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TABLE OF CONTENTS

I. SITUATIONAL ANALYSIS..................................................................................................5
1. European Union....................................................................................................................5
2. Possible EU support..............................................................................................................6
3. Industry Analysis..................................................................................................................7
4. Market Analysis....................................................................................................................8
5. Competitive Analysis..........................................................................................................10
6. Consumer Analysis.............................................................................................................14
II. MARKETING STRATEGY...............................................................................................18
1. Segmentation.......................................................................................................................18
2. Target market......................................................................................................................18
3. Market entry mode..............................................................................................................19
4. Alternative strategy.............................................................................................................19
5. Strategic choice...................................................................................................................21
III. MARKETING PROGRAM..............................................................................................21
1. Product................................................................................................................................21
2. Price....................................................................................................................................23
3. Place....................................................................................................................................24
4. Promotion............................................................................................................................26
IV. IMPLEMENTATION PLAN............................................................................................27
Tesco plc is a United Kingdom-based international supermarket
chain. It is the largest British retailer, both by global sales and by
domestic market share, and the fourth largest retailer in the world
behind Wal-Mart of the United States, Carrefour of France, and The Home Depot of the United
States. Tesco has a market value of about £29.090 billion (October 2006)

Originally specializing in food, it has diversified into areas such as clothes, consumer
electronics, consumer financial services, selling and renting DVDs, compact discs and music
downloads, internet service consumer telecoms and most recently budget software. Tesco
enters into joint ventures with local partners in the foreign country that had a great success.
Now they are in China, Japan, Korea, Malaysia, Poland, Thailand, Turkey, Ireland, Slovakia
etc. In the picture beneath you can see where a Tesco can be found.

Facts and Figures

Tesco's revenue for the 52 weeks to 25 February 2006 was £38.259 billion. In 2006 it adjusted
the accounting date for its non-UK and Ireland operations, and including 60 weeks of non-UK
and Ireland operations revenue was £39.454 billion. Group profit before tax was £2.210 billion
for the 52 week period and £2.235 billion including 60 weeks of non-UK and Ireland turnover.

According to TNS Superpanel Tesco's share of the UK grocery market in the 12 weeks to 18
June 2006 was 31.4%. Across all categories, over £1 in every £8 of UK retail sales is spent at
Tesco. Tesco also operates overseas, and non-UK revenue for the year to 25 February 2006
was 23% of total revenue.

Foreign market strategy

Be flexible - each market is unique and requires a different approach

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Act local - local customers, local cultures, local supply chains and local regulations require a
tailored offer delivered by local staff - less than 100 of Tesco's International team are ex-pats
Keep focus - to be the leading local brand is a long term effort and takes decades, not just a
few years
Be multi-format - no single format can reach the whole of the market. A whole spectrum from
convenience to hypermarkets is essential and you need to take a discounter approach
throughout
Develop capability - developing skill in people, processes and systems and being able to share
this skill between markets will improve the chances of success in challenging markets
Build brands - brands enable the building of important lasting relationships with customers.

Strengths

Tesco is one of the world's leading international retailers, so it can enjoy the benefits of being
well-known worldwide. It is a growth company with a clear strategy with the commitment to
disciplined growth – in other words, investing to improve the shopping experience for
customers and at the same time delivering an economic return and tangible benefits for
shareholders.

Tesco has a history of great success overseas. Its strengths are adapting its offer to local
markets. The company is noted for its buying muscle, a commitment to driving a hard bargain,
a meticulous attention to detail, brilliant marketing, scrupulous research when exploring new
markets and an ability to turn that research into a strong proposition, and an in-depth
understanding of its customers.

One of the biggest Tesco’s strength is cash--which means a strong core business. It's expensive
to grow abroad. Being a serious international player, Tesco has to be one of the top two
companies in a number of countries, which has sizable cash implications. Tesco also has the
support of its shareholders. International expansion is a key part of its growth strategy, and it’s
important for the shareholders to understand that it would take time to show returns.

Tesco always has a good research in terms of which countries it chooses. It’s important to
understand the local market. Generally, Tesco relies on its operational skills and operational
efficiency. That includes the traditional retailing capabilities--replenishment, own label,
innovation. But retailing is a fairly see-through business. People can easily copy what others
do, which means it's also a fairly homogeneous industry. The answer depends to a large extent
on how the company deals with customers, which in turn depends on how it deals with its own
staff. These are the strengths that give Tesco a competitive edge. They allow it to produce a
more local offer that appeals to the local customer.

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Tesco was ranked as the best among British supermarkets in terms of its IT operations and
third among all of European supermarket chains. It spent between £130 million and 150
million every year to stay abreast with advances in IT. The company had integrated its IT skills
into multiple areas spanning both front office operations as well as the backroom operations.

Tesco’s distribution network is an integral part of its success story. It operates strategically
located warehouses or distribution centers throughout the world. Contractors also operated
additional centers on behalf of Tesco. A typical warehouse covers an area of 300,000 square
feet and handles some 50 million units a year. Each center schedules roughly 2,500 deliveries
to its stores daily and is normally responsible for serving a 50-to-80-store population. The
deliveries occur in waves depending on the nature of goods delivers. For example, fresh
produce is delivered right before the stores opened while dry goods are delivered at less busy
time during the course of the day.

Tesco is currently sourcing 35% of its hard-line ranges for the UK through its International
Sourcing Offices and 65% of its clothing. This year it will apply the international sourcing
practice into Ireland and Central Europe. Tesco will be sourcing products that are common in
all countries together as a group. Each country will retain the responsibility of identifying the
local needs of their customers and sourcing those products from the appropriate suppliers
within their countries. Joint sourcing will give Tesco the opportunity to further lower its cost of
goods and as a result invest in lowering the prices for customers.

Weaknesses

In some ways Tesco is at disadvantage, because other players had established a strong position
in certain countries. Tesco used its financial strength to move quickly. It’s probably the fastest-
growing international retailer. But at the same time it has to remain very focused--careful not
to stake too many flags in too many countries.

Tesco is also lack of global scale. The economic environment across central Europe as a whole
has been tough in recent years and Tesco has to face stiff competition from other
hypermarkets, supermarkets and especially discount retailers.

One of the main hurdles of Tesco has been human resources. It's been quite difficult orienting
its people to work internationally; people didn't join Tesco to get sent off to Thailand, say.
Tesco need its best people abroad, people who are good with people and who can translate into
the local market Tesco values and the way it works with customers. The trouble is it needs its

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best people in the U.K. too: it's not as if its business is standing still at home. So this has been a
challenge but also a great opportunity to develop wider business managers.

Tesco typically has maybe half-a-dozen expatriates on the operational side in Asian countries.
Because it’s starting out later than other companies abroad, Tesco found no shortage of well-
educated local people with retail experience in Asia. They obviously understand the local
habits and customers much better than an expat who's flown in from the U.K. However,
employing local managers has been more of a challenge in Central Europe because of the
Communist history, so it does have more expatriates there, but that's a temporary measure.
Tesco has got some tremendous youngsters being trained and coming through.

Another weakness of Tesco is that it uses vast amounts of fossil fuel in its transport network
and supermarket heating systems. This is expensive, and might alienate green consumers. With
oil prices rising and, green taxes looming, Tesco might see an opportunity to invest in energy
economy. This might lead to cost savings and better public relations. Other weaknesses include
the lack of integration between offline and online resources and some departments not knowing
what others are doing.

Tesco is currently facing a lot of controversies, like the critics of misleading consumer with a
“phoney price cut” or the accusation of nearly monopoly. All of these controversies will affect
its image and eventually its sales.

I. SITUATIONAL ANALYSIS

1. European Union

Over the year in 2006, the European Union has been concerned about its memberships,
structure, procedures and polices. Some of the major issues currently facing the EU are the
enlargement to the south and east, the impact of the single market and the economic growth.

The economic impact of enlargement can be significant as a bigger and more integrated market
boosts economic growth for the new and old members alike. The newcomers benefit from
investments from firms based in Western Europe and from access to EU. Companies in the old
member states have bigger markets for their products. The continuing expansion of the EU to
include new members has generated increased levels of economic activity. The accession of
Bulgaria and Romania on 1 January 2007 is an example of how the trade and investment has
produced high rates of economic growth.

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In November 2007, a major part of financial services legislation will come into force further
developing the framework of a single market in the EU. Member States are obliged to adopt
the necessary legislation transposing this new framework by January 2007. Known as the
‘MiFID’ the Markets in Financial Instruments Directive it contains measures which will
increase investor protection, change and improve the organisation and functioning of
investment firms and stimulate the further integration of the EU

Economic growth in 2006 is set to reach 2.8% in the European Union and 2.6% in the euro
area, up from 1.7% and 1.4% in 2005, according to the Commission’s autumn economic
forecasts. The main impulses are robust growth in domestic demand, especially investment,
and sustained global growth. The economic activity should ease somewhat in 2007 and 2008
reflecting the global outlook and, in particular, the slowdown in the United States. Yet, GDP
growth is projected to remain around potential in the next two years (EU: 2.4% in both 2007
and 2008; euro area: 2.1% in 2007 and 2.2% in 2008).

2. Possible EU support

European Regional Development Fund (ERDF)

ERDF resources are mainly used to co-finance:


• Productive investment leading to the creation or maintenance of jobs;
• Infrastructure;
• Local development initiatives and the business activities of small and medium-sized
enterprises.

In practice, all development areas are covered: transport, communication technologies, energy,
the environment, research and innovation, social infrastructure, training, urban redevelopment
and the conversion of industrial sites, rural development, the fishing industry, tourism and
culture.

Entering the EU, Romania still has many regions which are under development. Thus, it takes
for granted that Romania will be eligible for European Regional Development Fund.
Moreover, Tesco entry into Romania will create more jobs and enhance the infrastructure with
more buildings and stores. Therefore, Tesco will call for a proposal in this field.

EU funds project to improve organic food chain

Under the thematic priority "Food Quality and Safety" of the Sixth Framework Programme
(FP6), the European Commission is funding an Integrated Project called

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"QualityLowInputFood" that aims to improve quality, ensure safety and improve productivity
in organic food supply chains in Europe. The best known low input system is organic farming,
which is one of the most dynamic sectors of agriculture in Europe, but also faces substantial
challenges to meet consumers' demands for safe, high quality, affordable organic food. The
project will develop new techniques to generate better, cost effective products.

Tesco will benefit greatly from this as it intends to expand its organic food range. Although
Tesco tried its hard to reduce the price of this line, its lone effort might not meet the demand
from customers. Now with the help of EU funding and its program, more high quality,
affordable organic food is available. Tesco’s way to expand the range and reduce price of its
organic food line will be much easier.

3. Industry Analysis

The most significant growth is taking place in emerging markets. Global retailers are planning
to increase their activities next year. The reasons are clear: A host of new member’s countries
in both the World trade Organization (WTO) and the European Union (EU). The recent and
future expansion of the European Union to include new members of the former Eastern Bloc
has seen the emergence of exciting new markets. Multinational companies based in Western
Europe are increasingly taking advantage of emerging markets, including those in Central and
Eastern Europe (CEE), to relocate many activities in their value chain, as well as to expand
their business and find new customers.

Retailers from the saturated Western European markets are focusing on the opportunities in the
CEE markets. Such as supermarkets, including, hypermarkets and malls have seen an
impressive development over the last years. Hypermarkets and discount stores are likely to
increase their share of the grocery retail market in central and Eastern Europe in the years
following European Union accession.

In fact, hypermarkets are already in a strong position in many markets in the region. Some 37
% of households in the Czech Republic already shop in hypermarkets, 29 % in Hungary, 15 %
in Poland and 14 % cent in Slovakia. Discounters are also becoming more popular 24 % of
Polish shoppers choose the low-price format, compared to 21 % in Hungary, 19 % in the Czech
Republic and 15 % in Russia, although this is almost entirely limited to the Moscow region.
Only in Romania and Ukraine are smaller convenience stores or supermarkets the most popular
format, with a very low penetration of western retailers.

Not surprisingly given the growth in western retailers in the region, the penetration of private
labels is also increasing. Private labels are already well established in the Czech Republic,

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according to the report, with 75 % of shoppers saying that they bought them on a regular basis,
as well as in Hungary 68 % and Slovakia 62 %. The penetration is less marked in Poland,
where 46 % of shoppers regularly buy private labels, and is still very low in Romania 13 % and
Ukraine 11 %, mainly because of the lack of western retailers there.

Main shopping place for shopping in the countries monitored

4. Market Analysis

The Romania accession to join the EU next year will benefit all the forms of modern retail.
Geographic coverage remains an important objective and the EU accession will hurry both the
expansion process already initiated and the market entry of new retailers.

Currently, the modern trade options like supermarkets, hypermarkets, and malls have seen an
impressive development over the last 5 years in Romania. A survey conducted by the GfK
Romania market research company, shows that the interest Romanian buyers take in
supermarkets has increased from 2 % to 16% this year. According to the data illustrated below,
we can see how much has increased the retail market at a national level and at a local level.

Romania retail market structure

Retail format 2004 2005


Supermarkets 12% 16%
Cash & carries 6% 7%
Hypermarkets 2% 4%

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Discounts 1% 2%
Small stores 50% 50%
Open markets 8% 5%
Other formats 21% 16%

Retail market structure, Bucharest 2005

Retail format 2004 2005


Supermarkets 18% 20%
Cash & carries 5% 4%
Hypermarkets 12% 23%
Discounts 1% 2%
Small stores 39% 32%
Open markets 10% 6%
Other formats 15% 13%

The GfK forecast modern retail in Romania is expected to capture 44% of total retail sales in
2007 and for 2010 it indicates a massive rise up to 50% of the share of large outlets in
consumer options.

Foreign investors, mainly German, French and Belgian investors are in the lead in the super
and hypermarket network. Romanian supermarket networks, such as Altex, Media Galaxy,
Domo, Flanco, Flamingo, Mobexpert and Elvila, have also developed over the last years. They
deal in electronic apparata and electric home appliances, as well as in furniture production.

Trends and development

There is a clear tendency for modern retail formats to expand the area of services offered to
consumers (fresh bread and pastries, cleaning services, entertainment places for children,
photo-service, food-court, etc). Direct credit opportunities are also available in most of the
international retail chains as well as multiple payment means. Most of the stores are open
seven days out of seven for 12-16 hours/day, with special schedules before important events
such as Christmas and Easter celebrations.

 Hypermarkets
This segment will be profitable and will gain more costumers in the future. The range of
products consists of over 50,000 goods. About half of the sales in hypermarkets represent food
sales. The networks of hypermarkets will develop with 2 new shops per year.

 Supermarkets

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The total number of outlets of this type in Romania is 250-300 stores, while the market demand
should be 2,000 stores. The major part of sales in supermarkets (80%-90%) is made of food
sales.

 Cash &Carries
This segment is considered to have reached saturation and is expected to loose some of the
individual consumers in favor of hypermarkets and supermarkets.

 Discounters
This segment is expected to record a large increase over the next few years, as the purchasing
power is still low. The major part of sales is made from food sales (80%).

 Convenience stores, kiosks


The convenience stores sector is on an upward trend. The main reasons for being successful are
their location and daily schedule; some of them are permanently open. These types of outlets
will still play a significant role on the retail market.

Legal, Political, Environmental Factors

The business environment is threatened by bureaucracy and fiscal instability. Corruption and
failure to abide by the rule of law lie at the heart of Romania's problems.

Romania continues to face severe environmental problems concerning air, water and soil
pollution, which require large investments and the participation of both public and private
sector. Serious air pollution from power stations and other industrial plants, especially heavy
metals, motor vehicles, and domestic heating need to be further addressed. Significant
improvements are still needed in the fields of waste management, improving access to the
sewage treatment plants, improving drinking water quality, reducing underground water
pollution, enforcing integrated pollution prevention and control.

5. Competitive Analysis

Hypermarkets

Carrefour SA is an international supermarket group headquartered in


France with a global network of supermarkets. It is the first retailer in Europe and the second
largest retail group in the world in terms of revenue and sales figures after Wal-Mart. Carrefour
operates mainly in the European Union, Brazil and Argentina, but also has shops in North
Africa and Asia.

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Carrefour's hypermarkets first presented in Romania in 2001 when the first store opened in
Western Bucharest and the company has invested over €140m, opening four more Hyparlo
stores in Bucharest, Brasove and most recently in Ploiesti.

Carrefour hypermarkets are created by the standards of the most modern concept of
hypermarket, in which all items are fully adapted to the Romanian consumer's habits. An
impressive variety of articles, from fresh foods to the latest generation of computers, they are
all under the same roof at low prices every day!

Kaufland is a German hypermarket chain part of the same group as Lidl


and Handelshof. It opened its first store in 1984 in Neckarsulm and
quickly expanded to become a leader in what was formerly East Germany. As of 2006, the
chain operates over 600 stores in Germany, the Czech Republic, Slovakia, Poland, Croatia,
Romania and Bulgaria.

In Romania, Kaufland has 13 hypermarkets throughout the country, with two stores in
Timişoara and with one store each in Bucharest, Râmnicu Vâlcea, Ploieşti, Alba Iulia, Baia
Mare, Târgu Mureş, Galaţi, Cluj-Napoca, Hunedoara, Satu Mare and Suceava. Through the
motto “everything under the same roof”, the Kaufland stores supply a wide range of products,
from food, cosmetics, textiles, to electrical and household appliances. Kaufland’s sale concept
based on discounting is characterized by low prices and massive display. The Kaufland stores
are placed so that their location is convenient to its customers and offer free parking space.
Kaufland has its own central warehouse, logistics centre that provides excellent storage
conditions and perfect control of the product quality. Kaufland is mainly concerned about the
product quality and freshness. The underlying objectives of the company are the same in all the
countries: “To offer the lowest prices for fresh products and be a leader on the market”.

Cora is a retail group based in France which owns several supermarket


and hypermarket chains internationally. Formed in 1974, the
corporation's brands include Match, Profi, Truffaut, Ecomax,
Animalis, SNTC and Houra, as well as Cora-branded hypermarkets.

Cora hypermarkets can be found mainly in France, as well as Belgium, Hungary and Romania.
In Romania, Cora currently has two hypermarkets in Bucharest, which are the largest
hypermarkets in Romania. One was opened in 2005 right next to Plaza Romania, at the
crossing of Iuliu Maniu with Lujerului. Great location for a hypermarket, Cora has been
crowded since day one and continues to enjoy high footfall. The company will open its third
Romanian hypermarket in the city of Cluj-Napoca at the end of 2006, where it allready has
three Profi discount supermarkets.

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The company says that it intends to have a national coverage across Romania by the end of
2010, with 14 hypermarkets

Newcomers

In regards to new comers, both Real and Auchan have been very aggressive in securing
locations. Real, the hypermarket brand of Metro Group, has already secured more than 10 sites
and chose Timisoara for the first opening, in spring 2006. Auchan has been able to identify 8
sites only in Bucharest. The first Auchan store to be developed is to be located in district 3 of
the capital city.
Besides Real and Auchan, the Romanian retail market will witness another new entry. Spa
group has signed with a local partner and will develop all the concepts of this brand: Spar
Express – the convenience format, Spa – the local supermarket or the neighborhood store,
Eurospa – the large supermarket for the weekly shopping, and Interspa – the hypermarket
format.

Supermarket

Billa has been very aggressive in the country side. Active on the Romanian
market since 1999, Billa has reached 18 units so far in Bucharest and
through-out the country. In 2005, it opened units in Satu Mare, Braila and
Iasi. Planning to reach 50 units by 2010, Billa announced the openings of
Bacau and Ramnicu Valcea units in 2006.

Mega Image, brand of Delhaize Group, is going through a re-branding


process and will open three units in 2006. Currently, there are 14 Mega
Image supermarkets in Bucharest, Ploiesti and Constanta. In 2006, Mega
Images opened a unit in Pipera, and plans to expand with more units in the
former Latina market, in Universitatii Square, and on Tei Blvd.

Univers’All, a local supermarket brand, functions on 2,500 sqm and so


far, there are 11 stores, in Bucharest and in other cities, both under the
Univers'all brand and under the Uni'all brand (which includes
neighborhood, small-sized stores. Univers'all supermarket network posted a turnover worth
over 23 million euros in the first six months of the year, a 30% increase against last year
In the next few months, the network will expand by a further three outlets, according to the
officials, to towns like Sfantu Gheorghe, Sighisoara and Tarnaveni. Each store will have a
surface area of 600 square metres on the average. Under the circumstances, the total cost of the
project for all three stores will stand at approximately two million euros.

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Cash and Carry
Metro Cash and Carry is a wholesale hypermarket chain operating across
Europe. It is the largest division of German retail giant METRO. Metro Cash
& Carry is different to other large retail chains such as Billa and Carrefour in
that its stores are primarily destined to wholesale customers, not retail. The cash-and-carry
concept is based around self-service and bulk buying. To be able to shop at Metro, customers
need a card which shows they are eligible to buy in wholesale and are therefore professionals
in a certain field, such as gastronomy, crafts, own business, etc.

Metro Cash and Carry was one of the first international supermarket/hypermarket chains to
make an entry into the Romanian market, opening its first store in Bucharest, near Henri
Coandă International Airport. After 10 years of presence on the Romanian market, Metro Cash
& Carry Romania has 23 distribution centers throughout the country.

In May 2001 Selgros Cash & Carry commenced its foreign expansion into
Rumania with the opening of the first SELGROS Cash & Carry wholesale
market in Brasov. It now runs twelve SELGROS Cash & Carry wholesale
markets in Rumania.

By the end of the year, Selgros Cash & Carry intends to reach 14 stores, with the 13 th one being
opened on August 1 in Bacau and the 14th one in Iasi. One of the company’s priorities for 2006
was the opening of its new store in Ploiesti in March and also consolidating the existing stores.
Selgros celebrated 5 years on the Romanian market this year

Discount Store

XXL Megadiscount & Penny Market

XXL Megadiscount is a discount Romanian supermarket chain owned by Rewe International


of Germany, which also operates the Billa brand in Romania. As opposed to Billa, XXL stores
are generally larger and geared towards low-income and middle-income consumers.

There is one XXL hypermarket in Bucharest (on Şos. Fundeni), as well as one store each in
Sibiu, Târgovişte, Buzău and Brăila. XXL, as well as Billa, are currently pursuing a strategy of
rapid expansion in the Romanian retail market.

The retail corporation Rewe also opened several


Penny Market discount stores in Romania in the
middle of 2005. Rewe was mainly interested in

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opening stores in cities such as Ploieşti, Câmpina, Tecuci, Focşani, Oneşti, Craiova, Caracal,
Constanţa, Medgidia, Alexandria and Roşiori de Vede. Most of these cities have populations of
below 100,000 people, and Rewe is hoping to take advantage of a market that has not been
highly tapped into, since most of Romania's larger cities, such as Bucharest, Cluj-Napoca and
Iaşi, already have multiple large supermarkets and discount stores.

miniMAX Discount:

miniMAX Discount is a supermarket chain


operating in Romania. miniMAX supermarkets are
mainly found in smaller urban areas, with
populations below 200,000, which are not served by
international retail chains such as Carrefour, Billa or
Metro Cash and Carry. miniMAX stores are based
on the discounter concept, selling a more limited
range of goods at low prices.

Traditional Retail
The competition between modern and traditional retail is still strong, especially concerning
groceries. A quarter of the total number of customers still shop in traditional stores for basic
groceries, soft drink, snacks and sweets; 40% buy dairy products, the same percentage as the
number of customers who buy this sort of goods in supermarkets and hypermarkets. Also, a
quarter of urban customers still spend a great deal of their money in traditional stores.

6. Consumer Analysis

Romania's accession to the EU will have the most important impact on the future development
of the consumer for various reasons. The most important is probably the further surge in the
consumer purchasing power, resulting in positive changes in both consumer habits and
preferences. The increasing level of disposable income, backed by steady economic growth
and a stable political environment, will attract more foreign investors. Other reason is the
continuing development of modern retail, changing consumers’ behaviour in Romania. Only
33% of the Bucharest people like to shop at hypermarkets, supermarkets cash and carry, and
discount stores. Other 10% of the Bucharest inhabitants shop in traditional stores, while, 57%
opt for a combination of old and new style.

Income

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The Romanian household can be divided into three groups of buyers, according to their level of
expenditures. These groups are Heavy, Medium and Light. This significant consumption
growth can be explained as:

 118% in the case of Heavy buyers


 78% in the case of Medium buyers
 69% in the case of Light buyers

The consumption growth rate for each of these groups, the Heavy buyers with 33% as regards
the expenditures' level are responsible for 59% of expenditures in 2005.
After tracking the consumers according to their expenditures' level, we see that the Heavy
buyers segment registered the highest growth rate of expenditures of 218% in 2005.

A household that belongs to the Heavy buyers group spends 2.1 times more than a Medium
household on the same products and 4.8 times more than a Light one. A family in the Medium
segment is spending 2.2 – 2.3 times more than the one in the Light buyers group.
If we look at the socio-demographic profiles of Heavy buyers in 2005 and 2001, we note that
the difference between the urban and rural area is growing considerably, the households in the
urban areas becoming more and more important for this segment of buyers. Among them, the
families living in the capital city play a major role in this respect. On the other hand, the
households living in small cities (10,000-50,000 inhabitants) are over-represented in the
Medium segment, while the ones in the rural areas are over-represented in the Light group.
Considering the age of the household keeper, if in 2001 the age groups of 30-39 and 40-49
were the best represented in the Heavy buyers segment, the same age groups gained a higher
importance in 2005 while the significance of young families with age of household keeper
below 29 year had recorded a considerable and visible growth.

Heavy buyers when purchasing mostly prefer the modern trade. While a country basis, the
modern trade covered 25% in 2005 among the Heavy buyers, when it comes to Medium and

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Light segments its importance decreases to 18% and 12% respectively. Moreover, there are
differences between the outlet types from the modern trade, with the exception of discount
shops that perform equally among all three buyers groups.

Demographic
Population 22,303,552
Population growth
Population growth rate -0.12 percent
Projected population in 2025 21,260,138
Projected population in 2050 18,678,226
Population density 97 persons per sq km
251 persons per sq mi
Urban/rural distribution
Share urban 54 percent
Share rural 46 percent
Largest cities, with population
Bucharest 1,926,334
Iaşi 320,888
Cluj-Napoca 317,953
Timişoara 317,660
Constanţa 310,471
Ethnic groups
Romanian 89 percent
Hungarian 7 percent
Roma (Gypsy) 2 percent
German, Ukrainian, Serb, Croatian, Russian,2 percent

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Turk
Languages
Romanian (official), Hungarian, German, Romany
Religious affiliations
Orthodox (Romanian) Christian 70 percent
Roman Catholic 6 percent
Protestant 6 percent
Atheist 3 percent
Muslim 1 percent
Nonreligious 7 percent

Forecasted Changes
Consumer behavior has changed over time. While women remain the main shoppers, men are
also getting more involved in shopping activity. Modern trade formats are visited only by one
third of population; the frequency of visiting modern trade stores varies from once every two
weeks for hypermarkets and cash & carries up to two visits a week for supermarkets.

An increasing number of consumers prefer to buy final goods rather than buy the raw
ingredients to prepare the food themselves. This trend will be more visible in the future and it
creates opportunities for ready-to-eat/ready-to-cook prepared foods.

According to recent market research prepared by Mercury Research Company, the main factors
in influencing the buying decision are the price of goods (with a share decreasing from 36% in
2000 to 19% in 2004), special offers (slightly increased from 6% in 2000 to 7% in 2004) and
distance to stores (increased from 3% in 2000 to 7% in 2004). This is certainly a sign of
increased consumer awareness on product quality and product image.

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II. MARKETING STRATEGY

1. Segmentation

Our market strategy is designed to support our successful entrance into the competitive super
market in Romania. We plan to build awareness and image while emphasizing our competitive
superiority based on innovation quality and value. The market analysis shows us that GDP per
capital of $ 9,446 in 2006 of Romania is an upper middle-income economy. Moreover,
unemployment in Romania was at 5.1% in July 2006, which is very low compared to other
middle – size, or large countries such as Poland, France, Germany and Spain that means people
have a stable income rate. Based on this, we are confident in entering the Romania market. In
addition, Romania is the country with high concern about the organic food. In Romania even
the rich are just beginning to discover a taste for the organic, but it is still as much a lifestyle
statement as a genuine concern for food quality. Most of them prefer the natural vegetable and
animal are grown in the gardens of peasants and untouched by chemicals of any sort to organic
food. Understanding the customer behavior, our supermarkets tend to use the grocery with
natural source to supply customers. Recently, with the increase in the number of people did get
cardiovascular diseases represent the main cause of mortality in Romania followed by cancer.
The mortality rates from cancer have almost doubled in Romania over the past two decades.
The deterioration in health indicators in Romania during transition is thought to be linked to a
plethora of risk factors such as obesity. Negative effects of fat consumption and positive effects
of fruit and vegetables consumption on all causes mortality and premature death were reported.
Because of that dangers then Romanian pay more attention on food they purchased. Nowadays,
more and more people in Romania prefer to have diet meal with fresh vegetable and fruit to fat
food. This characteristic of consumer behavior in Romania could be a good advantage for
Tesco’s launching in Romania market.

2. Target market

On the consumer side, the primary target market is low to middle income people who want to
buy food and non-food product with cheap price. We still attract customers with “inclusive
offer” which describe our aspiration to appeal to upper, medium and low-income customers in
the same stores. The first group of target is upper income will be satisfied with our up market
“finest “who want to buy high quality. The second target group will be low to middle income;
we will serve with low- price “value”.

On the business side, the target market is middle to large sized corporations that want to help
their product more copious with natural grocery and various kind of consumer electric. A

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possible business target is middle and small super stores in Romania, who want fresh and safe
grocery to attract customer.

3. Market entry mode

After analyzing the segmentation and target market of our super market in Romania, we are
going to deal with the next question is “how do we get there?” Standing on this point, there is
several modes of investment that Tesco can use as the entry mode in Romania such as Foreign
Direct Investment (FDI), Joint venture or export. Among of them, FDI has the most profitable
characteristic for Tesco because of some main reasons. On the side of company, Tesco can
invest with a purpose of seeking resource such land, labor for development of supermarket.
Tesco is a big supermarket so the number of employees in one supermarket can grow more
than 400. It will be very profitable if the company can use the cheap labor in Romania
compared in UK. In addition, Romania has a strong development in agricultural products
(fruits, vegetables and flowers) which is one of the main export’s sources of Romania. It would
be a potential supply of grocery for Tesco. On the side of Romania, FDI is one of the most
popular and favorite kind of foreign investment that the government prefer. Tesco can reduce
the number of unemployment in Romania, creating a lot of jobs in supermarket and farming.
Moreover, it can contribute a reasonable increase of GDP which affirms the entry position of
Romania into EU in 2007 strongly. On the point of view of European Union, FDI plays an
important role in the development of foreign investment in internal as well as external market.
The total FDI inflows to the EU are the strengthened positions of many EU members such as
Belgium/ Luxembourg and France. This kind of investment brings impressive growth for not
only the member countries but also the non member countries. Governments of many poor
member countries see foreign capital as a means of economic growth, and they have taken
steps to attract it. Over many years, FDI contribute a lot of profit to the success and
development of EU economy.

4. Alternative strategy

Along with above analysis about the market, competition, segmentation, there are some
strategies, which Tesco can pursue to enter Romania market. The company can use generic
strategy of Michael Porter.

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 Cost leadership

This strategy emphasizes efficiency. Tesco serves all segments of the market, mostly for low to
middle income customers with low – price “value” which is contrast some super markets that
focus heavily on value for money, which can undermine its appeal to up-market customers
even though it actually sells a wide range of up-market products. These super markets present
an image as a high – priced middle class supermarket. They considered themselves to have
such a wide lead on quality that they did not need to compete on price and were indifferent to
attracting lower – income customers into their stores. This strategy has been abandoned since
Tesco took over the number 1 spot of Sainsbury. It was a strong evidence for the success of
Tesco when it attained Scotland market in 1994. If Tesco use this strategy it should focus
mostly on low to middle income customers with its traditional approach strategy “pile it high,
sell it cheap.”

 Differentiation strategy

This is the modification of a product to make it more attractive to the target market. Depended
on the fact that Romanians have the lifestyle concern about the organic food, Tesco can create
difference in quality by natural grocery. These product may sell with higher price compared
with others but it can gain the objective is to develop a position that potential customers will
see as unique. If Tesco’s target market sees its product as different from the competitors’, it
will have more flexibility in developing its marketing mix. This strategy will move Tesco’s
product from competing based primarily on price to competing on non – price factors.

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5. Strategic choice

Because of the intensive competition of the market, our most important strategy relates to the
need for clear differentiation to position Tesco as the most inclusive offer, Fresh and safe food
for customers. Supporting that positioning key points to be emphasized include:

o Inclusive offer: serve all customers in the same store by own – brand products,
including the up-market “ finest” and low – price “ value”, continuing take the lead in
overcoming customer reluctance to purchasing own brands.

o Fresh and safe grocery: supply customers with all natural food that ensure the healthy
and qualitative standard.

III. MARKETING PROGRAM

1. Product

All marketing begins with a product. But what's Tesco's product? Originally specializing in
food, Tesco now has diversified into areas such as clothes, consumer electronics, consumer
financial services, selling and renting DVDs, compact discs and music downloads, internet
service and consumer telecoms. From mince to mortgages, in today's Tesco you can buy a
whole life's worth of products!

In Romanian market, Tesco will try to provide a wide range of products, representing one of
the best offers on the Romanian market in terms of quantity, quality and variety; a very good
quality of all fresh products.

Food
Healthy labeling
Health and fitness is a concern for many customers in European nowadays, so Tesco will
provide more ways to help people live a healthier life. It will put a big effort into improving its
chilled ready meal recipes, which now only use ingredients that customers can find in a Tesco
stores. It will also reduce sugar, salt and fat levels in hundreds of its products. Following
extensive research to understand how best to help customers choose a balance diet, Tesco will
introduce in Romania its new “signpost” labeling to its own-brand lines, providing simple,
clear, front-of-pack information to 2,500 products so far, and by the end of the first operating
year the entire range will have been completed.

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Huge on quality and low on price, the new Naturally Good Food
ranges marks the new age of the ready meals.

Range

For many customers, organics are everyday products and Tesco leads the market. A new report
has found that European consumers are now spending twice as much on organic food as they
did in the late 1990s. According to the report, however, price remains a key barrier to growth,
as consumers are unwilling to pay more. Therefore Tesco has invested over £ 10 million in
reducing prices in these lines and continued to expand its range. Total organic sales grew by
26% in the year, including over 30% growth in meat, fish and poultry.

Tesco has invested over £ 10 million in reducing prices in


organic lines this year

Instead of offering a standard product range everywhere, Tesco will put a lot of effort into
tailoring its offer for Romanian customers.

Non-food
To try and give customers more choice about how they buy Tesco non-food items, it is
investigating ways of developing its on-line offer and extending its trial of non-food only
stores.

Electric
Customers want the newest products and latest
technology in home entertainment. Therefore,
Tesco will carry in its future Romanian stores top
brands, including Samsung, Sony, Hitachi,

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Panasonic and JVC, to extend its range. It will also sell cameras and MP3 players. Tesco will
also think of opening of an Apple store, stocking a comprehensive range of Apple products,
including iPods and iMacs.

High fashion at low prices


Tesco clothing has something for everyone, with prices to suit
every pocket. Its brands, led by Florence + Fred and Cherokee,
have been among the fastest growing in the whole UK market for
several years. Cherokee brand has been launched in the Czech
Republic, Poland and Slovakia in February 2006. The Cherokee
range is available for women, men, kids and babies and Tesco is
planning to extend the range to footwear, accessories and
nightwear.

Formats

Tesco store formats are way of meeting the different needs of its customers wherever they live
and however they want to shop – in large stores, in small stores or online. Tesco Express
brings great food and low prices into the heart of neighborhoods and over seven million
customers every week visit one of these stores. Metro offers the convenience of Tesco in town
and city centers where people live and work. At Tesco Superstores, customers can find
everything they need for their weekly shopping and at its Extra store customers cannot only
find its full range of food and convenience lines, but also a comprehensive range of non-foods,
including health and beauty, clothing, electrical, toys and home wares.

2. Price

Tesco began in the 1920s selling groceries to poor people in London's east end. "Pile it high
and sell it cheap" was the slogan of Tesco's founder, Jack Cohen. And price is still a big factor
in its marketing pitch.

Whilst lower prices benefit all consumers they are especially important to families on a budget
and have made a significant contribution to making healthy food accessible to all. Tesco will
do more by running promotions on fresh fruit and vegetables. It intends to sell 95 fresh fruit
and vegetable Value lines in Romania and considers the possibility to introduce the Pre-School
Learning Alliance to help parents and children in some of the Romania’s most deprived areas
make healthier choices.

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Fair prices

Tesco understands that customers want low prices, but they also want fair prices. That is why
Tesco will charge the same prices up and down the country. It will sell its products on the basis
of a national price list available for all to see on the website. Even in the few locations that are
unable to support more than one supermarket, where Tesco is ‘the only supermarket in a town’,
the company will continue to operate on the basis of its national price list.

Prices in smaller stores

Prices will be a little higher in some of town centre and neighborhood stores because costs are
higher there. Stores in town centre are typically smaller and have higher overhead costs
(mainly rents and rates) per square foot of selling space than those outside the centre. Higher
overhead costs are spread over a smaller volume of sales, and can only be recouped by
charging prices that are, on average, higher (prices are 2-3% higher in Express stores and in a
few of Metro stores than in larger stores on the edge or outside town centre).

3. Place

Tesco's first supermarkets dominated the high street. Then they moved out. Then they moved
back in again. Now there is whole range of different types of Tesco — Tesco Extra, Metro
Tesco, Tesco Express — and they're everywhere. Tesco's aim is to get the right goods to the
right customers, using a mass of research to do it. Tesco Express and Metro can be located at
small towns or cities with small population where other retail brands have not tapped much like
Bacau, Pilesti, Buzau, Suceava…For Tesco Superstore and Extra, they will be located at
strategic cities like Bucharest, Polesti, Cluj-Napoca… The possibility at other cities is also
under consideration.

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Time taken to open a new store

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4. Promotion

Clubcard

One of Tesco most important promotional tools is its clubcard. Over 80 per cent of sales at
Tesco are made using a clubcard — and since its launch, Tesco has given out over one billion
pounds-worth of vouchers. Due to this success, Tesco will continue to try a similar form of
clubcard in Romania. Clubcard is a symbol of Tesco’s commitment to their customers as
individuals: multidimensional customer segmentation and tailored communications prove to
Tesco’s customers that they can count on their “local grocer” to know them. Mailings are
tailored to the needs, interests, and potential interests of Club Card members. Customers are
segmented into cost conscious, mid-market, and up-market segments, which are in turn
segmented into healthy, gourmet, convenient, family living, and so on. These sub segments are
then segmented further and communications are tailored to each.

Computer for schools

Computer for school was launched in 1993 and Tesco has given school over £100 million
worth of computer equipment, including over 57,000 state-of-the-art computers and over
740,000 additional items of computer-related equipment. The scheme works on the “Every
Little Helps” principle, bringing people together in a joint effort, which delivers benefits for
the whole community. Customers receive one voucher for every £ 10 spent in a single
transaction. This is then donated to a school of their choice, who then exchange their vouchers
for free computer equipment.

Community plan

The community plan is a continuous process that will drive change across the business in the
years to come. Building upon Tesco current corporate responsibility activities, it will provide a
platform for constant innovation to deliver two broad objectives:

 Be a good neighbor
Customers always want the retailers to respect the local communities in which they operate and
make a positive contribution to them as a good corporate citizen and a friendly neighbor. Tesco
can do that by supporting local sports teams as well as by providing more jobs. Projects for
2006 include stocking more local produce and making sure that its busy local Tesco Express
stores do not disturb their neighbors.

 Be environmentally responsible

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Each people have a duty to take care of the environment and Tesco is well placed to make a
significant difference. By examining the processes and reviewing the energy consumption,
Tesco hopes to take a lead in promoting environmentally responsible practices. Projects for
2006 include reducing carrier bag usage, energy saving and improvements to recycling
facilities for customers.

IV. IMPLEMENTATION PLAN

TESCO are ready to enter Romanian market in 2007. This will be a great challenge for the
company.

At the first place, TESCO will build a long-term community relationship-oriented business in
Romania. This means that TESCO will focus on building trust with local people, not only
providing service to the customers, but let them know the company’s spirit as well. Therefore,
TESCO will spend money on promotion and advertising in Romania because it is the fastest,
efficient, and widest way to transmit information.

At the same time, TESCO will introduce its non-food products into Romanian market, such as
health & beauty products, electronic & home-living products, clothing and toys. All of them
are with great quality, wide range and reasonable prices.

Moreover, TESCO will pay attention on retailing service in Romanian market, which brings
new levels of simplicity, value, choices to Romanians. It’s focus on on-line grocery shopping
service because TESCO always try to customer time as well as money. Its on-line shopping
will provide variety services in Romanian market, for example, on-line DVD shopping,
customer simply go on-line and select which package they want; the DVD are then delivered to
their door. When the DVD has been watched, customers put the DVD into a pre-paid envelop
and post it back to us free of charge.

In addition, TESCO will also provide energy service in Romanian market. As we know, in
Romania, a large amount of people have to save money on their gas and electricity bills. Now,
with the help of TESCO, customers only have to click on the section called Energy in
TESCO.COM and complete a simple form. This service is fast, friendly, and secure and of
course free—within ten minutes customer can save over £150 a year on energy bills.

Furthermore, TESCO will launch financial service in Romanian market. TESCO always looks
from customers points of view in order to let customers feel safe all the time. Its insurance will
include home insurance, travel insurance, pet insurance, car insurance, life insurance, credit
card and loans.

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Last but not least, TESCO will also provide home phone, mobile and internet phone service in
Romanian market. It is also a new venture for TESCO. In Romanian market, TESCO will try
to joint venture with local companies, which means that TESCO doesn’t need to invest directly
into the network. And its internet phone service will give customers free calls to other internet
phone customers anywhere in the world and very low-cost phone calls over the internet to
local, national or international landlines and mobiles.

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