- * Indicates company listed in Exclusive Brands Sourcebook database.
Tesco Puts Squeeze on World's Top Retailers
Leaders come and leaders go. When you look at the world’s top three food retailers, *Wal-Mart of the U.S. and *Carrefour of France have pretty much stayed on top with Wal-Mart, having committed to more grocery retail and wholesale activities starting in the early 1990s. Today, these two retailers still share the number one and number two top ranking. The number three position, however, has been wide open until recently. An upstart British retailer, *Tesco, number one retailer in the United Kingdom, has climbed up through the ranks to the third spot. It’s rate of sales growth has been faster than the other two market leaders. Since 2005, which was Carrefour’s “turnaround year,” Tesco has pushed sales upward by 40.4%, while Carrefour at a slower yearly growth rate increased its sales by 10.3%. Since 2005, Wal-Mart has boosted its sales by 33%, but its continuous yearly double-digit percentage gains of the past lately have slipped into single digit gains, i.e., during 2006 and 2008.
Does Carrefour, the world’s leading hypermarket retailer, worry Wal-Mart? Not very likely, when measured against Wal-Mart’s fiscal 2008 sales, at $375.5 billion, and its fourth quarter sales alone topping $106 billion. Not too long ago, there were rumors that Wal-Mart might purchase Carrefour. Its latest group sales (2007) rose by 6.9% to $126.5 billion. Since 2005, Carrefour has been sharpening its marketing strategies, putting more focus on its name, Carrefour, for its store banners and its private label lines (see Exclusive Brands, Issue #30). Its competitor, Tesco, however, has been Tesco-focused for years: Tesco Express neighborhood stores, Tesco Metro town/city center stores, Tesco Extra convenience stores, and Tesco superstores or hypermarkets. Under its own brands, there are: Tesco, Tesco Finest, Tesco Healthy Eating, Tesco Value, etc.
While Tesco is smaller than its two biggest competitors on the world stage, reporting fiscal 2008 sales of $ 103.4 billion—even smaller than Wal-Mart’s latest fiscal fourth quarter results—Wal-Mart should be more worried about Tesco, especially since February 2006, when the latter moved onto Wal-Mart’s home turf in the U.S. with a new store concept, called Fresh & Easy Neighborhood Market. Its focus is on healthy and organic foods, promising consumers "great food at low prices."
The retail industry is noted for its copycats. Wal-Mart copied the Carrefour hypermarket concept in formulating its Wal-Mart Supercenter format. Now, Wal-Mart reportedly is at it again copying Tesco. In the May 16, 2008 issue of the Financial Times, its U.S. reporter Jonathan Birchall talks about Wal-Mart’s first new store format in a decade: the 15,000 square-foot Marketside, six stores to be opened in Arizona (one of the western states where Fresh & Easy stores are being rolled out). Marketside is slightly larger than Fresh & Easy (10,000 square feet), but unquestionably mimics the Tesco strategy of offering fresh foods, prepared meals, and convenience foods. Birchall says the Marketside will feature a kitchen, food counters, and some seats; its store logo will depict a pile of stylized vegetables and fruits with the store name in green plus a suggestion of Wal-Mart, picking up its blue star logo. It’s unknown whether or not Wal-Mart will follow Tesco’s heavy emphasis on private label (50%+), under the Fresh & Easy label. Also, Wal-Mart’s private label identity, i.e, a Marketside label or its familiar Great Value & Sam’s Choice brands, has not been announced.
On a totally different front, both Wal-Mart and Carrefour have failed with ventures in one of Asia’s biggest markets, South Korea. Yet, in May 2008, Tesco announced its biggest acquisition ever: the $1.9 billion takeover of 36 Homever stores in South Korea, owned by that country’s leading fashion retailer, E-Land Group. South Korea had already become Tesco’s biggest international market, where it ranks as number 2, now operating 66 Homeplus hypermarkets and 72 Homeplus Express convenience stores. Before this latest acquisition, Tesco announced plans to add 76 new stores in South Korea in 2008 and to nearly double the size of its Express chain there to 130 stores.
Tesco first entered South Korea in a 50-50 joint venture with Samsung in 1999, operating two stores. Within four years, there were 28 Homeplus stores, generating over $1 billion in sales. Today, with Tesco owning 94% of this venture, the goal is to build to 132 Homeplus outlets by 2011 and grow to $15 billion in sales.
This South Korean expansion for Tesco has become a familiar strategy, when successful. In 2004, for example, Tesco entered China in a joint venture with Ting Hsin, a conglomerate, for operation of the Hymell hypermarket chain. In December 2006, Tesco kicked up its ownership to 90% in that venture, which now covers some 56 stores. There are reports now that the company plans to introduce its Tesco Express concept in China. Both of the world’s top grocers got started earlier in China, Carrefour in 1995 and Wal-Mart in 1996. Today, each has more than 100 stores, under their own respective store banners.
All three of these top international retailers have struggled in Japan. Carrefour was first to enter this market in 2000, but has since pulled out. Wal-Mart came next in 2002, taking a 37% stake in Seiyu, a supermarket chain. In 2005, Wal-Mart moved into a majority ownership and in December 2007, Wal-Mart boosted its stake to nearly 97%. Its commitment in Japan is obvious, but its experience has been difficult. It was only in 2006, Seiyu, thanks to the support of Wal-Mart's expertise in distribution strategies and its promotion of private label business in Japan, was able to show its first same-store sales increase in 15 years and also posted its first operating income increase (up 161.3%) in six years. Seiyu, however, closed fiscal 2008 with 394 stores, but with sales and profits that were not impressive.
In Japan, Tesco, too has rough sailing. In 2003, the company acquired 78 Tsurukame supermarkets near Tokyo, then continued expanding through acquisitions of other chains in other cities. In 2007, Tesco decided to roll out its Tesco Express convenience store concept (up to 50 stores), which complemented the Tsurukame (Crane and Turtle) supermarket chain. Its total store count for the year reached 109 outlets plus six Cash & Carry stores. Tesco, like Wal-Mart, is in Japan for the long-haul.
What’s next for Tesco in the U.S., where Carrefour not too long ago unsuccessfully tried to establish its hypermarkets, and on the world’s stage? That number two-spot for the top grocery retailers worldwide may look quite inviting to Tesco, which in 2001-02 was ranked as number seven worldwide. (At that time, Ahold of The Netherlands held the number 3 position, trailing Wal-Mart and Carrefour, but has since slipped out of the top 10 rankings.)
