Business at work

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Tesco plc.

History

Tesco was founded in 1924. Over the last seventy years, as the food retailing market has changed, the company has grown and developed, responding to new opportunities and pioneering many innovations. Today it is Britain’s leading food retailer.

The founder of Tesco was Sir Jack Cohen. He used his gratuity from his Army service in the First World War to start selling groceries in London’s East End markets in 1919. The brand name of Tesco first appeared on packets of tea in the 1920s. The name was based on the initials of T.E. Stockwell, a partner in the firm of tea suppliers, and the first two letters of Cohen. The first store to be opened was in 1929 in Burnt Oak, Edgware.

The business prospered and grew in the years between the wars. In 1947 Tesco Stores (Holdings) Ltd was floated on the Stock Exchange, with a share price of 75p. The price at the beginning of March 1998 was around 515p.

Self-service supermarkets started in the USA in the 1930s during the depression. They soon realised that by selling a wider variety and larger volume of stock and employing fewer staff they could offer lower prices to the public.

Self-service stores came to Britain after the Second World War, and Jack Cohen opened the first Tesco self-service store in St Albans in 1948.

In 1956 the first Tesco self-service supermarket was opened in a converted cinema in Maldon. By the early 1960s, Tesco had become a familiar name. As well as groceries, the stores sold fresh food, clothing and household goods. Tesco stores were located in the high streets of many towns. The Tesco store which opened in Leicester in 1961 had 16,500 square feet of selling space and went into the Guinness Book of Records as the largest store in Europe.

By buying in bulk and keeping costs down, Tesco should have been able to sell at very competitive prices to its customers. Until 1964, however, suppliers were, by law, able to insist that retailers charged a set price for their products (the system known as Resale Price Maintenance) which meant that it was difficult to reduce prices. The intention was to protect small shops against the lower prices that big retailers could offer their customers.

Tesco introduced trading stamps so that it could bring lower prices to its customers. Customers collected stamps as they purchased their groceries and other items. When they had collected enough stamps to fill a book, they could exchange the book for cash or other gifts. Other retailers soon copied Tesco. Sir Jack was one of the leaders in persuading Parliament to abolish Resale Price Maintenance in 1964. After this, Tesco continued to offer trading stamps until 1977.

Apart from opening its own new stores, Tesco bought existing chains of stores. In 1960 it took over a chain of 212 stores in the north of England and added another 144 stores in 1964 and 1965. In 1968 the Victor Value chain became part of the company.

Tesco introduced the concept of a superstore in 1967 when it opened a 90,000 square feet store in Westbury, Wiltshire. The superstore was a new concept in retailing - a very large unit on the outskirts of a town, designed to provide ease of access to customers coming by car or public transport. The term superstore was first actually used when Tesco opened its store in Crawley, West Sussex in 1968.

By 1970, Tesco was a household name. Its reputation had been built on providing basic groceries at very competitive prices; the slogan ‘Pile it high and sell it cheap’ was the title of Sir Jack Cohen’s autobiography. But as people were becoming better off, they were starting to look for more expensive luxury items as well as everyday household and food products. In the late 1970s the company decided to broaden its customer base and make its stores more attractive to a wider range of customers. Many of the older, high street stores were closed and the company concentrated on developing bigger out-of-town superstores. The superstores sold a broader range of goods, and had wider aisles and better lighting. While still offering very competitive prices, the emphasis was now on quality, customer service and a customer-friendly environment. In 1974, the company developed filling stations at its major sites, selling petrol at very competitive prices. In line with its new image, Tesco finally stopped giving trading stamps in 1977, at the same time introducing a price cutting campaign under the banner "Checkout at Tesco" which proved to be a major success.

In one year in the late 1970s, the Tesco market share increased from 7% to 12%, and in 1979 its annual turnover reached £1 billion for the first time.

During the 1980s, Tesco continued to build new superstores, opening its 100th in 1985. In 1987 it announced a £500 million programme to build another 29 stores. By 1991, the popularity of Tesco petrol filling stations at its superstores had made the company Britain’s biggest independent petrol retailer.

In 1985 Tesco introduced its Healthy Eating initiative. Its own brand products carried nutritional advice and many were branded with the Healthy Eating symbol. The company was the first major retailer to emphasise the nutritional value of its own brands, to customers.

By 1990, Tesco was a very different company from what it had been 20 years before. The Tesco superstore offered customers a very wide range of goods, a pleasant shopping environment, free car parking and an emphasis on customer service. Although many financial experts had not believed that the company could so radically change its image, the new approach saw sales and profits rise consistently. Existing customers took advantage of greater choice, and new customers discovered that Tesco could successfully match the offer of any of its retail competitors.

In the 1990s, the company built on its success by developing new store concepts and new customer-focused initiatives. In 1992, it opened the first Tesco Metro, a city centre store meeting the needs of workers, high street shoppers and the local community. This was followed by Tesco Express, combining a petrol filling station with a local convenience store to give local communities a selected range of products. The company also expanded into Scotland when it acquired a chain of 57 stores from William Low.

Tesco broke new ground in food retailing by introducing, in 1995, the first customer loyalty card, which offered benefits to regular shoppers whilst helping the company discover more about its customers’ needs. Other customer services followed, including home shopping for those who hadn’t the time to visit a superstore, Tesco Direct for catalogue shoppers and the Tesco Babyclub for new parents. Currently, the company is adding financial services to its provision for customers.

By 1995, Tesco had become the largest food retailer in the UK.

In the 1990s, Tesco started to expand its operations outside the UK. In Eastern Europe, it has met growing consumer aspirations by developing stores in Poland, Hungary, Slovakia and the Czech Republic.

Closer to home, in 1997 Tesco purchased 109 stores in Ireland, which gave the company a market leadership both north and south of the border.

Tesco Chairmen 1947-1998

Sir Jack Cohen 1947-1979

Sir Leslie Porter 1979-1985

Sir Ian MacLaurin (Lord MacLaurin from 1996) 1985-1998

John Gardiner 1997

Chief Executive Terry Leahy 1997

The letters ‘plc’ at the end of its name distinguishes a public limited company from a private limited company. Most of Britain’s famous businesses such as Marks and Spencer, ICI, BP, and Manchester United are public limited companies. All companies with share prices quoted n the London Stock Exchange are public limited companies.

To become a public limited company, a business must have an issued share capital of at least £50,000 and the company must have received at least 25 per cent of the nominal value of the shares. Public limited companies must also:

• be a company limited by shares

• have a memorandum of association with a separate clause stating that it is a public company

• publish an annual report and balance sheet

• ensure that its shares are freely transferable – they can be bought and sold.

Benefits:

• All members have limited liability.

• The firm continues to trade if one of the owners dies.

• Huge amount of money can be raised fom the sale of shares to the public.

• Production costs may be lower as firm may gain economies of scale.

• Because of their size plcs can often dominate the market.

• It becomes easier to raise finance as financial institutions are more willing to lend to plcs.

Constraints:

• The setting up costs can be very expensive – running into millions of pounds in some cases.

• Since anyone can buy their shares, it is possible for an outside interest to take control of the company.

• All of the company’s accounts can be inspected by members of the public. Competitors may be able to use some of this information to their advantage. They have to publish more information than private limited companies.

• Because of their size they are not able to deal with their customers at a personal level.

• The way they operate is controlled by various Company Acts which aim to protect shareholders.