30.09.04

1. The Company 2. Who, where, how much? 3. Influence / Lobbying 4. Corporate Crimes 5. Conclusion

TESCO
A Corporate Profile

By Corporate Watch UK
Completed September 2004

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'Our market share of UK retailing is 12.5% - that leaves 87.5% to go after'
Terry Leahy, Tesco Chief Executive, quoted in Management Today¹

'Tesco will just sail away. It will become unreachable, and the Competition Commission has perpetrated that. The only thing that could bring Tesco down is its management, and they do not make mistakes'
Carlos Criado-Perez, former chief executive of Safeway Plc²

1. The Company

Name: Tesco Plc
Industry area: Retailing goods and services

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Summary

Tesco, Britain's biggest and most profitable supermarket chain, is the darling of the City. But behind the fascia of the 'under one roof' out-of-town Tesco Extra, or the friendly high street Tesco Metro, lies a ruthless billion pound operation. In recent years, Tesco and its major supermarket rivals have faced criticism for abusing their monopoly positions and contributing to some of the major social and environmental problems plaguing society today. These include exploiting small farmers in the UK and worldwide and hastening their replacement with industrial monoculture plantations where wages are low and labour rights are minimal; undercutting almost every other retailer and hence turning our town centres into boarded-up ghost towns; co-operating with climate criminals, Esso; as well as numerous other corporate crimes.

This profile was updated in 2004 as a reflection of Tesco's continued meteoric rise over the last few years, with all the attendant social and environmental impacts.

 

 

Market share and importance

'No matter how fast we grew Sainsbury's were always in front of us. But slowly but surely we managed to grind them down and grind them out.'
Tim Mason, Tesco marketing director³

In 1995 Tesco overtook Sainsbury’s as the UK’s largest supermarket. In 2001 Tesco occupied 15.6% of the UK grocery retail market and was the market leader by 6%.⁴ Tesco's enormous share is still growing: by September 2004, it had increased to a massive 28%, around 12% more than its nearest market rival, Asda.⁵ Some would argue that if we were to include Tesco's share of the convenience store market (bizarrely considered a seperate sector by

UK competition authorities) in this figure, Tesco could be said to control 34% of the grocery market.

Considering how concentrated and cut-throat the 'supermarket' market is, this is quite an achievement. In the UK, Asda's only real shot at catching up with Tesco would have come from a merger with Safeway, which was disallowed by the competition authorities 2003. However, Asda's parent company, Wal-Mart, the world's largest company, with global sales of $256bn in 2003, is still eight times bigger than Tesco.

At present the only threat to Tesco's ever-increasing market share would come if the Competition authorities stepped in to enforce monopoly legislation which defines a ‘classic monopoly’ as 25% of market share in a given sector. Since they have already carried out an investigation into the power of supermarkets in the lifetime of the Blair government, it seems unlikely that the Competition authorities will step in to stop Tesco's obvious and increasing anti-competitive position. On the contrary, they are just letting Tesco grow and grow. In September 2004, after Morrisons bought Safeway, Tesco was permitted to buy 10 of the 52 Safeway stores that Morrisons were obliged to sell by the competition authorities as part of their acquisition.

Tesco is equally impressive when considering its share of the total retail market. In its interim statement of results (August 2003), Tesco claimed 'our share of the total retail market is just 12.3% and there is a lot left to go for.' Already, 'just 12.3%' means that almost one pound in every eight spent in the UK is spent in Tesco.⁶

Tesco’s favoured measure of growth is 'like for like' growth – sales growth on exixting shopfloor space - which excludes growth from extra shopfloor space in new or extended stores. Even by this restricted measure sales grew 8.3% in the year to September 2004.

Tesco profits have increased every year but one since 1987. In April 2004, Tesco announced profits of £1.6bn for the financial year ending on 28 February; £4.4m profit a day, 17.6% higher than the previous year. As a comparison, in 2003 Tesco made as much profit as M&S, Sainsbury, Next and WH Smith combined.⁷ Analysts are now forecasting Tesco pre-tax profits for 2005 will be above the £2bn mark, five times that of Sainsbury.

Tesco is Europe's second largest supermarket after the French firm Carrefour, and according to Mintel market research in 2004, Tesco is closing the gap. It is the fourth largest supermarket in the world.⁸ Tesco operates 2,318 stores in 12 countries around the world and employs 326,000 people, 237,000 of them in Britain where it is the largest private employer. According to Terry Leahy, Tesco is market leader in 6 out of the 12 countries that it operates in, with its largest store, not in Bristol or Birmingham, but in Budapest.⁹

It operates 1,878 stores in the UK, 261 stores in Europe and 179 stores across Asia,¹⁰ and plans to open 184 stores worldwide over the next year.

In the UK, there are 83 Tesco Extra stores; 447 Tesco superstores; 161 Tesco Metro stores; 277 Tesco Express stores and 910 recently-acquired T&S stores still to be converted (see ‘Moving in on the convenience (“c-store”) sector’, below.¹¹

A study carried out for the Sunday Times by research group CACI¹² revealed that Tesco has almost total control of the food market in 108 of Britain's postal areas - 7.4% of the country. This includes Epping in Essex, Penarth in South Glamorgan and Buckingham. In a further 104 areas, it accounts for more than half of grocery spending. Competition law states that a corporation should not account for more than a quarter of the UK market nationally, but this study showed 325 areas where Tesco exceeds this limit. The populations in Buckingham, Bicester and Brackley can now choose from 'Tesco, Tesco or Tesco' as a result of the chain's recent acquisition of the One Stop chain of convenience stores.¹³

At the end of 2003, Tesco was voted most admired company and its chief executive, Sir Terry Leahy was voted most admired leader by Management Today. The most impressive aspect of Tesco's triumph was the 'margin of victory' in both categories. Tesco also came top in other categories, 'Quality of Management', 'Quality of Goods & Services', 'Ability to Attract, Develop & Maintain Top Talent', 'Value as a Long-Term Investment', 'Quality of Marketing' and 'Use of Corporate Assets'. Only in the rankings for 'Community and Environmental Responsibility' did it fall outside the top 10.¹⁴

History - Pile 'em High, Sell 'em Cheap

Tesco was founded in 1924 by John Edward Cohen. Jack 'the Slasher' Cohen, as he was better known, started out as a market stall trader in the East End of London.¹⁵ The name ‘Tesco’, was first used on tea, and was derived from the initials of Cohen's tea supplier, T E Stockwell, combined with the first two letters of Cohen. Tesco Stores Limited was incorporated in 1932.¹⁶

Cohen was responsible for several small revolutions in retailing which led to the rise of 'the supermarket' we know today.

In 1935, Jack Cohen visited the USA and was impressed by the supermarkets’ self-service system which enabled more people to be served faster, with lower labour costs. In 1947, the Tesco branch in St Albans, a small shop by 21^st century standards (200 square metres) was the first Tesco to be converted to self service, although it didn't immediately catch the public's imagination.

In the early 1960's, Cohen lobbied Parliament to have the Retail Price Maintenance (RPM) act abolished, efforts supported by Edward Heath. The RPM allowed manufacturers and suppliers to set the price of goods thus preventing large retailers, who could buy in bulk and had greater buying power, from benefiting from economies of scale and undercutting the prices of smaller shops. To get 'around' this, Tesco offered another incentive to get customers through the doors - Green Shield Stamps. These were collected by customers when they spent money in the store, and were then traded for goods in a catalogue. An effective discount.

In 1964, Parliament passed the Resale Prices Act, curtailing RPM, which by 1979 remained in force only on books and pharmaceutical goods.

In the 1960s, Tesco was buying up literally hundreds of grocery stores and small grocery chains around the country.¹⁷ It introduced 'Home 'n' Wear' departments into larger stores to carry higher-margin non-food merchandise, including clothing and household items, and opened its first 40,000ft 'superstore' in Crawley, Sussex.

Until the 1970's, Tesco operated on the 'pile it high, sell it cheap' formula Cohen had imported from the USA. However, the market was changing, leaving the company with slim margins and a serious image problem. Under the leadership of Ian MacLaurin, who succeeded Jack Cohen in 1973, Tesco decided to try something dramatic and different: to become an ‘aspirational mass retailer’. It discontinued the use of Green Shield trading stamps and launched 'Operation Checkout' which cut prices across the board and started a price war with major rivals Sainsbury’s. Next, Tesco decided to modernise itself, closing 500 unprofitable stores, and extensively upgrading and enlarging others. At this time, Tesco prioritised the development of large out-of-town stores where parking was convenient, the selection of goods broad, and where a higher volume of business could be generated at increased margins while reducing overheads.

In 1974, in a deal with Esso, Tesco began to open petrol stations on the grounds of its superstores. The idea was successful and by 1991 Tesco was the country’s largest independent petrol retailer: it now accounts for 12.5% of all petrol sold in the UK.¹⁸

Other innovations throughout the 1980s included introducing own-label product lines; computerising and centralising distribution systems and developing shopping centres outside of the major cities. In 1983, Tesco Stores PLC renamed itself simply Tesco PLC.

In 1985, Tesco opened its 100th superstore on a 43-acre site in Brent Park, Neasden. From the time it acquired the site in 1978, it had come into conflict with the local council whose greatest concern was the impact that this, the largest food store in London, would have on retailers in the surrounding areas.

In 1993, when Tesco introduced 'Value' lines, a cut-price range of own-label goods, competitors scoffed and the share price sank. But Tesco had gauged the popular mood: after years of recession, shoppers were looking for bargains, and sales soared. A year later, Tesco started 'One in Front'—opening a new till whenever a checkout line exceeded two trolleys. It cost millions in extra staff, but customers loved it.¹⁹

In 1995 Tesco became the first supermarket to introduce a company loyalty card, an idea developed by the then Deputy Managing Director, Terry Leahy. At first the other supermarkets were sceptical, but the concept caught the public imagination leaving the others racing to catch up. See under ‘Corporate Crimes’ for more on loyalty cards.

 

Strategy

'We have only got 5% of the non-food market in Britain, we've only got 6% of the convenience market and we have only got 2-3% of the banking market...In all those examples we could be much bigger' Sir Terry Leahy, January 2004²⁰

'Tesco's strategy is far ahead of Sainsbury – it has grown a strong UK core, and then rapidly developed international stores, built good non-food sales, expanded into retailing services and exploited e-commerce successfully' Datamonitor, food retailing analysts²¹

Tesco's success in recent years has mainly come from expanding overseas, shifting to 'higher margin' non-food merchandise and maintaining a strong UK core business. Its UK success has been built on low prices, cultivating customer loyalty, offering a range of different store concepts and expanding into retailing services, such as banking and insurance. Tesco's focus on non-food items has led some to wonder whether it is fair to compare Tesco with the other grocery retailers at all as it seems to have become a consumer goods company.

At the annual Institute of Grocery Distribution conference in October 2003,²² Tesco Chairman David Reid made the assertions that 'You cannot save your way to prosperity' and that 'Growth is crucial to shareholders...staff...and suppliers'. Investing in growth is really at the heart of Tesco's strategy. This investment doesn't just come from ploughing back profit. In January 2004, Tesco raised £773m by placing 315m new shares²³, and in March 2004 announced a joint venture with property group Topland to release £650m from its UK property portfolio.²⁴ The main reason for the new share offering is to pay off the company's debt. Tesco's credit rating had fallen the previous year because so much of its growth had been based on borrowing.²⁵

Core UK business

In its preliminary statement of accounts, April 2004,²⁶ Tesco considers the following bullet points:

• We have been investing in further improving our price position. £70m in January and a further £70m yesterday (19th April) are the two most recent price campaigns maintaining our position as the UK's best value retailer.
  
  As Tesco is so large and successful it can afford to cut prices to a much larger extent than many of its rivals – for example in 2000, when there was a general price deflation in groceries of 2-3%, Tesco deflation was nearly 4%.²⁷

• During the year (2003-2004) we opened 21 Extra stores, of which eight were new and 13 were extensions giving us 83 in total.

• We have further evidence that customers love our Express stores and we have grown our share of the convenience market to 5.9%. We now have 277 Express stores and the customer offer is the best in the convenience sector achieving high sales per sq. ft. and increasing returns.
  Tesco executives look to the 'street corner' strategy, i.e. more Tesco Express convenience stores, as the key to continued growth in core UK sales. See also below in 'C-store sector' section.

Tesco's sparkling growth has come at the expense of rivals, especially Sainsbury and Safeway, both of whom are battling to keep customers. The other UK supermarkets simply cannot compete on both price and range of different store formats.

Sainsbury was the UK's biggest grocer until 1995, but was recently relegated to third position behind Tesco and Asda. Internal problems and strategic errors have left Sainsbury struggling. the company believed it could abandon the classic focus on 'price' in favour of refurbishing store 'fascias' (their own term for aesthetic design) and supply-chain improvements. Its loss of market share illustrates that price is still the key for many consumers. 2004 has also seen shareholder unrest for Sainsbury's. Unpopular board appointments were compounded by the news that chairman Sir Peter Davis received a massive bonus despite the firm's poor performance. He resigned in July 2004.

Morrisons is currently struggling to absorb Safeway and in 2004, issued its first profit warning in 37 years, leaving Asda as Tesco's only really credible UK rival.

Asda, owned by US corporation Wal-Mart since 1999, is the only supermarket with the potential to become a thorn in the side for Tesco. Wal-Mart, with global sales of $256bn in 2003, is the biggest company in the world with annual sales eight times bigger than Tesco's. Asda is rumoured to be about to acquire Matalan, the giant discount clothing and home furnishing store. Already, Asda's George range of clothing is the best selling brand in the UK. Two million of its £4 pairs of jeans were sold during 2003-4.

Interestingly, many industry insiders believed that the only way to tackle Tesco's dominance in the market would have been for the competition authorities to have allowed an Asda/Safeway merger, as this would have created a credible rival. In the event, out of the major supermarket chains competing, Morrisons acquired Safeway, although remarkably, Tesco has been allowed to buy 10 of the 52 Safeway stores which Morrisons was obliged to sell off for a rumoured £120m.

Asda showed a slight slow down in growth in the period to September 2004. This is probably in part due to the planning restrictions on large supermarkets which wouldn't affect Tesco and other supermarkets concentrating on smaller store formats. Asda had tried to get around these restrictions through a planning loophole that allowed them to build mezzanine floors.²⁸ Asda have also been affected by the Safeway store conversions by Morrisons.

Tesco used to be considered a cheap supermarket, compared to the more 'up-market' supermarkets like Waitrose and Marks & Spencer. However, in recent years, with the 'Finest' range, it has moved to capture that market too. M&S in particular is now struggling with poor sales in both food and clothing. M&S was also recently the target for an attempted hostile takeover bid by retail entrepreneur, Philip Green who already owns BHS and Top Shop amongst others. Today you can buy a £50 bottle of wine in Tesco, and the ‘Finest’ label food products are far from cheap. Tesco is rumoured to be considering an upmarket range of clothing bearing the Finest label.²⁹

Many farmers, suppliers and researchers have highlighted another Tesco strategy that they do not broadcast so widely: abusing their monopoly (or, to use a more accurate term, 'oligopsony') position to force down the price they pay to their suppliers. This means that they profit not only from their consumers, but also by exploiting their suppliers. See later section on Tesco's relation with suppliers and farmers.

Non-food

For supermarkets, the appeal of 'non-food' products – from fashion to photo-labs, pharmacies to electrical goods – is that they carry much bigger profit margins than traditional food products, especially when they can be bought in bulk and sold at low-rent out-of-town premises. Wal-Mart introduced this strategy when it entered the UK market in 1999 with their acquisition of Asda.

In September 2004, Tesco announced that 20% of its sales now came from non-food goods, and that some of its stores were becoming a destination for non-food, such as its Tesco Extra hypermarket in Newcastle, where half of the store's £100m annual turnover is non-food.³⁰

Tesco claims that its clothing ranges, Cherokee, Florence and Fred, are the fastest growing in the UK both in value and in volume, with a 4.4% market share.

Petrol stations on the grounds of many superstores have also been a big winner, with high volume of sales offsetting the fact that Tesco does not always pass on oil price increases to the consumer.³¹

Tesco in-store pharmacies have been doing well; according to one report these sell more than Boots and Superdrug together³². Tesco also sells more top 40 CDs than many specialist music stores combined and is attempting to break the wholesaler monopoly on newspaper sales (which affects all newspaper retailers).

In 2002 Tesco, opened a 'Nutricentre' offering alternative medicine in its West Kensington store. Apparently, 'The biggest surge in demand in Tesco has been for natural products to boost sexual performance, rising steadily at 140% a year, as customers discover their benefits to both men and women.'³³

Since poaching Terry Price from Wal-Mart to head up its non-food strategy in 2003 , Tesco seems on course to become Britain's largest non-food retailer, fiercely pursuing growth in this area.

Tesco Homes This seems to be the latest supermarket venture. Tesco is said to be looking at building 1,000 new homes over 2005, mostly to be concentrated around London. Some councils are suggesting that supermarkets build affordable housing in exchange for planning consent. Tesco is said to be working with a mix of partners including housing associations and construction companies.³⁴

 

Retailing services

In 1997 Tesco Personal Finance was launched as a joint venture with the Royal Bank of Scotland. During the late 90s Tesco launched, amongst other things, a visa card, home insurance, motor insurance, pet insurance and travel insurance. Tesco’s latest strategy is to launch 'Tesco Telecoms', which includes Tesco Mobile and Tesco Talk, a land line service. Tesco Personal Finance has proved a big success as one of Europe's fastest growing financial service providers, with over 4 million customer accounts by August 2003, and 50,000 new accounts opening each week.³⁵

Tesco has also expanded into selling over the Internet and is by a long stretch the world’s largest e-grocer. In 2001 Tesco.com broke even in its Internet sales for the first time.³⁶ By April 2004 it had become a fast growing and profitable business, with sales of £577m and generating a profit of £28m, up from £12m the previous year. Tesco.com delivers 120,000 customer orders per week.³⁷

Legal services

'Lawyers can be expensive - why not see if you can handle the problem yourself? '
Tagline for Tesco legal services

The term 'Tesco law' was coined by Lord Falconer in July 2003 when he announced a regulatory review of legal services. One of the things up for discussion was whether supermarkets should be allowed to offer off-the-shelf legal services. Despite claims that they have no immediate plans to offer legal services, Tesco is one among several supermarkets who appear to see it as a natural progression from selling credit cards and insurance.

In June 2004, the Government announced that non-legal companies could sell legal services, and Tesco responded by offering shoppers the chance to purchase documents such as do-it-yourself wills, rental agreements and a number of legal advice handbooks online. Visitors on the Tesco website can also search for lawyers in their area and buy various services, such as will storage, from legal services provider Lawpack.³⁸

Under current regulations, Tesco is unable to develop this trend further and offer its own specialist legal advice to customers, but must instead refer them to Law Society regulated solicitors.

In a survey conducted by The Grocer, 31% of respondents said they objected to the idea, giving answers such as 'They shouldn’t be allowed – there’s huge potential for something like that to go horribly wrong,' and 'It isn’t appropriate. If I’m buying food I don’t want to see a solicitor!'³⁹

International expansion or world domination

Tesco's huge growth in this country is a hard act to follow. With the domestic market increasingly saturated, some UK supermarket chains, namely Tesco, Sainsbury (who have now sold their interests in the USA) and M&S have looked to overseas markets to maintain their positions. This is a whole new ball game, bringing into play competition with large firms from other countries, such as US retailing giant Wal-Mart and French multinational Carrefour.

Tesco began expanding internationally in the 1990s and now (2004) has outlets in the Republic of Ireland, Poland, Hungary, the Czech Republic, Slovakia, Thailand, Malaysia, South Korea and Taiwan. It has also recently bought chains in Turkey and Japan and is in the process of negotiating expansion into China.⁴⁰

Early in 2004, Tesco reported that its international sales were up 29% to £6.7bn, with a 44% rise in profits to £306m. The growth has been especially marked in Asia, where the underlying group profit rose 71.8%.⁴¹

International strategy

In most countries Tesco's preferred tactic seems to be to buy an existing retail chain, or a significant share of one, and turn it into a Tesco subsidiary. Then it can begin the usual tactics undercutting local traders, aggressively competitive pricing, selling petrol, launching loyalty card schemes, 24 hour opening and so on.

Tesco has favoured large hypermarkets for its international stores, since in most countries it is easier to get planning permission for these than it is in the UK. The hypermarkets have an emphasis on non-food items: 55% of the sales area in a typical Asian hypermarket and 50% in a European one. Tesco is also opening petrol stations in Hungary, Ireland and Thailand.

Rather than expanding into other West European countries, Tesco is focusing on ex- Soviet countries and South East Asia. According to David Hughes, professor of agribusiness and food marketing at the Centre for Food Chain Research at Imperial College in London, supermarkets from rich countries feel obliged to do this because,

'...they've got nowhere else to go. Their domestic markets are saturated, so they are looking for countries with large populations, high population growth, per capita GDP edging toward consumer levels, high income growth, and low supermarket presence. Countries with all five of these characteristics are a good bet, and companies rush to get there before everyone else.'⁴²

The rest of this section surveys Tesco's international activities and corporate crimes on a country-by-country basis.

 

Asia

The arrival of Tesco and the other major international supermarkets means that retail patterns are rapidly changing in the developing world. Tom Reardon, professor of international development and agribusiness/food industry at Michigan State University, argues that 'this retail revolution poses serious risks for developing country farmers who have traditionally supplied the local street markets.'⁴³

A survey from the International Food Policy Research Institute suggests that farmers in Asia are having a hard time getting used to the procurement systems supermarkets set up. Rather than growing their produce and taking it straight to a market, they have to deal with a new chain of middlemen such as procurement officers, wholesalers and so on. They also have to deal with supermarkets' standards of uniformity in shape and size, meaning that a lot of produce is rejected. 'The small farmer will not be the one making the decision about what to grow. That's a fundamental change for farmers,' explains Jean Kinsey, co-director of the University of Minnesota Retail Food Industry Center.⁴⁴

Once the food has been grown, and if the supermarket chooses to accept it, farmers can also have trouble with transporting it. Payment is then often delayed for up to 60 days after the product has been delivered, too long for many people to wait.

The system is set up so that supermarkets only have to deal with a small number of large and often mono-cultural farms, a fundamental change from the way food has traditionally been produced which means that a lot of small farmers who are used to producing a variety of crops will have to either make radical changes to their practices or go out of business.

The Malaysian and Thai governments are clearly concerned about Tesco's power and are making attempts at curbing it. Tesco's entry into both Thailand and Malaysia seems to have prompted a new wave of legislation aimed at reducing the power of foreign supermarkets and big business. However, Asian governments may feel they are treading a fine line between on the one hand encouraging foreign investment and boosting their country's economy, and, on the other, letting multinational chains take over at the expense of local traders. But then they don't always have a choice, since they risk WTO action if they take measures to restrict the power of the multinationals.

For example, the Thai government in November 2002 withdrew plans to legislate against foreign-owned supermarkets - who now control more than half the Thai market - by restricting their opening hours 'because it feared retaliation under international trade rules'. The Thai Prime Minister, Thaksin Shinawatra, told a meeting of small shopkeepers, 'We already have existing laws that can be modified and enforced quickly, which won't be viewed as a trade discrimination practice. Why don't we use them?...From now on, there won't be a new law, just let it rest.'⁴⁵ However, Deputy Commerce Minister Wattana Muangsuk said that Thai policy would continue to use planning legislation to favour Thai traders.

In only seven years, Tesco has reached annual sales of £2.8bn in Asia. It has a total of 179 stores, covering 9.5 million square feet, and plans to open another 65 in the coming year.⁴⁶

Thailand

'Industry onlookers expect Tesco to use Thailand as a launch pad for a large-scale Asian expansion.'⁴⁷

Tesco first moved into Thailand in 1998 by buying a large stake in the Thai-owned Lotus chain of convenience stores. Thailand was the first south-east Asian country into which Tesco moved on a large scale, and by the end of 2002, Tesco had already captured 31% of the Thai market.⁴⁸ Tesco now has 64 stores in Thailand, 47 of which are hypermarkets, and plans to open another 57 stores in 2004/5.⁴⁹ These will include 40 Tesco Lotus Express stores which will be attached to Exxon Mobil petrol stations.⁵⁰

During 2004, Tesco also plans to buy the remaining stake in Tesco Lotus.⁵¹

When it entered the Thai market, Tesco was keen to point out that it would be sourcing produce locally, employing local people, and generally benefiting the local economy - 'the company is committed to helping its local suppliers access local and international markets, and sell to multinational retailers, by helping them improve their quality and service standards'⁵². However, today, it is embroiled in accusations of unfair trading practices and conflicts with local businesses:

Sourcing locally
Tesco was very vocal about its intentions to source products locally. This sounds good, but it is hard to believe Thai farmers can keep working on a human scale when trying to supply produce for 47 hypermarkets. Even where Thai products are being used, they are still likely to have been intensively farmed at the expense of small farmers, traditional farming methods and the environment. The use of centralised distribution centres also means that even if a product is produced locally, it has probably been on an epic journey before it reaches the supermarket.

Exploiting suppliers
Sourcing local produce does not mean treating local suppliers any better. In July 2002 Tesco Lotus was taken to court along with several other international retail chains including Carrefour, and found guilty of charging slotting fees to carry manufacturers' products, charging entry fees to suppliers, advertising fees and product display fees, and displaying own-brand products next to similar branded products.⁵³

Benefiting the local economy
It is impossible for Tesco to honestly claim to benefit the local economy. It may be increasing the general traffic of money in the area where it sets up new stores – i.e. creating a culture of wanting to buy more things and encouraging people to spend more money on things they would probably not otherwise even want – but a tiny percentage of this money stays with local people, even those who have been promoted to store manager. The vast majority of profit goes towards making the corporation – and the directors and shareholders – even richer. In the words of Boonyoong Vimuttayon, a Bangkok grocery store owner whose sales have declined by more than half since a Tesco Lotus store opened on his street four years ago:

'The foreigners get richer and richer, while we get poorer all the time.'⁵⁴

Tesco is very proud of its price reductions in South East Asia - ‘Just as in the UK and Europe we carry out price campaigns to deliver unbeatable value for our customers' – www.tesco.com. However, it seems to be starting a war – of prices, opening hours, and so on - that local retailers cannot possibly compete in⁵⁵. It is worth remembering that from Tesco's point of view, the only serious rivals are other international companies, namely Carrefour and WalMart, and local ones who suffer as a result are merely 'collateral damage'.

GM food dumping
According to a report from Greenpeace Southeast Asia, in 2003 a high percentage of GM soya was found in a Tesco Lotus own-brand Chinese Sausage which was not labelled as containing any GM product.⁵⁶ The article points to Thailand's weak labelling laws as the problem, but surely if Tesco was as committed to organic agriculture as they like to claim, there wouldn't be GM soya in its products in the first place? It seems unlikely that Tesco would even consider taking such a risk in its UK stores, where GM is firmly on the agenda as a consumer issue. A Greenpeace campaigner said:'The loopholes in the labelling law allow multinational companies to dump GM soya into Thailand. It is time to make this law stricter to protect consumers and give them a genuine right to know.' The same article says that Tesco Lotus is on Greenpeace's blacklist of businesses because of their use of GM soya and lack of labelling. Greenpeace South-East Asia continues to campaign against the use of poorer countries as 'GM guinea pigs'.

Malaysia

Tesco has had a presence in Malaysia since 2002, and now has five stores and two more planned for 2005.⁵⁷

New legislation just for Tesco
Despite having been in Malaysia for a relatively short time, and having few stores, Tesco's presence has been controversial and a catalyst for the implementation of stricter trading laws. As of January 2004, there is a five-year freeze on the building of any new hypermarkets in Malysia's three major cities Kuala Lumpur, Penang and Johor Bahru.⁵⁸ The article reporting this mentions Tesco and Carrefour specifically as foreign chains who will be affected by the ruling. In 2003 the government ruled that plans for new hypermarkets must be submitted two years in advance and socio-economic impact studies carried out. There are also new 'zoning rules' which say that there can only be one hypermarket for every 350,000 people.⁵⁹

However, curbing Tesco's power may prove to be difficult. In March 2004, Tesco decided to continue opening its Puchong store 24 hours a day despite having been told not to do so by the Ministry of Domestic Trade and Consumer Affairs who cited the negative effect it would have on other retailers in the area.⁶⁰

Local food?
When it first began moving into Malaysia in 2002, Tesco was anxious to make assurances that it would 'work closely with local suppliers to source many own-label products locally'.⁶¹ However, the same article states that these products will eventually be exported to Tesco stores in other countries, so it doesn't really come into the category of local scale production. It is very hard to imagine how such a large company, with such an emphasis on hypermarkets in so many parts of the world, can ever realistically say it is going to source products for its stores locally.

South Korea

Tesco moved into South Korea in 1999 in a joint venture with South Korean company Samsung, opening the Homeplus chain of hypermarkets. It now has 28 stores, all hypermarkets, and plans to open four in 2005⁶²

 

Japan

Tesco began its expansion into the notoriously difficult Japanese market in July 2003 by buying a 94.54% shareholding in the C Two-Network, a successful retailer with 78 neighbourhood supermarkets and some wholesale outlets around the Tokyo area. Tesco was delighted by the acquisition, Terry Leahy describing it as 'a continuation of our international strategy for long term growth. C Two-Network provides Tesco with an excellent opportunity to enter a large and unconsolidated market where we have potential to grow.'

C Two-Network trades using the brand names Tsurukame, Tsurukame Land, Foodlet Tsurukame and Kamechuru. Food retail covers 87% of their total sales, the majority being packaged foods. In April 2004, Tesco also acquired Fre'c, another Japanese chain.⁶³ Fre'c was a bankrupt Japanese chain, with 27 stores on the outskirts of Tokyo. Of Fre'c's outstanding £50m debt, some is being rescheduled by the Industrial Revitalization Corporation of Japan, the rest will come from C Two-Network.

According to the Guardian, Tesco is expected to use C Two-Network's links to processed-food wholesalers and Fre'c's knowledge of fresh produce to open between five and ten small stores a year. In Japan, Tesco is relying on customer loyalty to the high street, whilst its US and European rivals, including Wal-Mart, CostCo, Carrefour and Metro believe their fortunes lie in encouraging a culture of out-of-town superstores.⁶⁴

Selling whale, dolphin and porpoise meat
Through its subsidiary C Two- Network, Tesco sells whale, dolphin and porpoise (cetacean) meat, both fresh and in cans. In 2003 the Environmental Investigation Agency (EIA) carried out a survey which discovered that all the canned cetacean products were sourced from Japan's two major whaling companies, Nissui and Kyokuyo. These two companies own the majority of shares in Kyodo Senpaku, the company who leases whaling boats to the Japanese Institute of Cetacean Research so they can carry out Japan's so-called 'scientific' whaling policy.

The scientific whaling policy was implemented in 1987 after a moratorium banned commercial whaling. Now around 700 whales are killed each year in the Antarctic and North Pacific in the name of 'scientific research', including minke whales, Bryde's whales, sei whales and sperm whales. All the meat and blubber is then sold commercially within Japan. Up to 22,000 dolphins, porpoises and small whales are also killed every year around the Japanese coast in unregulated and unsustainable hunts.

As well as being involved in systematically exterminating cetaceans, these companies could be feeding high quantities of toxins to the consumer. Many of the whales they kill carry high levels of pollutants including methylmercury and polychlorinated biphenols (PCBs).

The EIA survey also found that more than 70% of whale meat sold is not identified by species and most retailers do not specify the source of the meat.⁶⁵

China

In March 2004, it was revealed that Tesco was negotiating to buy 50% of Ting Hsin International,⁶⁶ which owns 25 hypermarkets in China, operating under the names Hymall and Le Gou. In July 2004, a £140m deal was confirmed that will give it a presence in some of the key Chinese conurbations, link it with a good local operator, and provide plenty of scope for rapid expansion. More than that, however, the deal will give it a market-leading position in Shanghai – China’s largest retail market – leapfrogging over arch-rival Carrefour in the process.⁶⁷

Tesco follows Wal-Mart, Carrefour, the German chain Metro and the Dutch Makro, all of whom have recently moved into the Chinese market. China is considered an important but difficult market by international retailers. However, a relaxation of Chinese trading rules after the country's entry to the World Trade Organisation could mean more Western companies move in fairly rapidly. China is seen as a desirable country for foreign investment because of the increasing encroachment of capitalism and the low cost of labour.

Statistics from the IGD's Market Index (2002) illustrate that the most attractive markets for modern retailers are China, Italy and Russia. It remains to be seen whether Tesco make a move on the latter two.⁶⁸

There is also a Chinese dental company called Tesco. As far as we can ascertain they're not related.

Europe

Tesco's European annual turnover for 2003-4 was £3,385 million.⁶⁹ Besides Ireland, all the European countries Tesco operates in - Poland, Hungary, the Czech Republic and Slovakia - joined the EU in May 2004. Tesco has recently acquired a chain in Turkey whose 'European' status is unclear. Turkey has application status to the EU but no timetable for joining.

In both Slovakia and Hungary - where it has had a presence since 1994 - Tesco describes itself as the 'market leader'.⁷⁰ In March 2004, Tesco opened its first petrol station in Hungary and is planning to build another five to seven in the country over 2004,⁷¹ having acquired a licence to build petrol stations at all of its Hungarian outlets.⁷²

Turkey

In November 2003 Tesco bought the Kipa chain for £75m. Kipa is a 'small and profitable chain' that owns five hypermarkets in the Aegean region of Turkey.⁷³

Poland

Modestly describing itself as the 'hypermarket leader', Tesco has 69 stores and a new distribution centre in Poland and plans to open another ten over 2004/5.⁷⁴ Transnational retailers are expected to control nearly 50% of Poland's supermarket sector by 2006.⁷⁵

Industrialisation of farming to feed EU shoppers

'The conditions negotiated between the Polish government and the EU are not favourable. They will threaten many Polish farmers with destruction. There will be no local markets any more.'⁷⁶
Marian Zagorny, Rural Solidarity campaigner

Poland joined the EU in May 2004. The Common Agricultural Policy (CAP) is likely to cause dramatic change for the predominantly agricultural nation. Agriculture in Poland has been small-scale, un-mechanised and practically organic by default - it is probably no coincidence that Poland has preserved some of the greatest biodiversity in Europe.

The CAP consumes almost half the EU's entire budget. Under new CAP rules, subsidies will be paid per hectare farmed, but farmers in the new countries will be paid a quarter of the amount given to old members. With trade barriers coming down, Polish farmers will be forced into competition with highly industrialised farmers from across Europe. With less subsidies than their Western European counterparts, they will have to massively increase 'productivity' to keep in business. Major European and US agribusiness have now moved into to Poland to take advantage of the cheap land, cheap labour and new markets.

There is already high unemployment in Poland – up to 40% in some of the old state farming areas. With EU accession and the CAP, this will doubtlessly increase. Officials in Poland and Brussels are assuming that large numbers of small, traditional farmers will go out of business. Henryk Zatorski, director of the agricultural chamber for the Wroclaw region believes 'In this region the 40,000 (farmers) with seven hectares [17 acres] or less will not survive'.

Bad news for most ordinary people living in Poland perhaps, but great news for Tesco and other transnational supermarkets. A study by Verdict (2003) forecasts 'real growth opportunities' for grocery retailing in the newly enlarged EU and mentions Tesco, Carrefour and Metro as the most likely to benefit quickly. Verdict goes on to suggest that these corporations' next priorities should be: 'improving the efficiency of their supply chains, driving productivity initiatives and increasing sales volumes, targeting non-food sales, corporate merger and acquisition activity and developing their multi-faceted trading strengths.'⁷⁷

Ireland

Tesco has been in Ireland since 1997 when it purchased the chain Power Supermarkets, owners of Quinnsworth and Stewarts. Since its launch Tesco has spent nearly €500m (£335m) on modernising and expanding its network of stores. By 2004, Tesco had 82 stores, with eight more being built during 2004/5.⁷⁸ In 2003 Tesco achieved a 24% market share in Ireland, and opened its first petrol station and its first distribution centre. Tesco has been highly successful in Ireland, reaping the benefits of its huge investment. According to one report, one out of every four Euros spent on grocery shopping in Ireland ends up in a Tesco till.⁷⁹ Tesco claims to be the largest private employer in Northern Ireland, with around 7500 employees.⁸⁰

Allegedly bullying farmers
Irish farmers are concerned by Tesco’s economic power over them. In December 2003, a senior Tesco executive allegedly warned growers that if they wished to continue selling to Tesco, they must not supply discount retailers Lidl and Aldi. He is also reported to have said that Tesco aimed to have 35% of the Irish grocery market within five years. A spokesperson from Tesco denied the allegations, adding: 'Nor do we have an expectation of reaching a 35% share of the grocery market, though a 35% share of the fruit and vegetable market is possible.' The Irish Farmers Association is hoping to discuss the matter further with Tesco.⁸¹

Below-cost selling
Tesco Ireland has been fined for selling products below their cost price in an attempt to undercut other retailers, and for selling certain products at a higher price in Ireland than in the UK. In Ireland, the Groceries Order makes persistent below-cost selling illegal, mainly because only big retailers who benefit from economies of scale can afford such practices, and it evidently puts smaller retailers at a disadvantage. However, rising inflation may see the Groceries Order lifted soon.⁸²

Tesco's co-accused on this issue is Dunnes Stores,⁸³ which describes itself as 'Ireland's largest and most successful retailer' and is therefore Tesco's main competitor in Ireland. Other retailers welcomed the decision to prosecute. Ailish Ford, director general of independent retailers' lobby group RGDATA, said:

'It is vital groups with such incredible market power are not allowed to abuse it at the expense of consumers, suppliers and retailers.'⁸⁴

When the case came to court in January 2004, Tesco and Dunnes were both fined 300 euros for each of seven counts of selling products below price.⁸⁵

Worker's strike
Discontented Tesco workers rarely raise their voices. In June 2001, Tesco workers in Ireland voted overwhelmingly to go on strike over pay. Workers at Tesco were earning £4.85 an hour, which the unions claimed was some 20p to 25p lower than wages paid by Tesco competitors.⁸⁶ The strike was estimated to have cost the company up to IR£4 million as 9,500 staff walked out for 24 hours.⁸⁷ Unions accepted a revised pay deal in July 2001.

 

Moving in on the convenience (c-store) sector

Tesco executives look to the 'street corner' strategy (i.e. more Tesco Express convenience stores) as the key to continued growth in core UK sales. This takes advantage of a major shift in food consumption patterns - away from the family meal to 40% of people eating alone; away from Saturday morning traipsing round the hypermarket, to a small shop where the harried commuter can pick up a microwaveable ready meal on the way home from work, and not mind paying extra for the convenience.

While Tesco has 27% of the market share in grocery retailing, it only has 7% market share in the convenience store sector. Although many would consider convenience stores as supermarkets, the Competition Commission in its report on supermarkets (2000) made a clear distinction between the two sectors based on the fact that convenience stores are smaller, in terms of floor space, than supermarkets, and that they cater for 'top-up' rather than 'one trip' shopping.⁸⁸

This 'helpful' distinction basically gave the green light for the supermarket chains to buy up convenience store chains since it creates a loophole in anti-monopoly laws. Despite recent challenges from remaining independent c-stores and the Federation of Wholesale Distributors, the Office of Fair Trading (OFT) refuses to change its mind on this.⁸⁹

As usual, Tesco was quick off the mark, acquiring T&S Stores, the highly successful c-store and CTN (confectioners, tobacconists, newsagents) chain, in October 2002. T&S Stores' main c-store fascias are One Stop and Day & Nite, both acquired by the company on the way to becoming the UK's leading specialist operator of c-stores. T&S Stores also operates as Dillons newsagents, and Supercigs, a discount tobacco format. Supercigs has since been sold and Tesco is rumoured (June 2004) to be in negotiation with TM Retail, which operates Fourbuoys and Martins, to sell Dillons.

The T&S Stores acquisition brought Tesco 1,202 outlets, 862 of which were formatted as convenience stores. Its intention is to convert those stores suitable for its Express format (around 450 stores) and retain smaller c-stores within the T&S Stores operating company. These stores will continue to trade as One Stop. It seems as though Tesco was mainly interested in the largest stores.

Absorbing so many stores requires impressive management, and of course, Tesco has not failed. In its 2004 interim report, Tesco state 'We are pleased with the trading performance of the T&S stores. They are ahead of plan and we are looking to convert 136 stores this year.'

This success spurred it onto another convenience store chain acquisition in March 2004; London-based Administore, which operates 45 stores under the trading names of Harts, Cullens and Europa.

Tesco plan to consolidate Tesco Express, Administore and T&S stores into one group headed up by T&S former boss, Colin Holmes. Tesco is currently the fourth largest c-store operator behind Spar, Londis and the Co-op. Verdict research claim that within a few years, Tesco will be vying with Spar for the top spot. As one City analyst stated, 'Tesco has made no secret of its ambitions. It will look for further acquisitions in the c-store sector.'⁹⁰ See Corporate Crimes section.

 

Retailtainment

'Well it's activity and theatre, and people create activity and activity creates theatre, it's an interchange and its different every time you come, there is always something exciting about it.'
Ken Morrison, of Morrisons⁹¹

On average, Britons spend around 3% of their waking lives in supermarkets, so the big chains have realised that it pays to make them more fun. Lighting, ambience and presentation all mix to convince shoppers they are having a good time. Tesco's approach to retailtainment isn't as overt (and embarrassing!) as Asda, with their store greeters and price cuts constantly announced over the aisles, or Safeway, where opera singers announce the pizza spinning.

Tesco's latest innovation is in-store TV advertising for products, sold through advertisers JC Descaux. Adverts for products are blasted at consumers in the form of recipes and helpful suggestions. By the end of 2004, the TV advertising will be available in Tesco's 300 largest stores. Since 70% of purchase decisions are apparently made instore, this gets consumers where they are most vulnerable or suggestible. Meanwhile, these adverts are not regulated by the media regulator, OfCom, but that’s okay because Tesco's 'Editorial Governance Team' will make sure Tesco doesn't brainwash us. It is important to note that numerous complaints have been made against Tesco advertising over the last five years, with several upheld.⁹²

Tesco is also reportedly working on 'The Trolley Tamer' - a new kind of shopping trolley that plays DVDs and games to entertain children while their parents are shopping.⁹³

The 'Tesco' approach

The final plank in Tesco's strategy is the 'Tesco' approach - 'To create value for our customers, to earn their lifetime loyalty'. Its two values are: 'No-one tries harder than we do for customers' 'We treat people the way we like to be treated'[⁹⁴].These values are, however, rather selectively applied to customers and shareholders rather than farmers and smaller competitors.

Over the 80 years since its inception, Tesco has responded to and taken advantage of major changes in lifestyle patterns, and this is key to its ongoing success. Changes have included more women entering the workplace; greater disposable incomes; fewer cooked family meals, the advent of the weekly shop, made easier by the rise in car usage; and Britain's cheap food policy adopted after the Second World War.

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