In 90 years, Tesco has moved from humble origins in the East End of London to embark upon world conquest. It’s invaded British high streets, developed some of the UK’s first grocery superstores and today is the world’s fourth largest retailer (SOURCE: Deloitte PDF), operating in 13 countries (SOURCE: Tescopoly). The company has been rewarded for its rise to the top, outperforming London’s FTSE 100 by orders of magnitude recently. The near future shows no signs of slowing down for Tesco, with the firm set to open 80 malls and have more retail space in China by 2016 (SOURCE: FT) than it will have in the UK.
Getting to the top is no easy task, so the question before us is to examine what kind of competitive advantage Tesco enjoys. To gain insight I interviewed Mrs. Susan Window of Waltham Abbey, England. Mrs. Window has been a lifelong Tesco shopper, as has her mother, as are most British people; today the grocer has 30 percent of the domestic market share (SOURCE: Wikipedia).
Why do you shop at Tesco?
Susan Window: Mainly for household goods, mainly to look at the offers, and it’s on my doorstep. If it wasn’t, I probably wouldn’t bother. It just depends. I mean, I don’t buy the same things every week there, I don’t do my weekly shop there. (Full Disclosure: Mrs. Window is not only the author’s Mum-in-Law, but an employee of competitor Marks and Spencer)
What do you think of their rewards program, Clubcard?
Susan Window: Oh, their Clubcard, that is bloody good that. We ended up going to Dubai very, very cheaply (using rewards from the card)…you get these vouchers. Say they send me ten pounds worth. If I spend them in the store, that’s all I’m going to get. But if you spend them in the Tesco’s magazine then you can quadruple your chances: Five pounds you can get 20 pounds worth for things like holidays and things like that.
You do have to be extremely careful what you pick up in there. They’re not going to deter people from shopping there, because they’ve (Tesco) got it in their head (consumers) they’re the cheapest around. But if you compare and really compare with M&S and other stores, you’re never going to get your shopping there cheaper than anywhere else. Everybody is whitewashed with them. On the telly now, ASDA’s and Sainsbury’s compares the prices (showing they are in fact cheaper), and they never used to do it years ago.
I was talking with Kate this weekend (Mrs. Window’s daughter) and she pointed out that Tesco’s might advertise at Christmas they’re slashing prices on 3000 items between 1 and 2p. But they’re not losing anything on it, because they’ll mark up another 3000 items 1 and 2p. It depends on what you buy. Pretty cool marketing, isn’t it?”
This is the essence of Tesco’s competitive advantage. Yes, the company’s technology is formidable. When a firm rolls out a loyalty scheme and then six months later finds its market share has increased 20 percent, Management knows it’s on the right track. That Tesco spent more than 300 million pounds to roll out Clubcard, and 4.5% of its profits, means that Tesco has built a system that is not easily reproduced by competitors (SOURCE: SEE BOTTOM).
But it’s not the technology that really matters, or that may have helped the firm climb from the 18% market share it had after Clubcard’s launch in the late-90s to the roughly 30 percent share it controls today. Rather, the essence of Tesco’s competitive advantage lies in its marketing. Some of this is certainly aided by the technology. You couldn’t create more than 5,000 segments and offer customers more than 24 different versions of your rewards magazine without it. But that also takes real marketing skill, as does setting up customer panels to listen to what customers want and then be responsive, as does giving over 90 million pounds in support of Computers for Schools, as does offering products for sale 100% of the profit of which goes toward the Prince’s Trust, a nonprofit that works with at-risk youth.
Perhaps taking more marketing skill is that Tesco remains considered a “low-cost leader” in the minds of many customers, as Mrs. Window notes, despite the fact that they compete with ASDA (owned by Wal-Mart), Lidl (a German discount chain), and face lower prices at times from upmarket competitors like Sainsbury’s. More important than the technology, key to Tesco’s success, is their marketing.
SOURCE NOTES: Particularly in the two paragraphs above and unless otherwise referenced, statistics on Tesco were taken from the IE Business School Case “Tesco: Every Little Helps,” originally written by Peter Louis under the supervision of Professor Enrique Dans at Instituto de Empresa Business School. Original version April 7, 2002; last updated November 23, 2007.
