Wal-Mart's Worst Nightmare

When I read the headline “Tesco: ‘Wal-Mart’s worst nightmare’” I was immediately skeptical of what was to follow. Was the author really talking about the same Wal-Mart that no retailer has been able to even approach in recent years? The same Wal-Mart that strikes fear into small businesses everywhere? My first thought was that the author must have a love for hyperboles, but after additional research I realized that this seemingly outrageous claim has merit.

Tesco PLC is much more then the online grocery shopping service that we discussed in class. Based out of Britain, Tesco is the number 3 retailer in the world behind only Wal-Mart and French giant Carrefour SA. While Tesco’s online grocery business is important to the success of the business, it is Tesco’s unmatched ability to manage multiple store formats that has been the driver of the company’s success. Tesco currently operates 5 different store formats in 13 countries, with each country presenting a unique challenge. The store formats range in size from convenience stores to hyperstores that sell everything from food to electrical equipment, clothing and house ware. In addition to these 5 formats, Tesco has a strong online presence that goes far beyond the firm’s grocery delivery service. On Tesco’s website you can download music exactly as if you were using iTunes and they have even opened up an online banking service. Now one would usually not associate banking with a massive retailer that made its name selling groceries, but Tesco has been able to take this service, and through proper marketing and management, turn it into a customer and profit-generating venture that currently none of its competitors can match.

So how does Tesco manage such a wide range of formats? The first step that Tesco takes when entering a new market is determining which format would be best suited to the market. One needs to look no further then Tesco’s entrance into the Japanese market to see the importance of carefully examining a market to determine the best-suited format. Before Tesco entered the Japanese market both Wal-Mart and Carrefour had already made unsuccessful attempts to penetrate the market through their traditional big-box format. In contrast to this strategy, and after a significant amount of research, Tesco determined that small, corner shops would be much more successful. Today, Tesco remains the only one of the three retailers to find success in Japan.

However, Tesco’s success is due to much more then just strong market research. The firm also has an extremely strong data management system. This system has similar benefits to Wal-Mart’s famed system in terms of inventory management and tracking, but the firm also uses the data for targeting promotions and tracking the effectiveness of their marketing efforts, arranging store layouts, and developing private label products. The ability to apply this data, collected by the Tesco-owned data-mining firm Dunnhumby, across all its store formats gives Tesco a competitive advantage over both its smaller and larger competitors. Large retailers such as Home Depot in the United States are only beginning to use this technology. Tesco’s previously mentioned private label is another advantage that it enjoys over Wal-Mart. While Wal-Mart stores are only able to generate up to 35% of sales from Wal-Mart’s private label, Tesco stores can generate up to 70% from their own private label. This is partially due to Tesco’s data management advantage as Tesco’s data analysis has allowed the firm to determine the specific price points that its consumers are willing to buy at. Tesco has taken this data and created successful products at every price point, ranging from discount-priced products to products that are priced at a premium to even the highest quality brands.

Tesco’s focus on the customer is also essential to the success of the company. Building loyalty and strong relationships with customers can be difficult for a firm of Tesco’s size but that has not stopped Tesco from making a strong push to build that loyalty. Tesco, like many other retailers, has a rewards card that customers can earn points by using. From the moment a Tesco employee is hired the importance of convincing the customer to use the “Clubcard” is stressed. This card is of such importance to Tesco not only because of the customer service benefits, but because it is so important in the collection of its consumer data and maintaining the firm’s competitive advantage. To further enhance the convenience (along with selection the RVP of Tesco) of shopping at Tesco, the firm has made the Clubcard usable for online purchases. In addition to this, Tesco has worked tirelessly to cut down on the time it takes to shop online. Since introducing its online services, Tesco has cut the average time spent placing an order in half. This has made online shopping more convenient and has made for an overall, better customer experience.

Tesco has recently begun its expansion into the United States through its convenience store format, a move that has certainly got the attention of Wal-Mart. To retaliate, Wal-Mart has opened up its own chain of smaller stores. While competing directly with Wal-Mart may be seen as business suicide by many firms, Tesco has the advantage of fighting Wal-Mart on Tesco’s own turf. It would have been much more difficult to penetrate the American market through the “Superstore” format, a format that Wal-Mart has mastered. By forcing Wal-Mart to open up stores using a format they have no experience managing, Tesco has put Wal-Mart in a position they have rarely, if ever been in; on the defensive. “Wal-Mart’s worst nightmare” doesn’t seem like such a stretch anymore.

References:
http://www.crm-daily.com/story.xhtml?story_id=63779&page=1
http://www.fairinvestment.co.uk/tesco_banking.aspx
http://books.google.ca/books?id=k48ADCLRtB8C&dq=scoring+points+how+Tesco+is+winning+customer+loyalty&printsec=frontcover&source=bl&ots=A2_YDj5XoZ&sig=3cmwr9jE-fQINdxkA6sX468aXYw&hl=en&ei=UVzOSZiaDpr4MIOX-Es&sa=X&oi=book_result&resnum=1&ct=result#PPA3,M1
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12683