Tesco's 'Steering Wheel' Strategy

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Case Details:

Case Code : BSTR187
Case Length : 21 Pages
Period : 1995-2005
Organization : Tesco
Pub Date : 2005
Teaching Note :Not Available
Countries : UK
Themes: Growth Strategy | Balanced Scorecard
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Tesco was founded in 1919 by Jack Cohen (Cohen), who invested his serviceman's gratuity of 30 in a grocery stall. The first private label product introduced by Cohen was Tesco Tea. The name Tesco was a combination of the initials of the tea supplier TE Stockwell, and the first two letters of Cohen's name. Tesco opened its first store in 1929. Cohen was influenced by the supermarket culture in America and tried to introduce this concept in the UK.

The company's driving force was the idea: "Pile it high and sell it cheap." In 1947, Tesco went public and a year later, Tesco self-service stores were started, initially through small stores. In 1956, the first Tesco self service supermarket was opened. In the 1960s, Tesco went on an expansion spree and acquired several store chains. The Retail Price Maintenance (RPM) Act4 in Britain prohibited large retailers from pricing goods below a price agreed upon by the suppliers. To overcome this obstacle to price reduction, Tesco introduced trading stamps which were given to customers when they purchased products, and which could be traded for cash or other gifts. RPM was abolished in 1964, and from then on, Tesco was able to offer competitively priced products to its customers in a direct manner.

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The first Tesco superstore, with an area of 90,000 square feet, was opened in 1967. By the 1970s, Tesco's philosophy of "Pile it high, sell it cheap," was no longer very appealing to shoppers. As people were getting richer, they started demanding expensive and luxury items. The worsening fortunes of Tesco even led to a jargon "doing a Tesco," which meant snatching a defeat from victory.

Tesco's image took a further beating when Imperial Tobacco Company which had considered acquiring Tesco as a part of its diversification strategy, did not go in for the deal as it felt that Tesco might damage its image. To arrest the downslide in its fortunes, Tesco's management went in for an overhaul of its stores during the decade. Several stores were closed down to concentrate on the superstores. The smaller stores that still remained were refurbished to make them more customer-friendly. Tesco diversified into operating petrol pumps in 1974. As its trading stamps were proving a hindrance to the premium image Tesco wanted to project, they were discontinued...

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4] The Act allowed suppliers to fix the prices of goods, and retailers were not allowed to sell the goods at lower prices.


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