. It aims to reach customers from all financial backgrounds. So it launched 2 of its own sub-brands – Tesco finest for the affluent customers and Tesco Everyday Value for the rest of the crowd.

Tesco also launched the Club Card in 1995 as a Membership card, to maintain customer loyalty and keep them coming back. The Card operates on a point-based system with discounts on products, & other subsidiaries like double data on Tesco Mobile. With 5 Million subscribers in the first year , Tesco finally overtook its competitor – Sainsbury’s to become No.1 in the UK.

The Club-card strategy was used to obtain customer data and observe buying habits. This data was analyzed, allowing Tesco to put the right products on shelves while eliminating unpopular ones. Tesco realized that the Club Card isn’t just a quick fix & temporary promotional tool; it’s a promotion in itself. This made the Tesco Club Card unique and long-lasting.

Tesco also realized that spending Billions on traditional marketing efforts and maintaining a ‘one-size-fits-all’ brand image wouldn’t work. It decided to hyper-target specific customers and to earn their trust. For starters, thousands of head-office staff and senior executives were sent to work in stores – to demonstrate how Tesco values its customer. Customization became key for its new marketing strategy; sending out discounts on birthdays via Emails and campaigning from door-to-door.

Tesco also made a partial shift to Digital Marketing which costs much lesser and has a wider outreach. It created well-tailored profiles on all social media platforms. On Twitter, it has more than 15 accounts, separate for each of its business units. The online customer care account on Twitter is active 24-7.

All supermarkets commonly advertised themselves to have quality products at a reasonable cost; Tesco wanted to differentiate itself as a unique brand. It introduced step-by-step Recipes prepared from ingredients available at any Tesco store, with Chef Jamie Oliver as its Health Ambassador . Tesco Food and its variety of recipes were a massive hit. Later on, the monthly Tesco Magazine as a food & lifestyle magazine was also launched, with 4.65Million readers worldwide.

The beginning of the pandemic in March 2020 left people apprehensive about visiting a physical store to buy groceries. To deal with customers’ concerns, Tesco came up with an instructional advertisement in April ‘20. With crisp instructions similar to that of an in-flight safety video, this ad showed customers how to physically shop and behave at Tesco stores. It was considered to be the most effective advertising and communications campaign of 2020 as per YouGov BrandIndex .

Competition

Tesco’s earliest competitor has been Sainsbury’s since the 70s. The Tesco Club Card strategy in 1995 helped it overtake Sainsbury’s to become the No.1 Retailer in the UK, but not for long. The ‘Big Four’ supermarkets in Europe have been in close competition throughout the years. Tesco has acquired a 28% majority stake in the UK market.

The horse meat and accounting scandals were a real setback for Tesco, letting competitors take over the European market. The newest German entrants – Aldi and Lidl had caught customers’ attention and market share in a short span of time.

With a combined market share of 12%, these German retailers posed a threat to Tesco. So much so that Tesco began the ‘ Aldi Price Match ’ campaign to curb the growth of the German discounter and win back customers. Tesco started price-matching thousands of its products with that of Aldi, offering better quality and branded products at Aldi’s prices.

Tesco has a majority market share in Britain, with Sainsbury’s and ASDA in tow:

Tesco Adding Sustainability to its business model – The Little Helps Plan

It’s a well-known fact that giant conglomerate retailers are one of the major causes of rapid climate change and increasing carbon footprints. Tesco realized its impact on the planet and launched the Little Helps Plan as a core part of business in 2017. This plan serves as a framework to attain long-term sustainability. Its four Pillars – People, Products, Planet, and Places are aligned with the UN’s Sustainable Development Goals.

Until now, the Plan has enabled Tesco to:

• Permanently remove 1 Billion pieces of plastic from its packaging
• Redistribute 82% of unsold food, safe for human consumption
• Remove 52Billion unnecessary calories from foods sold

Apart from this, it also aims to increase sales of Plant-Based Meat alternatives by 300% by 2025. At present, it has 350 plant-based meat alternatives on the shelf.

Apart from partnering with various other organizations, Tesco entered a 4-year partnership with World Wide Fund for Nature (WWF) to address one of the biggest causes of wildlife loss – the global food system. It aims to eliminate deforestation from products, promote recyclable/compostable packaging and minimize food waste.

Tesco is one of the few successful retailers in the world, with a compelling history. Tesco has overcome numerous issues across its supply chain, faced global criticism, and still stands undeterred in the European market with its rock-solid business model. It has always adapted to its unpredictable consumers and continues to do so while caring for the planet.

The business is healthy. We said we would rebuild the relationship with the brand and consumers; you will see that in every measure of customer satisfaction we do that. The business is healthy, vibrant and there is a lot of optimism of what we can do going forward. CEO Dave Lewis, who took over Tesco in 2014 (during the struggle years) & stepped down in September 2020

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An Engineering grad, currently working in the fields of Big Data & Business Intelligence. Apart from being immersed in Tech, I love writing and exploring the business world with a focus on Strategy Consulting. An ardent reader of Sci-Fi, Mystery, and thriller novels. On my days off, I would spend time swimming, sketching, or planning my next trip to an unexplored location!

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Sustainable livelihoods - supply chain strategy

UK Stores. Last updated 06/01/2022

Introduction

Customers want the peace of mind that the products they buy from us are sourced with respect for the people who help make them.

None of us – including customers, suppliers, investors or governments worldwide – want to see people living in poverty, and we’re proud that the jobs our business creates can, in the right environments, allow people to improve their circumstances. Everyone, as a minimum, should have access and be able to afford the basic needs required for themselves and their family to prosper.

However, in many parts of the world, having a job does not guarantee a decent living. 8% of the world’s workers and their families were estimated still to be living in extreme poverty (using UN definitions) in 2018[1]. In some countries and sectors, legal minimum wages are set at levels that leave families unable to afford all their basic needs such as food, education, healthcare and decent accommodation.

Around three-quarters of the world’s extreme poor live in rural areas, with most dependent on agriculture for their livelihoods[2]. Smallholder farmers – for example in cocoa, coffee, rice – often rely on the income from their harvest to support the family throughout the year.

Receiving decent wages and incomes is an essential part of achieving sustainable livelihoods and therefore a primary focus of this strategy and our work.

The starting point for our work on wages is to ensure that everyone is paid in accordance with their contracts of employment, for all hours they work, that the wages are legally compliant and that there are no unfair deductions. Through our sourcing of certified products, such as Rainforest Alliance, we are also supporting farmers to adopt more efficient farming practices, which can reduce costs and improve incomes.

But to go even further we have developed this Sustainable Livelihoods Strategy. It recognises that, in some supply chains, wages and incomes are too low and demonstrates our commitment to supporting workers and small-scale farmers in our supply chains to increase their resilience and prosperity. Only by working together with suppliers, NGOs, governments, unions and the wider industry can we increase incomes and reduce poverty on a sustainable basis.

Sustainable Livelihoods is one of four pillars of our Human Rights Strategy.

Our work on sustainable livelihoods focuses on products and ingredients where both poverty is most severe and where we can make the most impact. By identifying the overlap between the  UN Multi-dimension Poverty Index , our supply chains and where there is already other stakeholder support to leverage our action for the greatest impact, we have identified six priority product supply chains.

For three of these product supply chains our focus is on ensuring employed workers earn a decent wage; bananas, tea and clothing factories. Whereas for cocoa, rice and coffee supply chains we need to look more broadly and, as well as supporting small-scale farmers to increase their income, we need to understand what community support and infrastructure is needed for them to become more resilient and prosper.

While we have identified these six priority products, we recognise that enabling environments change and continue to review other commodities. For example, in 2021 we explored potential living wage projects in horticulture and Thai prawn supply chains as collaborative proposals and initiatives have started to emerge. In 2022 we will continue to engage and review these proposals as part of our Sustainable Livelihoods Strategy.

Our approach within each of our priority supply chains is defined by three pillars:

We are reviewing our purchasing practices to ensure they support producers to pay living wages to workers and for smallholder farmers to receive a fair income. This includes looking at how we can ensure quoted prices reflect the costs of sustainable and ethical production, and how our relationships with suppliers support positive change.

In 2021, we reviewed our purchasing practices with banana producers and made new commitments to pay the living wage gap to banana producers (equivalent to the volumes we source) through a new partial open book purchasing model. Following extensive producer and stakeholder consultation we published these new commitments on living wage at the end of 2021. You can read more  here .

Also in 2021, as part of our membership of  Action Collaboration Transformation (ACT) , we undertook a purchasing practice survey with garment primary suppliers and Tesco Clothing colleagues. The aim was to assess where suppliers and colleagues felt we were performing well in terms of our purchasing practices, and where we had opportunity for improvement. An action plan has been created based on the results with a key element including internal training to enable improvement on areas identified.

In addition to our own work on purchasing practices, we continue to collaborate with certification and standard setting organisations, such as the Rainforest Alliance, to review the role they can play in improving wages and incomes.

2. Transform

By working with stakeholders, including unions, governments, NGOs and other businesses, we are identifying potential ways to measure wage gaps and increase wages and incomes. We will pilot solutions in collaboration with our partners and share learnings.

For example, in 2019 we joined the IDH Steering Committee for the  Salary Matrix  and helped to pilot this tool for producers in some of our banana and tea supply chains. The tool defines a consistent method that could be used across different industries and supply chains to assess current wages at a site and compare this to a living wage benchmark.

We are using this tool to work with our suppliers to gain greater visibility of living wage gaps so that we can jointly create timebound actions plans to improve wages.

We are committed to supporting workers and small-scale farmers to organise collectively and this is a key part of our approach. We believe effective worker representation and farmer organisations are essential for workers and farmers to better negotiate wages or the price of their product.

Worker representation has been part of our human rights strategy for many years. In Latin America in particular we closely monitor sites to ensure workers are able to democratically elect their representatives to worker committees and/or Health and Safety Committees. As well as our own direct monitoring, audits assess if workers are aware of who their representatives are and if they are satisfied with their effectiveness. As part of our work on living wages, suppliers will be expected to engage worker representatives in the development of wage improvement plans. We will also be engaging certification and other standard setting organisations to emphasise the importance of worker representation as part of wage improvement strategies and develop guidance for both suppliers and worker representatives.

As part of this Sustainable Livelihoods Strategy we will be exploring what actions we can take to specifically support small-scale farmers. We will focus on understanding the distribution of value in supply chains, what is required to increase income for small-scale farmers and how we can support farmers to organise collectively.

3. Advocate

We need to work with other stakeholders to ensure a level playing field across whole industries and to have a long-lasting positive impact. By convening and engaging others, including governments, we can find systemic solutions that will impact all workers or producers across a whole industry or country.

For example, in recent years we have lobbied for minimum wage increases in Bangladesh and, as signatories of the  ACT initiative , have participated in discussions to encourage wage increases with manufacturing associations and governments in Cambodia and Myanmar.

Targets and ambitions

Outlined below are some of the targets we have set and actions we are taking in each of our priority supply chains. As we are in the early stages of implementing this strategy, we will be adding to this list as we continue to develop product specific action plans.

• Continue to support workers in the Malawi tea industry by funding alternative income generating activities and initiatives. For example, supporting Village Saving and Loans Associations, and the ‘seeds for kitchen gardens’ initiative.
• Work with Ethical Tea Partnership, Global Tea Coalition and other key stakeholders to develop a timebound industry commitment and action plan to living wages in key producing countries including Malawi, Kenya and India.
• As of January 2022, Tesco commits to paying the living wage gap to banana producers (equivalent to the volumes we source).
• Ensure that producers have in place a timebound commitment to pay all workers a living wage.
• Reward suppliers who continue to make progress on closing living wage gaps with higher volumes as part of a balanced scorecard.
• Our ambition is that from January 2024, we will only source from banana producers who pay a living wage to all workers no matter the volumes sourced by Tesco.
• Explore opportunities with our suppliers to support the uptake of the Sustainable Rice Standard by farmers in key sourcing regions.
• With WWF UK, develop a proposal for a UK retail collaborative working group on sustainable rice and potential joint commitment supporting the uptake of the Sustainable Rice Platform (SRP) standard.
• As members of the Retail Cocoa Collaboration, continue to engage global traders of cocoa on their efforts to increase farmers’ incomes.
• Explore ways to obtain better visibility of the gaps between farmer incomes and living incomes, and understand how this links to the broader distribution of value along our cocoa supply chains.
• Following the results of the purchasing practices survey, implement an action plan including internal training to address improvement areas.
• Work with suppliers and IndustriAll to facilitate workers negotiating wages towards a living wage.

We commit to reporting on progress regularly; sharing examples of where there are living wage gaps, the steps we have taken to reduce gaps as well as any learnings.

For the latest updates and information on particular supply chains, view our product specific webpages:

[1]   https://www.un.org/sustainabledevelopment/poverty/

[2]   http://www.fao.org/sustainable-development-goals/goals/goal-1/en/

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Bite-size Information

This case study analyses the supply chain strategy of Tesco, one of the biggest retailers in the UK. It describes the different approaches they took over the years, and asks what the implications are for Tesco’s ongoing success after 40 years of leadership in the retail domain.

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Navigable slide index.

• Introduction
• Tesco: UK stores 1947-2013
• Uk retail formats
• Tesco's international store activity
• Tesco stores: supply chain phases
• Inventory in Tesco 1970-2012

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Publication history.

• Published on January 31, 2019

Tesco: how supply chain strategy supports retail success

• Prof. Leigh Sparks – University of Stirling, UK

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Logistics in Tesco: past, present and future

The business transformation of Tesco in the last 25 or so years is one of the more remarkable stories in British retailing. From being essentially a comparatively small'pile it high, sell it cheap'downmarket retailer, the company has become one of Europe's leading retail businesses, with retail operations in countries as far-flung as Ireland, Poland, Malaysia and Japan.

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Purpose–The purpose of this paper is to provide an overview of the logistical transformation of British retailing over the last three decades and to discuss likely challenges that face logistics managers in the future. Design/methodology/approach–Reviews the key works on retail logistics, including the research undertaken by the authors over the last 20 years.

It is often taken for granted that products will be available to buy in the shops. The cornucopia of goods that is available in a hypermarket or a department store sometimes means that we forget how the products were supplied. We expect our lettuces to be fresh, the new Playstation to be available on launch day and our clothes to be in good condition and ready to wear. With the introduction of e-commerce we have come to demand complete availability and home delivery at times of our choosing.

Food retailing in the 1980s has undergone a transformation. The most visible effects of this are the food superstores around which many food shopping trips are based. The performance of the operations that underpin the retail outlets is vital. This paper takes one such operation, the distribution process, in one such company, Tesco pic, to illustrate how the retail 'revolution'has also been a distribution revolution.

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This essay analyses and evaluates critically Tesco's current operations management. The essay discusses from 3 major perspectives namely, operations strategy, operations design and operations management. Firstly, it will show an introduction. The second section will analyze Tesco's formats and international expansion at corporate strategy level. And then, based on the customer-centric conception, it will discuss the low price policy, cost control, loyalty card strategy, supply chain management, delivery system management and inventory management at the business unit strategy level and functional strategy level. Following this, it will make a comprehensive conclusion and show the strengths and weakness of Tesco' operations management. Finally, the article will give some appropriate recommendations to Tesco's sustainable development.

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The large outsourcing and refocusing movement, regarding the key skills, initiated by many companies, has made a new profession emerge: the one of the logistics service provider. The logistics service providers, along the multi-actor Supply Chains, are considered as real pilots of the interfaces and represent a radical innovation on the managerial, strategical and operational plan. Our article aims to bring a comprehensive literature review of this deep mutation, through a synthesis contribution that retraces the evolution of the logistics function towards the emergence of the logistics service phenomenon.

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Logistics Operation: Tesco and Sainsbury Report

Introduction, logistics elements, management of logistic operations: tesco vs. sainsbury, logistic operations, inventory management, logistics management, inventory management and technology, recommendations, list of references.

Logistics management has been the industrial success driver for a long time, and thus organisations have been investing on it over the last century. However, the current organisational supply chain management is focused on the increasing consumer expectations with regard to the choice and delivery of goods and services.

Due to the high competition brought about by globalisation across all industries, customers are in a position to demand higher quality and lower prices for goods and services. In a bid to maintain an intact client base coupled with continued profitability and viability, organisations have embarked on adopting different approaches in their logistic operations.

Therefore, this report compares and contrasts the logistics operations of two companies, viz. Tesco and Sainsbury, with regard to inventory management strategies, logistical operations, inventory management, transport mode polices, and IT systems. Conclusions and recommendations for the next five years of operation are also made for the two companies.

Logistics management involves the planning, implementation, and effective and efficient control of the flow of goods and services from their point of origin to that of consumption to ensure that the customers’ requirements are met (Wang 2013). The basic elements include warehousing, storage, and handling of materials, packaging, transport, and the control of information.

Tesco is one of the food retailers in the UK and it has thousands of stores worldwide, but over half of these stores are in the UK (Competition Commission 2010). The headquarters are located at Hertfordshire and the company offers offline and online personal finance services. The company has also been on a profit run for the last couple of years.

Tesco has recorded a significant growth over the last few years and one of the indicators of this growth is its profit before tax. Over the last financial period, the company had a growth of 14.5% in profits, which had improved from the previous year as it stood at 2.1%. However, the trend has been unsteady with the company pre-tax growing by 12.3% in 22010/2011 financial period and 8.7% in the 2009/2010 financial period.

A graph showing Tesco’s pre-tax growth between 2009 and 2013

Centralisation

In the years around 1970, Tesco had a Direct to Store Delivery (DSD) where the manufacturers as wells as suppliers had the choice of delivering their goods in any store that they chose (Joseph 2013).

Centralisation was unachievable with this kind of warehousing and the product quality could not be guaranteed. In a bid to ensure that the company had control over the prices of goods, it adopted the centralised system to replace the DSD (Palmer 2004). The stores were interlinked with the head office, and stock could be obtained on time with quality guarantee.

Continuous replenishment

Tesco also adopted the continuous replenishment policy in the year 1999, which entailed a flow system and allowed multiple deliveries to be made (Wang 2013). The company also pioneered in the implementation of Factory Gate Pricing, which allowed the company to save on the prices of goods since the suppliers reduced the prices charged for transportation (Rushton et al. 2013).

Transportation Policies

Tesco is one of the companies in the UK with an efficient logistic operation. The company has traditionally been dependent on trucks on the highway to deliver the goods to the customers and the various stores, and these were utilised in the sourcing of goods from suppliers. It, however, introduced rail services late in the year 2011, and these were meant to reduce the traffic that the Lorries were creating by taking about 40,000 of them off the road.

The trains transport the goods from the company’s central depot to the distribution centres and stores, and goods from the suppliers are transported on the way back. For the purpose of this logistical venture, Tesco got into partnership with Direct Rail services and Stobart Rail (Tesco Case Study 2011). Some of the other transport modes that the company utilises in its logistic operations include shipping, air travel for regional and international centres, and vans for home delivery.

Warehousing, Storage and Packaging

The company also has a detailed logistics strategy, and this aspect is evident in the four main warehousing methods that it utilises within its supply chain. The first warehousing method applies for goods that can be stored at room temperature, and these warehouses are the regional ambient distribution centres (Tesco Case Study 2011).

These warehouses are used to store things such as groceries that are not moisture dependent or wet. The second kind of warehousing utilised is the bonded warehousing, and this form is utilised for goods that are regionally distributed. The third king of warehousing that is utilised by the company is the national distribution centres. These are spread all over the countries that the company operates, and they are used to store the goods that are deemed to be slow moving and that are durable.

These goods include textiles and other materials such as those used in hardware and construction. The last warehousing utilised are the composite distribution centres. These centres are temperature regulated to provide optimum conditions for the mainly fresh and perishable goods that are stored here. Frozen foods are also stored in these warehouses, and temperature controlled trucks and train carriages are used to distribute them to the outlet stores and other retail stores.

Information and Technology

The company has also been a leader in the use of technological innovations in the packaging process, and some of the major breakthroughs that it has made include the invention of a new material used in packaging of fresh produce to increase their shelf life. The technology has been applied in the arioso fresh produce that it has in its stores, and has doubled the shelf life. Packaging is also utilised in other products that the company stocks in its warehouse.

Facilities are a major contributor of supply chain management and Tesco has a number of methods to ensure that this driver has an impact on its performance. In a bid to facilitate the change, the company removed some of the processes in the supply chain that were deemed inefficient and the rest of the processes were changed to be more customer focused (Benton and McHenry 2010).

Most of the outlets in the country also have gas stations and the company is considered as one of the major petrol-independent retailers in the United Kingdom. Some of the countries served include Czech Republic, Hungary, Poland, the Republic of Ireland, and Slovakia (Vankateswaran and Son 2010).

Inventory management is a significant part of any business enterprise, and Tesco has invested in this field to ensure that it stays competitive (Weele 2010).

The experience of shoppers can be subject to the availability of stock in a company and shoppers currently have the choice of different organisations from which to shop. Researchers have found that shoppers often visit other stores to shop for an item that is missing in the initial store that they shopped, and this aspect represents a loss in revenue for the company involved (Golgeci and Ponomarov 2013).

The most important aspect of supply chain in ensuring the availability of stock in industries is the management of inventory (Blackburn and Scudder 2009) and Tesco has embarked on this course. Other important factors in the logistic management include information accuracy, presence of product range, and substitution of demand (Yücela et al. 2009).

The determination of policy aimed at optimum inventory control has garnered importance over the last few decades with the company being one of the market leaders in this aspect.

One of the major policies adopted by Tesco is the Automated Store Ordering (ASO) system, which has ensured that the company replenishes its supplies to the customers’ convenience (Longo 2011). Automated store ordering is one of the latest developments in the supply chain management, but hitherto most industries utilised human interventions in their stores to make decisions on the availability of stocks.

The use of ASO within Tesco and its subsidiaries has allowed the improvement of efficacy and led to the development and introduction of Electronic Point of Sale (EPOS) technology (Vadalakis et al. 2011).Some researchers have described the basis of ASO as a technologically oriented service allowing the improvement of services within organisations’ supply chains (Vadalakis et al. 2011).

Other researchers have also compared ASO with other traditional approaches that were used in organisations to improve the delivery of services (Gaur et al. 2009).

In addition, ASO has ensured the improvement of availability of products and services. Tesco has utilised ASO for a number of years and it is frequently involved in the introduction of other services geared towards improving the availability of goods within its branches. In one of the researches done on Tesco’s inventory, the use of ASO was found to increase the, ‘variability of workload by 185% in the distribution centres’ (Potter et al. 2009: 5740).

The company has also been a leader in the adoption of technology in the supply chain, and it was the first to automate its checkouts in the retail stores. The company also developed the computerised stock control system in the 80s, which complemented the checkout systems already in place by then (Van Der Zee and Van Der Vorst 2010).

Tesco.com is a major component of the company’s information sharing attempts to the customers, and it has grown to operate over 250 stores across the UK since its inception (Potter et al. 2009). The services have also become important to the company’s customers and it is reported that over a million of them use the services (Burt et al. 2011). Therefore, the company remains a market leader in the use of transportation, inventory, and information in the growth and management of its supply chain.

Sainsbury was founded in the year 1869 and for years, it was the largest food retail company ahead of Tesco and other companies in the industry (Dudbridge 2011). One of the areas that can be evaluated in the performance of the company is the bank subsidiary that it operates.

The company received £52.9 million in the last financial year, which was an improvement from the previous year’s financial performance of £40.3 million. The previous financial year’s profits also stood at £39.7 million, which was an improvement from the profits of the year 2011 that were £29.9 million (Wang 2013).

A graph showing Sainsbury’s pre-tax profits and after-tax profits in 2011 and 2012

Despite the positive performance, the company experienced challenges in competition with other companies and Tesco is one of the companies that overtook it in terms of size and performance.

The leadership has also demonstrated lesser strategy in the market over the last decade as compared to the previous years, and this aspect has forced the company to fall below other companies such as ASDA (UKPA 2010). The supply chain management has also not been adequate, and this aspect is one of the reasons that the company trails Tesco in the industry.

The company had used the out-dated logistic system that Tesco abandoned in the 70s, until the year 2001 when it adopted the strategies of network renewal, people and culture, partnerships and replenishment policy (Joseph 2013).

Transportation

Sainsbury has adopted a rather simple warehousing system and transport network. The company mainly utilises vehicles in the distribution of her goods between the distribution centres and the retail outlets. The main component of the fleet of vehicles is the long trucks that form the backbone of the transport system.

Smaller vans are also used in the transport of some other goods to and from the retailers. Some of the latest developments in the transport network that Sainsbury utilises are the Isotrack Vehicle Tracking Systems, and this aspect has enabled it to reduce fuel consumptions and carbon emissions. The other measure that Sainsbury took was to integrate its transport with the paragon software systems, and this move in combination with isotrack reduced the operational costs.

Warehousing

The company’s warehousing policy includes about 19 distribution centres across the UK, and these are used to store the different kinds of goods that the company distributes to the retail centres (Competition Commission 2010).

The company started construction of a central depot in the year 2012, and this depot would be connected to both a major highway and a rail network. The warehouse would cover an area estimated at about 1 million square ft, which would serve as the only major depot for the company, with the other distribution centres getting some of the goods from here.

Storage and Distribution

Sainsbury had traditionally used the centralised distribution that was also used by Tesco, and manufacturers would deliver their goods here. This system started to fail at the beginning of the millennium, and they had to adopt a different system. The latest of the storage systems used by Sainsbury is the Automated Storage and Retrieval System, and the company utilises special sortation systems and conveyors (Competition Commission 2010).

Some of the other components in the company include the primary consolidation centres, fulfilment factories, k Line depots, frozen food depots, and specialised distribution centres (Vadalakis et al. 2011). The company also outsources its logistic providers, and some of these include the Excel Logistics.

The company also embarked on expansion policies and one of the first of these policies includes the acquisition of Bells Stores, which increased its stores and profitability. The company also invested in transportation in its supply chain with the introduction of major changes and collaboration with other companies to ensure efficiency (Long et al. 2011).

The inventory management has also become a major concern for Sainsbury and one of the major steps that it has taken include the adoption of technology on the supply chain.

The company, even though not the first in the industry, introduced a number of online services that were meant to improve its performance on the global front (Vadalakis et al. 2011). Consumers can now shop online and engage in business transactions over this platform and this aspect, according to Terzi and Cavalieri (2010), is an effective method of ensuring better performance.

Sainsbury has developed a strong network of suppliers with assurances of fresh and quality foods. The company also has an Internet-based shopping service where customers can access various products and services throughout the day.

However, the number of stores that have adopted the service is fewer as compared to those adopted by Tesco, which stands at only 165 in number. The company has also invested in a number of services for its customers including baking services that it provides. The outlets are also known to offer a variety of services, which are mainly related to hospitality.

This essay puts Tesco as the market leader in the industry in the UK, and the company has managed to overtake Sainsbury in the last few years. The strategies that the company adopted can be considered as having put them in the leadership of the industry. The company was able to change their out dated strategies timely enough to avoid being irrelevant and remove any inefficiencies in their logistical operations.

Sainsbury, on the other hand, was relatively slower in the adoption of system upgrades and new technology in the logistics management and this is one of the reasons that it trailed the other market leaders.

However, the company has put these changes in place, and it could be competing on the global arena in the next number of years. They have replaced their traditional systems to match those of Tesco, and this has made them worthy competitors. Companies should be able to adopt changes as fast as they are available (Potter et al. 2009; DeHoratius et al. 2010).

Another important aspect of logistics management in any industry is the transportation and availability of services to customers in the right time and quality (Kayakutlu and Buyukozkan 2010). Customers also need a variety of products to be offered in the same place for convenience and organisations that are able to achieve this goal have a reported better performance.

Tesco has managed to provide varying types of services including the gas services that it provides to its customers and the different types of goods available in its stores. Sainsbury offers varying types of goods and services in its branches, but these goods and services are not as many compared to those that Tesco offers. This aspect is one of the reasons why some customers who used to frequent Sainsbury have shifted to Tesco, thus leading to its dominance in the industry.

Despite the above differences, the two companies have a well-performing supply chain that is geared towards the provision of adequate goods and services to their customers. The two companies have engaged in the promotion of the participation of all the players in their supply chains, and this aspect is considered as one of the most innovative ways of increasing performance of the supply chain.

From the analysis of this paper, the logistic policies adopted by Tesco were important in the propulsion to the top of the industry. On the other side, Sainsbury was slow in the adoption of strategies to this effect, leading to the marked slow improvement and a fall in the industry dominance.

This aspect shows that industries should be fast in adopting technologies in their logistical operations to be in a position to compete effectively. Out-dated practices should be replaced with new one, and this should be timely enough. The companies are now competing with each other on the same platform, and the changes made by Sainsbury have made it a strong competitor of Tesco.

A number of recommendations are possible for the two companies in the report. These companies should be in a position to make decisions in their supply chains in terms of production, inventory, location, transportation, and information. They should create master production schedules by taking in account the capacities that their stores and organisations. These production schedules should also be balanced in terms of quality, workload, and equipment available.

In the inventory, the two companies should invest adequately to ensure that they are predictable and that their supply chains are certain, which can be done through the adoption of policies aimed at increasing customer confidence. They should also invest in different parts of the country and provide goods and services that are appropriate for the target markets.

Transportation is also an important aspect of the supply chain and appropriate partnerships with the transport companies should be entered. The path taken by both companies in adoption of technology in their operations is commendable; however, they should ensure that the latest technology is available to their customers.

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IvyPanda. (2024, February 25). Logistics Operation: Tesco and Sainsbury. https://ivypanda.com/essays/logistics-operation-tesco-and-sainsbury/

"Logistics Operation: Tesco and Sainsbury." IvyPanda , 25 Feb. 2024, ivypanda.com/essays/logistics-operation-tesco-and-sainsbury/.

IvyPanda . (2024) 'Logistics Operation: Tesco and Sainsbury'. 25 February.

IvyPanda . 2024. "Logistics Operation: Tesco and Sainsbury." February 25, 2024. https://ivypanda.com/essays/logistics-operation-tesco-and-sainsbury/.

1. IvyPanda . "Logistics Operation: Tesco and Sainsbury." February 25, 2024. https://ivypanda.com/essays/logistics-operation-tesco-and-sainsbury/.

Bibliography

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Tesco, a supermarket chain, has been transformed from a third-rate retailer to a global leader in the past ten years. This case describes how that was accomplished. Interviews with Tesco employees…

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• Publication Date: Dec 13, 2002
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Tesco, a supermarket chain, has been transformed from a third-rate retailer to a global leader in the past ten years. This case describes how that was accomplished. Interviews with Tesco employees explain the company's approach to understanding customers, motivating employees, succeeding on the Internet, and creating an international strategy.

Learning Objectives

Retail strategy and organizational leadership.

Dec 13, 2002 (Revised: Oct 16, 2006)

Discipline:

Geographies:

United Kingdom

Industries:

Food industry, Retail trade

Harvard Business School

503036-PDF-ENG

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The powerful impact of Tesco’s supply chain: A closer look

Tesco , the British multinational retailer, has established itself as one of the world’s leading grocery retailers. Behind its success lies a robust and efficient supply chain that ensures products are available to customers in a timely and cost-effective manner. Tesco’s supply chain is a complex network that encompasses sourcing, manufacturing, distribution, and retail operations. This article takes a closer look at the powerful impact of Tesco’s supply chain and how it has contributed to the company’s success.

Importance of a well-functioning supply chain

A well-functioning supply chain is crucial for any organization, and Tesco is no exception. A reliable supply chain ensures that products are delivered to the right place, at the right time, and in the right quantity. This enables Tesco to meet customer demand efficiently and effectively. Additionally, a well-functioning supply chain helps Tesco minimize costs, reduce waste, and optimize inventory management. These factors contribute to Tesco’s ability to offer competitive prices to its customers and maintain a profitable business.

The scale and complexity of Tesco’s supply chain

Tesco’s supply chain operates on a massive scale, serving millions of customers across the globe. With over 7,000 stores in various countries, Tesco  sources products from thousands of suppliers worldwide. Coordinating the movement of goods from suppliers to distribution centers and ultimately to stores requires careful planning and execution. The complexity of Tesco’s supply chain is further magnified by the diverse range of products it offers, including fresh produce, groceries, clothing, and household items. Managing such a vast and diverse supply chain links is no small feat, but Tesco has developed systems and processes to ensure smooth operations.

Above: Tesco’s supply chain network first 100 based on news announcements data

Tesco’s supply chain sustainability efforts

In recent years, sustainability has become a top priority for businesses, and Tesco is no exception.  Tesco has implemented various initiatives  to make its supply chain more sustainable. One such initiative is the reduction of carbon emissions by optimizing transportation routes and using more fuel-efficient vehicles. Tesco also works closely with its suppliers to promote sustainable practices, such as responsible sourcing and waste reduction. By incorporating sustainability into its supply chain, Tesco not only reduces its environmental impact but also strengthens its reputation as a socially responsible retailer.

Challenges faced by Tesco’s supply chain

Despite its success, Tesco’s supply chain faces several challenges. One of the major challenges is ensuring product availability while minimizing waste. Tesco needs to strike a delicate balance between maintaining adequate inventory levels to meet customer demand and avoiding excess stock that may go to waste. Additionally, managing a global supply chain introduces complexities such as transportation logistics, customs regulations, and cultural differences. These challenges require Tesco to continuously adapt and innovate its supply chain management strategies.

Issues and controversies surrounding Tesco’s supply chain

Like any large corporation, Tesco has faced its share of supply chain issues and controversies. In the past, there have been allegations of labour rights violations and unethical sourcing practices within Tesco’s supply chain. These incidents have highlighted the importance of transparency and accountability in supply chain management. Tesco has taken steps to address these issues by implementing stricter supplier standards and conducting regular audits to ensure compliance. The company recognizes the need to maintain a responsible and ethical supply chain and continues to improve its practices.

Tesco has also been accused of sourcing products from suppliers who engage in unethical practices, such as deforestation and water pollution. In 2014, the company was criticized for sourcing palm oil from plantations that were destroying rainforests in Indonesia. Tesco responded by committing to sourcing 100% of its palm oil from sustainable sources by 2020. 

The John West tuna scandal forced Tesco to remove unsustainable products from their shelves, and many praised Tesco for their leadership in doing so. They were then later found to be selling their own brand and Princes tuna from unsustainable MSC certified fisheries. Last year, they  joined a partnership platform to promote sustainable fisheries  and protecting the ocean, following audits of its seafood sourcing.

Additional examples of criticisms of Tesco’s supply chain:

The use of pesticides and other chemicals that harm the environmen t.

The production of waste that ends up in landfills and waterways.

The use of unsustainable packaging materials.

The lack of transparency about the working conditions of Tesco’s suppliers.

Addressing Tesco’s supply chain criticisms 

Tesco has responded to these criticisms by investing in more sustainable practices, such as reducing its use of pesticides and packaging materials , and increasing its use of renewable energy. The company has also committed to publishing more information about its supply chain, including the names and locations of its suppliers.

However, Tesco’s critics argue that the company has not done enough to address these issues. They argue that Tesco should be doing more to verify that its suppliers are complying with its ethical standards, and that the company should be more transparent about the environmental impact of its supply chain.

The debate over Tesco’s supply chain is likely to continue. The company is under pressure from its shareholders, customers, and environmental and labour rights groups to improve its practices. Tesco is committed to doing better, but it faces a number of challenges in doing so.

These incidents have highlighted the challenges of ensuring ethical and sustainable practices throughout a complex supply chain. Tesco’s experiences serve as a reminder of the importance of transparency and accountability in supply chain management. The company has taken steps to address these issues, but it continues to face scrutiny from environmental and labour rights groups.

Tesco’s influence over its suppliers 

Tesco has a significant influence over its suppliers when it comes to sustainability practices. As one of the largest supermarket chains in the world, Tesco has the power to set sustainability standards for its suppliers and to enforce those standards through its purchasing power. The company has implemented a number of initiatives to promote sustainability in its supply chain, including:

• Sustainable sourcing standards:  Tesco has set ambitious sustainability goals for its own-brand and branded products, including reducing its carbon emissions by 50% by 2030 and sourcing 100% of its own-brand products from sustainable sources by 2025. These goals have been communicated to Tesco’s suppliers, who are expected to help the company achieve them.
• Supplier audits:  Tesco conducts regular audits of its suppliers to assess their compliance with its sustainability standards. These audits cover a wide range of issues, including the use of sustainable packaging materials, water conservation, and energy efficiency.
• Supplier training:  Tesco provides training to its suppliers on sustainability best practices. This training helps suppliers to understand Tesco’s sustainability standards and to develop the skills and knowledge they need to meet those standards.
• Sustainability scorecards:  Tesco tracks the progress of its suppliers in meeting its sustainability goals. This information is used to inform Tesco’s purchasing decisions and to identify suppliers that need additional support.

Tesco’s influence over its suppliers in terms of sustainability is likely to continue to grow in the future. As customers become more demanding of sustainable products and as governments introduce stricter regulations on sustainability, Tesco will need to continue to push its suppliers to adopt more sustainable practices.

Here are some specific examples of how Tesco has used its influence to promote sustainability in its supply chain:

• In 2014, Tesco stopped buying palm oil from suppliers who were destroying rainforests in Indonesia.
• In 2020, Tesco committed to sourcing 100% of its seafood from sustainable fisheries.
• In 2022, Tesco launched a new initiative to reduce food waste by 50% by 2030.

Tesco’s efforts to promote sustainability in its supply chain have been praised by environmental groups. For example, Greenpeace ranked Tesco 6th out of the 10 supermarkets that were analysed for its sustainability efforts.   Overall, Tesco is a leader in the use of its influence to promote sustainability in its supply chain. The company has made significant progress in recent years, but it still has more work to do.

Tesco’s supply chain impacts: Final thoughts

Tesco’s supply chain is a powerful force that has propelled the company to the status of one of the world’s leading grocery retailers. Its ability to efficiently source, manufacture, distribute, and retail products to millions of customers across the globe is a testament to its robust supply chain infrastructure. The company’s emphasis on sustainability and ethical sourcing has further strengthened its reputation and set a benchmark for other retailers to follow.

Despite its remarkable achievements, Tesco’s supply chain continues to face challenges, particularly in ensuring the protection of the environment and upholding labor standards. The company has taken steps to address these issues, but it must remain vigilant and committed to continuous improvement. By leveraging its influence over its suppliers and embracing transparency , Tesco can further enhance its supply chain performance and maintain its position as a leading global innovator in grocery retail.

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The Guardian view on Tesco and supply chains: landmark case shines a light

Rising prices dominate the news, but Burmese workers taking the supermarket to court are a reminder that cheap goods come at a cost

“T hat period was a time I was in hell” is how one woman describes her two years working for VK Garments (VKG) in Thailand. Hla Hla Tey, who at 54 has struggled to find work since losing her job and now lives in a monastery, is among 130 former workers who are bringing a landmark case against Tesco in the UK. The supermarket giant stands accused of negligence and unjust enrichment on the basis of events at a clothing factory making F&F brand jeans in Mae Sot, a city at the Myanmar border, between 2017 and 2020. The area is described as a wild west of the global garment industry, with western retailers and their subcontractors drawn by the promise of cheap labour supplied by Burmese migrants.

Attention at the moment is rightly focused on the adverse effects of rising prices . Particularly in the run-up to Christmas, the UK public is accustomed to being reminded about the financial and other difficulties faced by people who are less fortunate than themselves. But the harmful impact of downward cost pressures must not be forgotten, even if those harms take place thousands of miles away. The demand for cheap goods, including new fashions, continues to lead to the exploitation of workers around the world, as employers vie with one another to fulfil orders as cheaply as they can.

Tesco says that the jeans made by VKG in Mae Sot were sold in Thailand, not Britain. But the relationship between the supermarket and its Thai branch, Ek-Chai (which has since been sold), VKG and an auditor, Intertek, is part of a system developed by retailers that enables them to outsource risks as well as well as keep costs down. Following earlier scandals over dangerous and exploitative working conditions, the most dramatic of which was the Rana Plaza factory collapse in Bangladesh in 2013, retailers have in some cases opted to extend supply chains further, placing more intermediaries between themselves and the people making the clothes they sell.

This is the system that is now being challenged. Lawyers at Leigh Day argue that vast profits are being made off the back of an outsourcing model built on overwork and illegally low pay. Experiences described to our reporter include serious injuries caused by machines, overnight shifts that left workers struggling to stay awake, and employee bank accounts controlled by the factory. Most distressing of all, parents were obliged to leave children in insecure dormitories while working extended shifts, and in 2018 a seven-year-old girl was raped . In many cases, including this one, workers say they were pressured by bosses not to report serious harm.

In 2020 a Thai court ruled that employees dismissed by VKG were entitled to severance pay. Their hope is that a UK court will go further, and hold Tesco and others accountable for their mistreatment. VKG denies breaking any Thai laws, while Tesco says that its human rights standards are robust. Whatever happens next, the case will shine a light on the way that workers at the far end of supply chains continue to suffer from labour practices that should not be allowed. The desire for affordable goods should never override the rights of the people who are making them. British businesses must take responsibility for the consequences when they choose to operate in places such as Mae Sot, with a migrant workforce known to be vulnerable.

Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here .

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9.38 tesco plc.

Though still still essentially UK-based, Tesco has diversified geographically and into widely-separated market sectors: retailing books, clothing, electronics, furniture, petrol and software, financial services, telecom and Internet services, DVD rental, and music downloads.{10}

Competition

Tesco is an aggressive company benefiting from Internet technologies, as indeed are its main UK rivals. {9} Sainsbury's and Morrisons cater for more affluent customers, and Asda focuses on the more cost-conscious. Market share as of 2008 was: Tesco 30.5%, Asda 16.9%, Sainsbury's 16.3, and Morrisons 12.3%.{10} A cost breakdown is given below. {9}

Tesco has built its fortune on two business elements: an unrelenting drive to provide value to customers, and continued investment in the latest technologies — today customer relationship management, Internet and mobile phone shopping, and supply chain management (probably a private industrial network, though details are not available).

Back in 1995, however, Tesco was losing market share, causing Terry Leahy, the new CMO, to reexamine its market position and propose a three-pronged solution: {11}

1. Stop copying Sainsbury's and develop its own strategy. 2. Listen to customers throughout the company, at every level. 3. Offer goods and services as the customer valued, not what Tesco could do (i.e. adopt an outside-in strategy).

Customer Relationship Management

Tesco went to extraordinary lengths to understand its customers and add value to their lives.

1. Marketing was aimed at sensible, middle-class families, from its slogan 'Every little helps' to its no-frills website. {11} {14} 2. A loyalty card ('Clubcard') was introduced in 1995, and data subsequently fed into Customer Management Systems. {10} 3. American preferences were studied by embedding staff with US families prior to launching its USA operation in 2007. {11}

Internet Technology

Tesco has been particularly forward-looking. It was one of the first to: {10}

Outlook: Pestel Analysis

A Pestel analysis identifies the forces with most impact on Tesco performance.{9}

Tesco benefited from access to the world's most profitable market of 1.3 billion people, notably by:

1. Britains' joining the European Union, and the inclusion of 10 more countries in 2004. 2. China's entry into the WTO.

The continuing recession has made supermarket customers:

1. More cautious and cost-conscious. 2. More inclined to eat in that go out to restaurants.

As the UK's population changes (especially ages), customers:

1. Tend to eat (and therefore buy) less food. 2. Have become more health conscious, met by Tesco's increased stocking of organic foods. 3. Have been retained by Tesco loyalty programs.

Technological

Tesco were early leaders in Internet shopping, supply chain management and customer relationship management. These continue to be vital today with:

1. Customer loyalty cards and Internet shopping records providing CRM information. 2. Growth of Internet use and broadband access fueling growth in Tesco online shopping. 3. Mobile phone shopping, introduced with Cortexica Vision Systems for Tesco Wines, etc. 4. Supply chain management: rumored to be the world's best, still being extended. {4}

Environmental

Tesco has responded to Government environmental initiatives by:

1. Encouraging reuse of plastic bags. 2. Rewarding bagless deliveries with Tesco's green Clubcard points. 3. Providing practical advice of environmental issues. 4. Adding carbon footprint data to its products.

1. European VAT increases will affect nonfood sectors like clothing. 2. Increase in the UK's minimum wage will increase Tesco operating costs.

Outlook: Swot Analysis

The SWOT {9} analysis regards the UK concentration of business as a weakness, though this is a market Tesco knows well, and which saw further expansion in 2011. {13}

Outlook: Value Chain Analysis

As defined by Lynch (2006), {19} the value chain is the value added at each link in a company's key activities. For Tesco, the values are: {9}

1. Use of leading market position and economies of scale to achieve low costs from its suppliers. 2. Constant upgrading of their ordering system, approved vendor lists, and in-store processes.

Operations Management: 30%

Sources and Further Reading

• Anthesis Group
• Anthesis España
• Anthesis Catalunya
• Anthesis France
• Anthesis Deutschland
• Anthesis Italia
• Anthesis Suomi
• Anthesis Sverige
• Anthesis Brasil
• Anthesis Middle East & Africa
• Anthesis Australia

Developing Sustainability-linked Supply Chain Finance Product for Tesco

Tesco was eager to identify novel levers that could be deployed to help incentivise and reward suppliers to take action to deliver on Tesco’s updated supply chain carbon reduction targets and Net Zero emissions across its entire value chain by 2050.

Anthesis has supported Tesco to design the methodology that determines how suppliers’ sustainability credentials are assessed and incentivised suppliers to set emission targets.

• Supply Chain Sustainability

We are delighted to be able to offer thousands of suppliers access to market-leading supply chain finance linked to sustainability. This programme not only provides suppliers with a real incentive to set science-based emissions reduction targets, it will help embed sustainability goals throughout our supply chain and support the UK in realising its climate change targets.” Ashwin Prasad – Tesco Chief Product Officer

Anthesis has been a trusted advisor to Tesco for over seven years and has been supporting the company by embedding its sustainability goals within its supply chain as part of the Tesco Supplier Network platform. As an industry leader, Tesco was eager to identify novel levers that could be deployed to help incentivise and reward suppliers to take action to deliver on Tesco’s updated supply chain carbon reduction targets (aligned to a 1.5°C pathway) and Net Zero emissions across its entire value chain by 2050.

In partnership with Tesco and their finance partner, Santander, Anthesis supported the development of UK retail’s first sustainability-linked supply chain finance product. The voluntary programme saw Tesco suppliers offered preferential financing rates based on their disclosure of greenhouse gas emissions, setting reduction targets, and delivering reductions. Anthesis led the development of the methodology by which suppliers are assessed. In addition, Anthesis was the implementation partner for the programme, independently reviewing each supplier’s application to the programme.

In line with Tesco’s science-based climate targets and goal to achieve net zero in the UK by 2035, the supply chain finance programme encourages suppliers to work with Tesco to address the most urgent environmental issue, climate change.

Tesco has taken a leadership position as the first UK retailer to offer preferential funding rates linked to suppliers’ sustainability performance. Suppliers that successfully engaged with the programme have been able to access funding at costs below the market rate. Moreover, the programme has incentivised many suppliers to measure their greenhouse gas (GHG) emissions for the first time, set GHG reduction targets in line with Tesco’s goals, establish Net Zero ambitions, and deliver emission reductions.

Anthesis has supported Tesco to design the methodology that determines how suppliers’ sustainability credentials are assessed. In addition, the team assisted with collecting and reviewing supplier data, as well as supporting Tesco with the continued evolution of the initiative over time – in line with the retailer’s sustainability goals.

Anthesis has been working with Tesco since 2014 to advance its supply chain sustainability agenda. This has included developing and delivering the Tesco Supplier Network, Tesco’s online supplier collaboration platform, which gives over 10,000 suppliers and producers access to guidance materials to improve sustainability.

We are the world’s leading purpose driven, digitally enabled, science-based activator. And always welcome inquiries and partnerships to drive positive change together.

Tesco Case Study: How an Online Grocery Goliath Was Born

Tesco boasts an impressive history in the UK and abroad. Over the years, the grocery goliath has achieved continued success by remaining at the forefront of retail trends, including everything from self-service shopping to international expansion. More recently, Tesco has made its mark with a sophisticated online grocery strategy that enables seamless digital shopping. There’s a lot that can be gleaned from Tesco’s eCommerce efforts. In this Tesco case study, we highlight the retailer’s long-term emphasis on customer service, which can be seen not only in its physical locations but also in its eCommerce strategy.

Table of Contents – Summary

A Brief History of Tesco

Tesco’s and world’s first virtual store, tesco and scandals, how tesco became a retail case study favorite, tesco’s ecommerce website, interesting technologies that tesco’s uk site uses, impressive tesco stats you may not know, faq on tesco.

• The Tesco Success

To understand current growth and successes and why they warrant a Tesco case study, it helps to understand the retailer’s history. Founded in 1919, the company initially consisted of a group of high-performing market stalls. Founder Jack Cohen conceived the idea shortly after leaving the Royal Flying Corps as World War I drew to a close. He used demobilization funds known as “demob money” to purchase surpluses of fish paste and golden syrup.

Tesco’s initial success could largely be attributed to Cohen’s understanding of mass-market sales. In a time of strict austerity, he employed a rigid business model of “stack ’em high, sell ’em low.” The brand also set itself apart by embracing a self-service approach, which, at the time, was rare in the UK. Following the introduction of its first supermarket in 1956, the retailer entered an era of rapid growth.

After emerging as the UK’s preeminent grocery chain, Tesco released the revolutionary Clubcard. During the 1990s, the chain expanded to include thousands of international locations. This was quickly followed by investments in internet retailing, which led to the chain’s current status as a top eCommerce grocer, netting  £1.3 billion in pre-tax profits  for the year ending in February 2018.

In 2011 Tesco was the first-ever retailer building the world’s 1st virtual grocery store in South Korea. The experiment took place in a subway station and the results were tremendous: the number of new registered members rose by +76%, online sales increased by +130% and Tesco became South Korea’s no1 online grocery retailer, outranking its rivals e-mart, so this experiment was one of the first key steps towards Tesco’s digital transformation.. After this phenomenal success, Tesco opened its first European virtual grocery shop in Gatwick Airport, UK. See how they did it in this brilliant video:

Tesco has occasionally suffered controversy in the last several decades, with 2 shocking moments that everyone remembers:

• The Horse Meat Scandal: Back in February 2013, several products believed to consist entirely of beef were found to contain horse meat. The Food Safety Authority of Ireland tested a range of cheap frozen beefburgers and it found that Tesco’s sample contained 29% horse instead of beef .  The retailer made every effort to appease concerned customers. One of which included a notable promise to tighten up its supply chain and purchase a more significant share of its meat from the UK. Such efforts have likely played into the grocery chain’s recent logistics successes.
• The Accounting scandal: It was 2014 when the news dropped like a bomb: an FTSE 100 firm could get away with “cooking the books”. The company admitted submitting overstated profits by £250 million . The results? £2 billion off the supermarket’s share price in one day.

How Tesco thrived in the COVID-19 area

During Q1 2021, Tesco reported that the sales from its online store were “remarkably higher” than before the Covid-19 crisis. As Internet Retailing mentions , Tesco’s sales increased by +22% in 2020, even though the physical stores and hospitality re-opened at some point. It is believed that this success was a result of Tesco’s recent delivery enhancements and doers mentality, implemented during the first lockdown. 

It’s revenue analysis shows that 1.3m online orders were conducted only in spring 2021. This means that the total number of transactions was 81.6% higher than the same period in 2019 (a before Covid-19 year), proving that Tesco actually turned COVID-19 into an opportunity for its business, achieving memorable results by quickly adjusting its business model to the pandemic’s needs.

Despite the horsemeat scandal, Tesco remains a customer favorite throughout the United Kingdom. The Tesco case study has become a common phenomenon, as the chain boasts several unique strengths worth emulating on a broad scale.

Over the years, the retailer has shifted its original “stack ’em high, sell ’em low” approach. While affordability remains a priority, Tesco did not pursue it to the detriment of quality. Instead, it combines reasonable prices with exceptional convenience and customer service. This can be seen in physical stores and eCommerce alike.

Excellent Customer Service

Strong customer service lies at the heart of Tesco’s sustained success. The retailer employs a variety of initiatives to keep consumers happy. Customer-oriented product development, for example, ensures that all stores are stocked with the items visitors actually want. This development process includes rigorous consumer testing to ensure that new products and services are well-received. Customized stores lend further appeal; each is designed based on carefully analyzed demographics.

Quality customer service means making accommodations for all consumers—including those with special needs. Tesco accomplishes this through the use of sunflower lanyards, which allow customers with hidden disabilities to secure additional assistance discreetly. The chain also provides induction loops for hard-of-hearing customers, as well as helpful visual guides for consumers with autism.

Ultimately, Tesco’s impressive customer service derives from its top-down approach, in which a commitment to customer satisfaction permeates every element of the company’s culture. Insight Traction’s Jeremy Garlick tells The Grocer that the key to large-scale retail success lies in “ understanding your customers, anticipating their needs, and giving them what they will value.” Tesco checks off all these boxes. This is true both in stores and with its website, which uses an intuitive layout to ensure that customers can quickly access the products and services they desire.

Product Diversification

Tesco may be best known as a grocery chain, but the retailer provides a surprising array of products and services. It aims to serve as the ultimate one-stop-shop for those who prioritize convenience and quality above all else. Customers can expect to find a collection of produce, dry goods, frozen products, and more. Toiletries, household products, pet food, and even apparel can also be located within Tesco stores and on the retailer’s eCommerce website.

Beyond its many product offerings, Tesco also provides a few key services to enhance customer convenience. Tesco Bank, for example, offers everything from credit cards to pet insurance. These digital offerings play largely into Tesco’s eCommerce strategy, with banking customers capable of accessing their account information online.

Fine-Tuned Logistics

Quality customer service is not possible without an effective logistics and supply chain strategy. Strong relationships with suppliers are essential, especially as Tesco seeks to diversify its already vast product collection further. Efficient routes ensure that produce and other time-sensitive products arrive promptly in stores—and are quickly distributed to customers taking advantage of the chain’s affordable home delivery program.

Ongoing investments in telematics promise to further improve Tesco’s already fine-tuned supply chain. New monitoring tools offer greater insight into the trip status and real-time decision-making—and how these elements play into both profit margins and long-term customer satisfaction.

Digital customers, in particular, appreciate Tesco’s tight supply chain. When they order items online, they can rest assured, knowing that their favorite products will consistently be in stock. What’s more, online customers feel confident that delivered items will be fresh and of exceptional quality.

Insane International Expansion

Tesco may currently dominate the UK grocery market, but it’s also an international force. While the retailer pulled out of the United States in 2014, it has enjoyed sustained growth in Eastern Europe and Thailand.

Just as Tesco targets its international in-store efforts to reflect local populations, it designs its global eCommerce strategy around a diverse consumer base. Different websites are offered in each target country, with text provided in both English and the respective region’s primary language.

Customer Loyalty

Brands such as Costco and Amazon prove that customer loyalty can pay dividends for a company’s bottom line. Tesco demonstrated this long ago with the Clubcard, which encourages customers to prioritize the chain over competitors.

Today, the Clubcard continues to play a crucial role in Tesco’s success. Further transformation is in store, as Tesco recently unveiled a £7.99 per month subscription service called Clubcard Plus . Subscribers will receive significant discounts above and beyond those offered through the traditional Clubcard, including a permanent 10 percent off many of the store’s most beloved brands. Given the current popularity of subscription services, this could prove an excellent opportunity to get existing customers even more enmeshed in the Tesco ecosystem and more responsive to eCommerce marketing automation efforts.

Tesco’s eCommerce strategy reflects the brand’s commitment to value and convenience. These priorities are evident in everything from the logo to the images and even the general layout. Website visits are just as efficient and orderly as in-person purchases at Tesco’s physical locations. Tesco’s website, like its stores, may not be fancy—but it gets the job done. In this Tesco case study, we’ve analyzed several of the key eCommerce strategies that help Tesco’s page stand out in a competitive digital marketplace, as well as a few areas that warrant improvement.

Analyzing Tesco’s Homepage

What We Liked

• Easy to navigate . Today’s impatient customers demand easy-to-navigate websites that almost instantly get them from point A to point B. Tesco’s homepage appeals greatly to convenience-oriented online shoppers, who can quickly find desired products via a simple search tool. Headings highlight main categories, including groceries, clothing, banking, and even recipes.
• Visually-appealing fullscreen displays . Rather than distract website visitors with several separate visuals, Tesco’s website maintains a single, but decidedly bold display. This impactful background stretches across the entire screen and is layered behind text and customer prompts. The homepage, featuring fresh produce, has eye-catching graphics that reflect the commitment to quality that emerges in every Tesco case study
• Minimalist, but not dull . Minimalist displays dominate modern web design. Sometimes, however, white space feels excessive. Tesco strikes an ideal balance by keeping clutter to a minimum without relying on a bare-bones approach.
• Easy logo identification . Customers can always spot the Tesco logo in the upper left-hand corner, surrounded by just enough white space to ensure that it stands out.

What We Didn’t Like

• Customer testimonials . Reviews from happy customers may prove desirable in some contexts, but there is a time and a place. These particular testimonials take up the page’s most prominent space, which could be better served by showcasing exciting deals or products.
• Tabs that open into new pages . Ideally, when clicking on a link that appears to be a tab (such as the Delivery Saver tab), the new content should open in the same page, instead of loading an entirely new page.

Analyzing Tesco’s Category Page

• Sticky cart functionality . As shoppers browse the website and add items to their carts, they can keep track of these intended purchases on the right side of the screen. This intuitive design allows for a seamless Tesco checkout process , thereby increasing the likelihood of conversion.
• Variety of filters . A wide array of filters are provided to allow customers to browse through products based on brands and categories. Furthermore, customers can customize their browsing according to specific dietary filters such as vegan or Halal. This plays into Tesco’s overarching emphasis on personalized shopping.
• Usually bought next . Situated at the bottom of each category page, this helpful section makes it easy to pair similar grocery items. This increases customer convenience while also helping to improve sales and final revenue on Tesco’s end.

What We Didn’t

• Difficult filter navigation . There’s a lot to be said for the variety of filters at customers’ disposal, but the actual process of navigating them can prove complicated, particularly compared to competitor websites.
• Navigating to different items within categories . Navigation can prove surprisingly difficult for those browsing various items within categories. The constant need to return to the homepage could quickly grate on otherwise amenable customers.
• Lack of search functionality within categories . Items cannot be sought via keywords within specific category pages. All searches must be completed using the main search bar on the top of each page. For many users, this may represent the website’s greatest weakness, as keyword category searches are an expected feature among competitors.

Analyzing Tesco’s Product Page

• Time-limited delivery notice . Produce delivery is inherently time-sensitive, as are several other services that Tesco provides via its website. The retailer harnesses the power of time-limited delivery notices to ensure that consumers use products when they’re freshest and most appealing.
• A wealth of product information . Product pages contain a wealth of relevant information, including everything consumers could possibly want to know about each item’s nutritional content, country of origin, and even preparation instructions.
• Customer reviews . Shoppers on the fence about a particular product can read customer reviews to get a better idea of whether they actually want to invest in said item. With a wealth of alternatives available, they can take solace in knowing that other options are always on hand.
• Nondescript Add to Cart button . Tesco’s approach for adding options to its carts may get the job done, but this could be an excellent opportunity for adding a bit of visual flair without detracting from the website’s minimalist approach.
• Too much text combined with too small product images . Many shoppers regularly purchase items without actually knowing their names. Rather, they focus on packaging. Tesco’s small pictures make it difficult for these shoppers to identify the elusive products they want. Some may end up with unexpected and unwelcome surprises upon delivery.
• Too much information . While it’s useful to know the origin of each item, including the exact address may seem like overkill to some users. This detailed information detracts from Tesco’s otherwise streamlined product pages.

Analyzing Tesco’s Checkout Process

• Numerous delivery slots are available . A variety of helpful slots for receiving grocery deliveries are provided on an hourly basis throughout the day. This dramatically improves customer convenience, particularly for those who work long hours and might not be available for the limited delivery times provided by some of Tesco’s key competitors.
• Automatic Click+Collect locations . Those who opt to collect deliveries at Tesco stores can look to this feature to automatically display a variety of nearby locations. This makes in-person delivery collection nearly as convenient as Tesco’s impressive delivery setup.
• Several Delivery plans are available . Shoppers who aren’t in a big hurry can elect to have their orders delivered mid-week for a reduced charge. Meanwhile, demanding customers are asked to pay extra for same-day delivery. Customers love options, particularly when they believe those options prompt significant savings.
• Oddly unavailable Click+Collect hours . Shoppers who plan their grocery pickup several days out will be surprised to find that some collection times up to a week out are unavailable. Hence, while Click+Collect provides exceptional functionality for last-minute pickups, it’s not always ideal for those who prefer to schedule in advance.

Eager to learn more about Tesco’s strategy and the technologic functionalities that make Tesco’s website so easy to use, we harnessed the power of BuiltWith to scan the website. A few of the notable technologies we spotted include:

• Omniture SiteCatalyst . Tesco’s web analytics are provided by Adobe’s Omniture SiteCatalyst — an expensive, complex system when compared to its main competition (Google Analytics). If set up correctly, however, Omniture SiteCatalyst provides excellent customer support.
• Hotjar . One of the world’s most famous screen recording and heatmaps tools, Hotjar offers a range of behavior analytic services ideal for businesses such as Tesco, which aim for a targeted approach based on actual customer behavior.
• Optimizely . This top experimentation platform plays significantly into modern web innovation. Despite its name, however, Optimizely may increase page load times throughout the Tesco site.
• OpinionLab . OpinionLab does an admirable job of collecting customer feedback on every aspect of Tesco’s webpage. This allows Tesco to customize better its web offerings based on actual customer opinions
• SendinBlue . User experience is a huge point of contention for SaaS provider Sendinblue. Clients regularly struggle with forms, automation, and APIs. ContactPigeon may prove a more customer-oriented alternative.

Some of these eCommerce tools are also used by John Lewis, UK’s homeware giant , so we do realize that these technologies play also an important part in a retailer’s business model and online success.

• As of 2019, Tesco boasted over 6,800 shops worldwide.
• Tesco currently employs over 450,000 employees around the world.
• Tesco had a 26.9 percent market share in the UK in 2019.
• Of the UK shoppers who primarily visit Aldi, 45 percent highlight Tesco as their main secondary store.

Breaking Tesco News:

• Tesco changes bonus rules after Ocado success hits pay – Read more here
• Coronavirus: The weekly shop is back in fashion, says Tesco boss – Read more here
• Tesco launches half price clothing sale – but some slam the company as ‘irresponsible’ – Read more here
• Tesco, Sainsbury’s, Asda and Aldi put restrictions on items amid stockpiling –  Read more here
• Tesco sells its Thai and Malaysian operations to CP Group.   Learn more here
• In September 2021 Tesco launched a zero-waste shopping service, providing customers with containers. – Learn more here.

When did Tesco begin?

Tesco technically began in 1919 but did not receive its current name until 1924. The company originally consisted of market stalls, with the first shop that might be recognizable to modern consumers not opening until 1931.

What made Tesco successful?

Tesco is popular in the UK and abroad due to its combined emphasis on quality, convenience, and affordability. The Clubcard plays a huge role in the retail chain’s continued popularity, as it keeps customers coming back for deals.  So why is Tesco so successful? It is because of its customer-centric approach, that it gradually helped Tesco to develop a very loyal customer base and equity and a very powerful multinational brand.

Who is Tesco’s owner?

Tesco is currently experiencing a shakeup in leadership. After serving as CEO for several years, Dave Lewis announced his resignation in 2019. He will be replaced by Ken Murphy in 2020. John Allan currently serves as the chain’s non-executive chairman.

What is Tesco industry sector?

Tesco PLC is a retail company. Its core business is grocery retail but they also are in retail banking and assurance industries as well, as part of their product diversification strategy.

How many stores Tesco has?

Tesco has 6993 stores in 12 countries

How profitable is Tesco?

Tesco’s revenue grew by +12% YoY in 2019 hitting  £63.91 billion.

Is Tesco in the public or private sector?

While Tesco was initially a privately-held company, it became a public limited company (PLC) in 1947 and has continued to operate under this approach. However, despite Tesco’s status as a PLC, it remains firmly part of the private sector.

Discover more resources about FMCG retailers

• Sainsbury’s Marketing Strategy: Becoming the Second-Largest Supermarket Chain in the UK
• ASDA’s marketing strategy: How the British supermarket chain reached the top
• The Marks and Spencer eCommerce Case Study: 3 Growth Lessons for Retailers
• The Ocado marketing strategy: How it reached the UK TOP50 retailers list
• ALDI’s marketing strategy: The key growth ingredients of the FMCG titan
• Walmart Marketing Strategy: Decoding the Success of the US Multinational Retailer
• Analyzing Lidl’s Marketing Strategy: How the Discount Supermarket Leader Scaled
• FMCG Marketing Strategies to Increase YOY Revenue

The Tesco Case Study: An overnight Success?

As our analysis showed, a variety of factors play into Tesco’s success. The retailer has a long history of using cutting-edge practices (like the virtual store mentioned above) to set itself apart from the competition. Much of its current success, however, relies on its perception as a convenient and affordable chain.

Tesco’s success is not a matter of luck. On its website and in its stores, the retailer emphasizes customer-oriented practices designed to make every shopping experience as seamless and as enjoyable as possible. This simple yet effective approach promises to keep the retailer at the forefront of the grocery industry in years to come.

If you’re looking to emulate the qualities evident in this Tesco case study, don’t hesitate to get in touch. Contact us today to book a free marketing automation consultation.

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