TESCO GROUP

FOOD
Submitted By:

Group 9
F006 Lakshit Baheti
F009 Deepika Chauhan
F023 Abbas Jamil
F026 Vaibhav Jindal
F043 Sanchita Panch
F063 Aarzu Wadhwa
Reason for Tesco’s success
■ “Stack ‘em high, sell ‘em low” - Keeping huge stocks and selling for low prices
– Tesco gains scale economies from its large buying volumes
■ Appointment of commercial director for each country who were responsible for sourcing while addressing local
preferences rather generalizing it
■ Expansion of its product lines to cover different demographics with ranges of products from the Value range
through to Tesco's Finest
■ Heavy investments in information systems and logistical infrastructure
– Feedback from various segments
– Operationally efficient
■ Multiple store formats serving different needs
■ Tesco Clubcard (16 million data sources in UK and other 27 million from international)
– Collecting data points from a large mass to understand and address customer needs
– Shaped product offerings
– Targeted promotions through analytics
■ Transition from large out of town stores to small supermarkets (compete with competitors price slashes)
Reason for Tesco’s success
EXPANSION TO INTERNATIONAL MARKETS
■ Looked at countries with minimal resistance and biggest markets
– Model followed inorganic growth
– Customer base immediately accessible by buying existing chains
■ Strategy to work with partners in high potential markets
– China Resource Enterprise
– Synergy from expertise and cultural knowledge

INNOVATION AT EARIEST
– Selling financial services; Tesco Bank
– “Built a better Tesco” – Revamped service, formats, quality and communication
– First and biggest online retailer through dark stores – Tesco.com
– “click and collect” drive thru and pick ups at non-Tesco locations
– Virtual grocery store
Impact of changes in consumer, competitive and
supply environment on Tesco’s Success
■ CHANGE IN CONSUMER BEHAVIOR
• Customers shopped at multiple channels
• Customers were price conscious and were concerned about safety of the food items (e.g. sourcing of food
item and production)
• Buying trend shifted from hypermarkets to convenience stores

■ CHANGE IN COMPETITIVE ENVIRONMENT

• Competitors adopted aggressive pricing strategies
• Tesco was present in mid price segment between premium positioned retailers and discounters
Impact of changes in consumer, competitive and
supply environment on Tesco’s Success
■ ISSUES IN EXISITING SUPPLY CHAIN
• Fragmented Supply Chain
- Frequent switches between suppliers to keep low cost
- Transactional model of supply chain was present
• Short lead times were present which resulted in extra inventory with importers as well as growers
• Main focus was to maintain operational efficiency which lead to delay in finalizing orders until last minute
• Store shelves were always full irrespective of cost that was incurred in the process
What are the implications of Group Food for the
distribution chain?
■ Building supplier relationship & category expertise:
• Group Food discontinued 18-month rotation of buyers, promoted category specialization and healthy
relationships with suppliers
• This would infer longer contracts with the buyer and better savings on negotiation for Tesco
■ Consolidated buying:
• Combining volumes across countries would lead to better cost savings, increased quality, lower risk and
reduced complexity
• Group Food, now working directly with primary suppliers could ensure that changing consumer needs are
adapted in the supply chain
• It even reduced the freight rates by shipping non-perishable food and non-food together
■ Increasing Brand trust for suppliers:
• Shift from transactional to partnership buying would make Tesco the first customer and choice of suppliers for
making investments and evolving services
• Focus shift from cost consciousness to relationship building and longer contracts
■ Skilled sourcing:
• Skilled sourcing would help to better analyze sourcing decisions like price, quality and would lead to supply
chain optimization
• Partnering with entrepreneurial farmers would lead to mutual cost benefits for them as well as the company
• Reducing risk while ensuring access to supply
■ End-to-end supply/demand planning:
• Centralized forecasting system ensured better visibility
• Group food could also guarantee 70% of forecast to the supplier and additional price on remaining 30% (if
needed)
• Reducing the sourcing cycle by leveraging on advanced order
■ Supplier satisfaction:
• Major suppliers like Hilton felt that the Group food would help them and Tesco to focus on the right things
• It would foster innovation and focus on consumer needs rather than just costs
• Group food would increase supplier base by helping them improve their ratings from red to green
How might Group Food contribute to Tesco’s
growth in future?
■ Long term relationships as opposed to frequent switching of buyers leads to:
 End to end control over supply chain ( eliminating middle men)
 Operational efficiencies at supplier end due to open book model
 Product Innovation
 Better product quality, safety and reliability of supply
 Integrated information system for better market insights
 Symbiotic growth of supplier along with Tesco
 Supplier problems can be resolved quickly to develop a sustainable supply chain
■ Scale of sourcing as opposed to country buying teams lead to:
 Cost saving due to consolidated buying (few big suppliers)
 Efficiency in supply chain due to transportation of mix items together ( Negotiated freight contracts)
 Scale of operations has enabled to company to have a buying specialist leading to better negotiations
■ Centralized team having a specialized skill in sourcing will impact :
 Focusing on what roles Tesco want suppliers to play
 Better forecast leading to better growth and a better top line
 Increased capability to deal with climatic/seasonal changes in supply
What further advice would you offer Matt
Simister?
■ Increase share in purchases by expanding into different product categories ( e.g. private labels),
but following pitfalls to be avoided :
 Comprises in best price sourcing as not all suppliers may like the idea of open book model
 Long term relationships can lead to high bargaining power of suppliers
 Dynamic retail environment is more conducive for tactical sourcing ( increased expenses on
commodity risk management)
 Delay in decision making due to centralized decision making
 Better coordination with country teams by:
 Information sharing by both parties ( consumer & supplier information) to fuel better product
innovation and supply chain efficiencies
 Communicating value of work by Group food to internal customers by providing them better
deals and driving up their margins
 Driving up profitability by providing better shelf time and low inventory by a leaner supply
chain
THANK YOU