Tesco's Exit from the United States

Tesco's Exit from the United States
Case Code: BSTR437
Case Length: 26 Pages
Period: 2007-2013
Pub Date: 2013
Teaching Note: Not Available
Price: Rs.500
Organization: Tesco Plc.
Industry: Retail
Countries: UK/USA
Themes: Business Strategy, Business Environment
Tesco's Exit from the United States
Abstract Case Intro 1 Case Intro 2 Excerpts

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 in Edgware, London. In 1947, Tesco Stores (Holdings) Limited was floated on the Stock Exchange with a share price of 25 pence and the first supermarket was opened in 1956 in Maldon, Essex. The first superstore was opened in 1968 in Crawley, West Sussex.

In the 1960s, Tesco went on an expansion spree and acquired several store chains. The Retail Price Maintenance (RPM) Act in Britain prohibited large retailers from pricing goods below a price agreed upon by the suppliers. To get around this obstacle, Tesco introduced trading stamps. These were given to customers when they purchased products and 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. The first Tesco superstore, with an area of 90,000 square feet, was opened in 1967.

The company's driving force was the idea: 'Pile it high and sell it cheap.' Though this strategy helped it to attract a large number of customers, it also served to brand it as a store for middle class customers and gave it a low-end image. By the 1970s, shoppers no longer found Tesco's 'Pile it high, sell it cheap' strategy appealing. People were getting richer and were looking for expensive and luxury items. Tesco's fortunes took a turn for the worse and the expression "doing a Tesco," came to be considered an equivalent to failure.

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 it wanted to project, they were discontinued. The price strategies, however, remained in place and Tesco offered price discounts through a scheme called 'Checkout at Tesco.' By 1979, the company's turnover had reached £1 billion...

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