Tesco is the Uk's Leading supermarket group, it has expanded successfully overseas and was founded by Sir Jack Cohen and grew during the 1980's with a philosophy of "pile it high, sell it cheap". In the early years the emphasis was on small stores, town centre locations and low prices. Its image was somewhat down market.In 1990s, Tesco was transformed and became the market leader. They has increasingly used IT to share its current sales data with its suppliers, requiring them to track sales trends and use the information to ensure warehouse are restocked as and when necessary to ensure individual stores never run out but never have to hold significant inventories. IT has also utilized to allow Tesco to develop a home delivery arm for goods ordered over the internet.Tesco has moved towards global sourcing, and has established four sourcing centers in Hong Kong, India, Thailand and Central Europe. These currently source 50% of Tesco non-food products, excluding health and beauty products. The company appears to be following a classic "think globally, act locally" strategy by having a format which is internationally transferable, but which at the same time can be adapted locally. The stores in Central Europe and Asia tend to have more products on sale, with a higher proportion of non-food ranges. (www.Tesco.com)
Tesco's Investment StrategyTesco is outpacing its UK rivals via strong LFL cash sales and an opening program bigger than the competition combined. It operates formats from 2,000 sq ft to over 100,000 sq ft, while its product range spans the market. The international business is on track to achieve 15% plus ROIC, with the three largest operations (Ireland, Thailand and Korea) already achieving this level. Financial service is another successful diversification along with the internet and telecoms businesses. Tesco's UK operating margin is at record levels and the rising proportion of higher-margin formats and more non-food should increase this further.However the consumer slowdown in the UK and introduction of "discount brands" may encourage trading down behavior in the medium term and delay the regaining of market share in the UK, which is important for investor sentiment. Tesco is rated as Hold/Medium Risk (2M).
Tesco's Competitor(J. Sainsbury's)J Sainsbury's began in 1869 in London's Drury Lane as a shop which sold dairy products-butter, milk and eggs. Expansion of the stores and the range of products began in London in 1880s. The company floated in 1973, and the Sainsbury family still owned 39% of the shares, then they sold three-quarters of the 39% shareholding. Sainsbury's became grocery market leader in 1990s and it was under threat of other competitors (ASDA and Tesco)Sainsbury's began to address service more aggressively in the early 1990s, advertising was strengthened, extensive customer research program revealed that the shoppers were happy with Sainsbury's products but not its service. However, Sainsbury lost market leadership to Tesco in 1994 and has not regained it, the profit has been affected and Analyst contend that Sainsbury costs are higher reflected in margins of just 4% while its rivals achieve 6%. Sainsbury's believes that it must retain a brand which stands for quality and value, and that must be delivered without further price cuts which would threaten margins further.