UNIVERSITI UTARA MALAYSIA

(UUM)
BPMN6023 STRATEGIC MANAGEMENT
SEMESTER 2010 / 2011

GROUP PROJECT
TITLE: TESCO STORES MALAYSIA SDN
BHD

PREPARED FOR
PREPARED BY
(808493)

: PROF. P.R. BHATT

:

MOHD

FHADLI

BIN

MOHD

FUDZI

NOOR ULFAH BINTI MUHAMAD ZIN

(808504)

SUBMISSION DATE

: 13th FEBRUARY 2011

BPMN 6023 Strategic Management

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TABLE OF CONTENTS
TITLE

PAGE NUMBER

Table of Contents

Acknowledgement

Introduction

4-5

Background of company

Overview of Retail Industry in Malaysia

Business Operation in Malaysia

Corporate Strategies

9-14

Competitor and Competitor Analysis

15-22

Financial Performance Analysis

23-24

Recommendations

25

Conclusion

25

Reference

Acknowledgement
BPMN 6023 Strategic Management

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This Group Assignment for subject Strategic Management (BPMN) Semester

October 2010 is to choose any topic and issues to be analyzed from the
course syllabus, subject to lecturers approval. Hence, the students are
required to submit brief information about their project.

Project report must be submitted on 13th February 2011. Presentation will

be held during class. Students are advised to present their report in a simple
yet knowledgeable manner. Marks will be awarded for contents, teamwork,
creativity, presentation and the quality of the report. For the purpose of this
Group Project, our team has chosen the topic: TESCO MALAYSIA STORES
SDN. BHD. This paper shall present in-depth presentation highlighted on
strategies, competitor analysis and recommendation.

We would like to extent our utmost appreciation and highest gratitude to our
self as team members of this Group who had immensely contributed to the
completion of this Group Project. Special thanks also to our lecturer Prof. P.R.
Bhatt for his kind support and guidance.

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Introduction
Tesco History
Tesco originated in 1919 when Sir Jack Cohen used his gratuity from his Army service in
the First World War to sell groceries from a market stall in the East End of London. By the late
1920s, Tesco (or TES from TE Stockell, a tea supplier that he used, and CO from Cohen) was
selling from open-fronted shops in London high streets, the first store being at Burnt Oak,
Edgware. Cohens motto was Pile it high, sell it cheap, referring to the idea that customers
wanted inexpensive products at convenient locations and that volume would drive profitability.
Sir Jack Cohen concentrated on growing the business, vigorously pursuing expansion. Tesco
Stores (Holdings) Ltd was floated on the London Stock Exchange with a share price of 25 pence.
Until the 1970's, Tesco operated on the 'pile it high, sell it cheap' formula Cohen had imported
from the USA. However, the market was changing, leaving the company with slim margins and a
serious image problem. Under the leadership of Ian MacLaurin, who succeeded Jack Cohen in
1973, Tesco decided to try something dramatic and different which to become an inspirational
mass retailer. Tesco decided to modernize itself, closing 500 unprofitable stores, and extensively
upgrading and enlarging others. At this time, Tesco prioritized the development of large out-oftown stores where parking was convenient, the selection of goods broad, and where a higher
volume of business could be generated at increased margins while reducing overheads. Other
innovations throughout the 1980s included introducing own-label product lines, computerizing
and centralizing distribution systems and developing shopping centre outside of the major cities.
In 1983, Tesco Stores PLC renamed itself simply Tesco PLC. In 1993, when Tesco introduced
'Value' lines, a cut-price range of own-label goods, competitors scoffed and the share price sank.
But Tesco had gauged the popular mood after years of recession, shoppers were looking for
bargains, and sales soared. A year later, Tesco started 'One in Front opening a new till whenever
a checkout line exceeded two trolleys. It cost millions in extra staff, but customers loved it. In
1995 Tesco became the first supermarket to introduce a company loyalty card, an idea developed
by the then Deputy Managing Director, Terry Leahy. At first the other supermarkets were
skeptical, but the concept caught the public imagination leaving the others racing to catch up.
Cohen was responsible for several small revolutions in retailing which led to the rise of 'the
supermarket' we know today.
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Tesco Now and Then

Sir Terry Leahy, current CEO of Tesco PLC, has overseen 13 years of dynamic expansion and
development that has taken Tesco from living in their rivals shadow to the UK's number one
retailer and not to mention third in the world after Wal-Mart and France's Carrefour. After
becoming CEO of Tesco, Leahy focused on each of the following areas: Tesco's core UK
business, its international operations, its forays into the non-food sector and retailing services,
and Tesco.com. The core UK business was an important part of Tesco's activities employing over
250,000 people in 1,779 stores as of February 2005. The UK business also accounted for 80% of
Tesco's total sales. It operated through four different formats of stores - Express, Metro,
Superstores and Extra, catering to the needs of different types of customers. Tesco continuously
innovated and introduced new product lines to provide customers with a wider choice. But Tesco
was already jumping ahead of its rivals throughout the 1990s with a swathe of innovations that
look commonplace now, but were bold breakthroughs at the time. Tesco, Britain's biggest and
most profitable supermarket chain is the darling of the City. Tesco PLC is a global grocery and
general merchandising retailer headquartered in Cheshunt, United Kingdom. It is the fourthlargest retailer in the world measured by revenues after Wal-Mart, Carrefour and Metro and the
second-largest measured by profits after Wal-Mart. It has stores in 14 countries across Asia,
Europe and North America and is the grocery market leader in the UK where it has a market
share of around 30%, Malaysia and Thailand. Originally a UK-focused retailer specializing in
food and drink, it has diversified both geographically and by product, into areas such as clothing,
electronics, financial services, telecoms, home, health, car and dental insurance, retailing and
renting DVDs, CDs, music downloads, Internet services and software. Tesco's huge growth is a
hard act to follow. With the domestic market increasingly saturated, some UK supermarket
chains have looked to overseas markets to maintain their positions. This is a whole new ball
game, bringing into play competition with large firms from other countries, such as US retailing
giant Wal-Mart and French multinational Carrefour. Tesco began expanding internationally in the
1990s and now has outlets in the Republic of Ireland, Poland, Hungary, the Czech Republic,
Slovakia, Thailand, Malaysia, South Korea and Taiwan. It has also recently bought chains in
Turkey and Japan and is in the process of negotiating expansion into China. Each of Tesco
market around the world can be categorized into 4 stages which were start-up or entry level,
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developing 1, developing 2 and established market. China, Japan United states and India falls
under entry level market which the market have potential to growth and have dilutive returns for
short terms. For developing market such as Turkey, Poland, Czech Republic, Slovakia and
Malaysia, each have good market positions and improving in returns. Established market such as
UK, Ireland, Thailand and Hungary, they have substantial profit centers and strong growth
potential. In our full report here, the scope will be much on Tesco store in Malaysia, how they
operate and what strategies they used to survive in the market.
Background of the company
Tesco Stores Malaysia Sdn. Bhd.
Tesco Stores (Malaysia) Sdn. Bhd. was incepted on 29 November 2001, as a strategic alliance
between Tesco Plc UK and local conglomerate, Sime Darby Berhad of which the latter holds
30% of the total shares. Tesco opened its first store in Malaysia in February 2002 with the
opening of its first hypermarket in Puchong, Selangor. Tesco Malaysia currently operates 33
Tesco and Tesco Extra stores. Total store by state in Malaysia is Selangor with 12 store, Kuala
Lumpur 3 store, Perak 5 store, Johor 4 store, Penang and Kedah 3 store, Melaka, Negeri
Sembilan and Kelantan 1 store. In year 2003, Tesco launched Tesco own brand, Tesco Value. In
2004, Tesco Malaysia launches its own house brand, Tesco Choice. In December 2006, Tesco
also acquired Makro Cash & Carry in Malaysia, a local wholesaler which was rebranded to
Tesco Extra and provides products for small local retailers. In 2007, Tesco launched Club Card.
This acts a way to say thank you to customers by giving money back to them. Club card has
received an overwhelming response from customers with nearly 2 million household members
signed up to date. As of January 2009, Tesco have rewarded nearly RM10 million worth of Club
card Cash Vouchers to the customers. Later in year 2008, Tesco introduce Green Club card and
Green bags making Tesco Malaysia to be the first Tesco International business to introduce the
Green Club card scheme. As part of its global commitment, Tesco Malaysia is market leading on
tackling climate change in techniques of energy saving, launching Green Club card Points to
incentivize customers shopping with their own bags, introduce degradable carrier bags, promote
positive behavior among staff though Energy League competition intra stores and a recycling
centre to facilitate customers to do their part for the environment. Apart from that, Tesco has
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launched new promotion campaign to the consumers, 50 basic needs guaranteed not beaten on
price. 2009 has embarked Tesco as the number 1 Hypermarket in Malaysia. TESCO PLC has
appointed Tjeerd Jegen as chief executive officer (CEO) for Malaysia from April 26 2010. Jegen
replaces Chris Bush, who has taken over the helm at Tesco Thailand. As CEO of Tesco Malaysia,
Jegen will be responsible for all areas of the business, from operations to marketing, finance and
corporate affairs, involving 33 stores and over 11,000 staff. Prior to this appointment, Jegen was
chief operating officer for Thailand's Tesco Lotus. Jegen began his retail career in 1995 when he
joined Royal Ahold as management trainee.
Overview of Retail Industry in Malaysia
Major retail outlets have seen tremendous growth since 1980s. There are around 400 such
outlets in Malaysia. After making their debut in 1990s, foreign-owned hypermarkets are fast
gaining popularity in Malaysia, attracting customers with their one-stop and all-under-one roof
concepts. Since their arrival, foreign retailers have been expanding rapidly. The Malaysian
economy has demonstrated resilience in the face of external uncertainties. It is expected to
remain strong despite the slowing of the global economy. The wholesale and retail sector falls
under the supervision of the Ministry of Domestic Trade and Consumer Affairs (MDTCA)
through the Committee on Wholesale and Retail Trade. According to Retail Group Malaysia,
retail sales growth for the year 2010 is projected to grow by 5.5%. The group also expects a total
sales turnover of RM74.9bil this year. Based on interviews of its Malaysia Retail Association
(MRA) members, the industry recorded a positive growth rate of 7.9% in sales during the first
quarter of 2010 (Q1), albeit from a low base. Sales in the same quarter last year were down 3.3%
due to a decline in consumer demand. However, positive sales growth in Q1 2010 was still below
the industry expectation of 10% at current prices, while the Malaysian national economy
continued to expand at a faster pace in comparison during the same period by 10.1% at constant
prices. Profit margins in the retail industry were only up 2.4% during Q1, although the difficult
economic situation during the same period last year had caused a negative growth of 13.7%. In
the retail sub-sector, MRA members stated that positive growths were recorded in retail sales
during Q1. Specialty retail stores for instance those selling optical products, toys, bedding items
and sportswear recorded the highest growth rate at 10.5% and department store cum
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supermarkets recorded the lowest at 3.9%. It was a similar story for profit margins in the subsector as specialty stores were the biggest growers, improving their figures by 11.2% whilst
department store cum supermarkets suffered the most with a decline of 0.3%. Members of the
MRA expect their businesses to improve at a slightly slower pace during Q2 with a growth rate
of 5.6%. This was because sales have started to slow down unexpectedly during Q2. Q3 sales are
also expected to expand by 6% due to the Mega Sales Carnival before maintaining at 3.5%
during Q4. The report showed there were positive growth rate of 9.8% in sales in Q3. The report
also stated several factors that would impact the growth of the industry for the second half of the
year. These include the economic conditions, cost of living as well as the cost of borrowing. For
the Q410 BMI Malaysia Retail Report reported that total retail sales has grow MYR153.76bn
(US$43.65bn) in 2010 which only 6.10% growth rate in sales. Malaysia is classified as an uppermiddle income country by the World Bank. A low unemployment rate, rising disposable incomes
and a strong tourism industry are key factors behind the forecast growth for the year 2010.
Business Operation in Malaysia
Tesco Malaysia employs nearly 13,000 employees and operates 36 stores and in two formats
following the acquisition of the Makro Cash and Carry business in Malaysia in December 2006.
Tesco Stores Malaysia Sdn Bhd has been separated into 2 formats which are Tesco Hypermarket
and Tesco Extra Hypermarket.
Tesco Hypermarkets
The hypermarket format offers customers a complete one stop shopping for their needs from
fresh food to groceries, from household needs to apparel. It carries more than 60,000 lines of
products including nearly 3,000 own brand of products ranging from food to non-food items.

Tesco Extra Hypermarkets

The Tesco Extra format serves the needs of small businesses, families and individuals all under
one roof by providing a comprehensive range of products and services focused for small
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businesses including bigger pack sizes, special trolleys and checkouts as well as a dedicated
business development team to support small business owners with their orders. Tesco Extra, the
newest business format in Malaysia opens its first store on 30th April in Seremban, with the
conversion and refurbishment of what was once Makro Cash & Carry Seremban.Now, 7 other
Extra stores are in operation. There are 3 Extra stores located in Klang Valley which is Extra
Cheras, Extra Shah Alam and Extra Selayang. The remaining Extra Stores are located in Ipoh,
Plentong Johor Bharu and Extra Sungai Dua in Penang. The new concept store will combine the
best practices of both Tesco and Makro businesses. The Tesco Extra store will also cater to all the
needs of individual customers and families through its services and extra range of food and nonfood products as well as the unbeatable prices that have become the hallmark of Tesco in
Malaysia. Tesco Extra also has enhanced facilities in the store including disabled parking and
toilets, parent and baby parking, all credit cards accepted, customer loading facilities, and
different types of trolleys and checkouts to cater to the varying segment of customers.
Corporate Strategies
Adoption of strategies Tesco Stores Malaysia Sdn. Bhd.
Tesco has a well-established and consistent strategy for growth, which allowed Tesco Stores
Malaysia Sdn Bhd to strengthen core UK business and drive expansion into new markets. The
rationale for the strategy is to broaden the scope of the business to enable it to deliver strong
sustainable long-term growth by following the customer into large expanding markets at home
such as financial services, non-food and telecoms and new markets abroad, initially in Asia.
Tesco Stores Malaysia Sdn Bhd adopted few strategies to survive and sustain in the market. That
few strategies are:

1. Low Price Strategy

i.

Everyday Low Price

2. Customer-focused Strategy
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i.

To create value for customer to earn their lifetime loyalty

3. Growth Strategy
i.

Club Card scheme

ii.

Green Club Card

iii.

Own brand value

4. Differentiation Strategy
i.

Core UK business

ii.

Non-food business

iii.

Community

iv.

Personal Finance

Low Price Strategy

Everyday Low Price
An Every Day Low Pricing (EDLP) strategy of Tesco is more popular with shoppers than one
driven purely by promotions, according to a recent survey in the UK. But a combination of the
two is the best means of keeping shoppers happy. Pricing was a key strategy and selling point for
Tesco. Low prices were adopted to maximize sales. Tesco's value-added products at low prices
attracted many customers. After the launch of 'unbeatable value' campaign in 1996, Tesco went
in for massive price reductions. The company adopted the strategy of 'Everyday Low Pricing'
(EDLP), while continuing its other promotional activities. The EDLP program aimed to
regularize low prices for Tesco customers. Low prices were not merely a strategy used for the
occasional sale, but on a regular, daily basis. Adopting the EDLP strategy demonstrated Tesco's
commitment to its customers, putting customer interests first.
Customer-focused Strategy

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Create value for customer to earn their lifetime loyalty

The core purpose is to create value for customers to earn their lifetime loyalty. Everything
TESCO did, every innovation they bring to the market, every business decision they take, is
driven by the customers. The underlying aim is of course to make higher profits, but there is a
clear focus on customer service at the top level of the company. It remains to be seen whether
Tesco will be able to maintain this focus now that it is widely perceived as a great corporate
success story and the dominant company in the United Kingdom retail market or if it will
succumb to corporate arrogance as sometimes happens to dominant companies. They believe that
by living by the values, they will encourage and demonstrate behavior that will help them
achieve in core purpose and set them apart from their competitors. Values enable them to build a
common way of working. They want people in the business feel comfortable with these values
and feel they can genuinely demonstrate them. They aren't about being soft and lovely, but about
being rigorous and single minded about how they achieve their goals. Imagine how they translate
in the context of a multi-billion pound company focusing on people both staff and customers.
Growth Strategy
Club Card scheme
Club card is Tescos membership scheme which allows customers to save money on shopping by
providing them price-off vouchers. Customers get a point on every pound they spend shopping at
any stores of Tesco group of companies as well as at stores of their partner companies. Once a
customer accumulates 150 points, these are then converted into Club card vouchers which enable
the customer to save money on shopping. One can argue that other retailers also have similar
loyalty programs. However it is interesting to note that while most loyalty schemes and
relationship marketing strategies similar to Club card have often failed for other retailers, Tescos
Club card has worked well and managed to succeed. It can be said that what has made Club card
work so wonderfully for Tesco is the fact that with this simple single loyalty scheme, Tesco has
been able to address to the customer segments of different age groups. Thus the main reason
behind the success of Tescos relationship marketing strategy and loyalty program has been the

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way it has managed to establish Club card not as a marketing tool but as a product of relevance
and value for the customers.
Green Club Card
Green Clubcard points are earned when customers re-use bags when shopping in store one point
per bag, or opt out of receiving bagged products when shopping online one point per ten items
delivered. They can also be earned by recycling a limited number of products, currently mobile
phones and ink cartridges, through Tesco-branded recycling services. Once earned, Green
Clubcard points are equal in value to normal points, but are listed separately on receipts and
Clubcard statements. As part of its global commitment, Tesco Malaysia is market leading on
tackling climate change agenda around energy saving initiatives, degradable carrier bags and
Green Club card Points scheme to incentivize customers shopping with their own bags, Tesco
also introduced its Green Club card League and Green Club card Champions to promote
positive behavior among staff through inter-stores Energy League competitions and opened 6
recycling centers to facilitate customers to do their part for the environment.
Own brand value
Own brand value portrayed the strong brand image of TESCO based on effective strategy. Tesco
is very good at using design across their own label, especially strategically. Tesco is often used as
one of the best examples of own brand label in the retail industry. Majority of consumers buy the
basic Tesco brand as it is cheap and good value for money. The use of Tesco logo is consistent in
each of the products design. Brand values of Tesco are successfully throughout Tesco own brand
ranges demonstrated through experience and way finding system. Tesco uses design to give
something back to customers for shopping at Tesco. As competition is so intense retailers such as
Tesco use design to differentiate from the competitors.
Differentiation Strategy
The strategy to diversify the business was laid down in 1997 and has been the foundation of
Tescos success in recent years. The new businesses which have been created and developed over
the last decade as part of this strategy now have scale, they are competitive and profitable in fact,
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the International business alone makes about the same profit as the entire Group did a decade
ago.
Core UK business
The UK is the biggest market and the core of TESCO business. The aim is to provide all of the
customers with excellent value and choice. It has been innovative and energetic in finding ways
to expand, such as making a large-scale move into the convenience-store sector, which the major
supermarket chains have traditionally shunned. Tesco has 702 stores and is the largest food
retailer in the United Kingdom. Tesco continue to increase market share through their policy of
cheaper prices, offering better value and providing more choice and convenience for customers.
Market share of the UK has grown steadily since the early nineties as a result of our customer
focused strategy
Non-food business
The aim is to be as strong in non-food as in food. This means offering the same great quality,
range, price and service for our customers as in the food business. Many supermarket chains
have attempted to diversify into other areas, but Tesco has been exceptionally successful. By late
2004 it was widely regarded as a major competitive threat to traditional high street chains in
many sectors, from clothing to consumer electronics to health and beauty to media products.
Tesco sells an expanding range of own-brand non-food products, including non-food Value and
Finest ranges. It also has done quite well in non-food sales in Malaysia.
Community
Making Corporate Responsibility integral to our business is essential in applying our values as a
responsible business. We believe it is also an opportunity for growth. Tesco Malaysia is
committed to stay close to the heart of the communities Tesco Malaysia is part of. We responded
and worked with many local communities including NGOs such as the National Cancer Council
(MAKNA) to raise RM450, 000 through fundraising and Walk for Life series to raise cancer
awareness. Tesco has also raised funds for the Malaysian Nature Society through the sales of its
designer green bag and carrier bag sales and Walk for Schools donation to local primary schools.
Tesco Malaysias Charity partner of the Year 2010 is Nur Salam, and we aim to help improve the
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quality of life for these children through customer and staff fundraising activities at all its stores
nationwide.
Personal Finance
Tesco has followed its customers into the growing world of retailing services, aiming to bring
simplicity and value to complex markets. Tesco Stores (Malaysia) Sdn Bhd is making it easier
for customers at 22 of its stores nationwide to do hassle-free banking within 10 minutes through
Easy by RHB at Tesco stores, collaboration with the RHB Banking Group. Following the
successful launch of its first two financial products in January 2009, the co-brand Tesco-RHB
Credit and Debit Cards, there are now five new, instant banking products being offered to
existing and new customers expanding the range of products that customers can access quickly
and conveniently while shopping at Tesco. Whether it's opening a savings account, applying for a
credit or debit card, buying life and personal accident insurance, arranging Amanah Saham
Bumiputera financing or applying for personal loans up to RM50, 000, everything is quick and
convenient at Tesco. Background checks and approvals are completed on the spot at
conveniently located kiosks in Tesco stores. This signifies another important milestone for Tesco
in expanding its financial services in Malaysia. This is Tesco's way of showing that TESCO are
looking into the needs of their customers by bringing them a more convenient way to get
financial services and this new concept of banking allows our customers to get banking services
during weekends and after office hours. They will consider any move to make shopping at Tesco
an enjoyable and beneficial experience for our customers. Customers are of utmost importance
and Tesco want to be able to give them as much benefit as they can. This may include entering
into collaborations with other companies so that Tesco can offer the best in the market for their
customers. It is a matter of keeping the interests of customers at heart. Easy by RHB @ Tesco is
a revolutionary banking concept that offers simple, fast and convenient banking. Customers just
need to bring their MyKad for on-the-spot approval and instant cash or loans up to RM50, 000,
all without the need to fill-up any forms as details are captured electronically and a unique
biometric verification system is used. This concept of being the first and only hypermarket in
Malaysia to provide banking to their customers is exclusive to Tesco. The Easy by RHB @ Tesco
kiosks are now available at 22 of Tesco's 33 stores nationwide daily, open from 10am to 10pm.
The RHB Banking Group is appreciative to Tesco in bringing Easy into their stores, and concern
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that this step will further strengthen our partnership and cooperation. There are 33 existing Easy
outlets in operation, 26 standalone, 5 Easy by RHB @ Pos Malaysia, and 2 kiosks at LRT
stations and now with Tesco as the distribution channel, which will make the total number of
Easy by RHB outlets 55 hope to reach out to more customers and give them value-add services
that they do not get from other financial providers. In addition to that, this easy banking concept,
touted to be the first-of-its-kind, also empowers the people to take control of their finances in a
simple, convenient and affordable manner.
Competitor and Competitor Analysis
Competitor
In this retail industry there is stiff competition between hypermarkets. Name such as Giant,
Carrefour and Jusco are the biggest rival for Tesco Stores Malaysia to compete in the industry.
This report will explain further regarding the Tesco Stores Malaysia rival.
Giant Hypermarket
In Malaysia, the name Giant has become synonymous with everyday low prices, big variety and
great value. This has been underscored by few surveys conduct in Malaysia, which showed that
Giant was perceived as the cheapest place, in Malaysia, to shop for everyday groceries beside
Tesco. Giant holds second biggest share market in retail industry in Malaysia for the year of 2010
after Tesco.
Jusco
In order to be successful, it is vital for a shopping centre to have the right environment and tenant
mix. Only then will customers be willing to spend endless hours here in pursuit of activities that
entertain and help them to relax. Jusco provide laid back environment in their shopping complex.
Customer feels free to shop not just that, they can also spend time with their family eating at the
food court provided by Jusco. Jusco holds 22% of market shares and the third biggest after Tesco
and Giant for the year of 2010.
Carrefour Malaysia

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Carrefour's success is based on the talent and motivation of its staff. To increase efficiency and
competitiveness, and in order to improve as a retailer, the Carrefour Malaysia is about to
transform themselves and redesign its organization, enhance synergies between sales and
purchasing, and create new relationships between head offices, countries and stores. Carrefour
still sustains in the market in Malaysia and has 15% of market share in retail industry for the year
of 2010.
SWOT Analysis
The SWOT Analysis shows that Tesco Stores Malaysia currently has the resource capabilities to
successfully enter the market and is capable of implementing a market development strategy. The
report recommends that Tesco target the high-end market segment with a differentiation strategy.
Success in any company that operates for marketing and profit acquisition lies on the ability of
the management in positioning and establishing the products or services being offered.
Furthermore, the ability of the company and its management to compete and maintain a
competitive edge among its competitor is another basis to say that it is successful. The constant
development and innovation on the product line and the growing number of clientele also define
the corporate standing of a company.
This report analyzes the strategic capability of TESCO Malaysia (Exhibit 1). In analyzing how
Tesco Stores Malaysia is competitive, the study utilized SWOT and value chain analyses for the
industry attractiveness. Practical and strategic recommendations are elicited in relation to some
pitfalls observed in this report.
Strengths

Weaknesses

Own brand value

Dependable of UK business

Competitive pricing strategy

Burden of higher advertisement cost

Customer loyalty/relationship

High turnover rate of employees

Acquisition of Makro

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Strong hypermarket format

Opportunities

Threats

Have ready customers from low and mid- Stiff competition within industry
income households
Explore into new location in Malaysia

Changing in customer tastes

Government policies

Diversification to maintain UK business

Exhibit 1: SWOT Analysis for Tesco Stores Malaysia Sdn Bhd.

Strengths
Own brand value
Tesco has a strong own brand value which is becoming known throughout Malaysia due to
existing expansion programme.
Competitive Pricing Strategy
The targeted price cuts enabled Tesco to attract more shoppers from competitors and capture the
volume that supported the lower prices. Tesco has extended its low price positioning in coregroceries across non-foods lines to undercut competition which actually Tesco selling with low
price but provide high volume.
Customer loyalty/relationship
Tesco gained customer loyalty or relationship by launching Club Card scheme. Customers like
the Club card programme mainly due to the personalized treatment they receive and the
relevance of rewards.
Acquisition of Makro
Tesco acquire Makro and convert it to Tesco Extra. What Tesco do is they operate it similar to
Makro, but more flexible. For example, Makro do not allow customer to buy in small quantity,
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but Tesco Extra allow but charge higher than those buy in bulk. By doing so, Tesco could earn
profit from those SME as well, besides individual customers or family type customers.
Strong hypermarket format
The expansion of new stores by adding space to existing locations has contributed to the growth
of Tesco supermarket. Besides that, Tesco runs two type of hypermarkets format which Tesco
Hypermarket and Tesco Extra Hypermarket.
Weaknesses
Dependable of UK business
Since Tesco Stores Malaysia is one of Tesco PLC UK market in Asia, all the business decision
has to follow UK. This could be the weaknesses for Tesco Malaysia to expand their business
widely. Since Tesco is foreign brand hypermarket in Malaysia, Tesco PLC has to adapt to local
business. Although international business is still growing, and is expected to contribute greater
amounts to Tesco's profits over the next few years, Tesco Stores Malaysia is still highly
dependent on the UK market (73.8% of 2003 revenues). Any changes in the UK supermarket
industry over the next year for example, will somehow affect the Asia market such as Malaysia.

Burden of higher advertisement cost

Since Tesco Stores Malaysia launching Everyday Low Price campaign, all the cost including
papers, printing, people and distribution and marketing promotion has to be bare by Tesco.
High turnover rate of employees
Tesco experienced high turnover rate with their employees especially in the operation
department. Many of their employees resign after only working one or two months in their

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supermarket, which is not good for them as they will need to find and employ new employees.
The cost of training and development for new staff will burden Tesco.
Opportunities
Have ready customers from low and mid-income households
Tesco have ready customer instantly which come from low and mid-income households.
Households now are increasing and everyone needs to buy household products, this creates a
good demand for them.
Explore new location in Malaysia
This is conjunction with their current strategic plan which is to open up more stores. Besides
that, they can try to increase the variety of their house brand, as well as introducing other
products for their house brand to compete with their competitors.
Diversification to maintain UK business
Tesco Stores Malaysia have discovered the potential to exploit weaker competition and higher
margins (cross-subsidize core groceries) and giving customer more alternative to choose variety
product and services instantly.

Threats
Stiff competition within industry
There are other major supermarket chains, such as Giant, Carrefour and Jusco in Malaysia
competing alongside with Tesco Malaysia. To make sure Tesco successful in the industry is to
make sure Tesco sustain in the market and establish to be number hypermarket in Malaysia.
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Changing in customer tastes

Customers tastes and preferences would change according time. Tesco Stores Malaysia has to
make sure they maintain their images and create more value for customer. Sometimes, customers
would assume that by buying low price product, it will reflect the bad images of the products.
Government policies
Government rules and policies sometimes will pose great threats to small and medium-size
retailers in Malaysia especially to foreign own hypermarket like Tesco. Tesco Stores Malaysia
needs to follow
Value Chain Analysis
Another analysis that would be discuss in this report is Value Chain Analysis (Exhibit 2)
Primary Activities
[Adds value (+), Losses value (-), Potential to add value (P+)]

Exhibit 2: Porters Generic Value Chain for Tesco Stores Malaysia Sdn Bhd
Inbound logistics
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Inbound logistics are placed at the first stage of the value chain as they possess the earliest
opportunity to create value. Therefore, the elements of this stage are considered to be upstream
activities. The logistical tasks, in this case, include the receipt of goods from suppliers, storage of
goods, handling & transportation of goods internally and placing the products on the shelves.
Tesco tries to maintain the level of consumer choice in store (+), whilst improving the efficiency
of its distribution system (+). In applying a quality control procedure concerning damaged goods
and products, it provides an excellent opportunity to reduce costs unfairly incurred by the
company, therefore preventing these costs being passed on to the consumer (P+).
Operations
The production element of Tesco activities are service orientated. Hence, operations could be the
second upstream opportunities that enable services and products to be provided, tasks such as
opening every day in accordance with trading hours, maintaining the shelves, and the stock (+).
In order to obtain future competitive advantage Tesco has to consider expanding further in terms
of operating hours in those places, where it does not occur or opening new Metro and Express
stores (P+). However, this might be restricted by law or planning councils, which is essentially
takes away competitive advantage (-).
Outbound logistics
The third stage of the value chain is the outbound logistics that is concerned with delivering the
product to the customer. Tesco currently adds value in its home delivery service (+). However,
other tangibles that have to be improved are those of parking facilities, trolley collectors, till staff
and systems to gain competitive advantage, if executed more efficiently than competitors, they
will add value by saving the customer time (+), whilst increasing the turnaround (+). Adding
value could be achieved through the implementation of a trolley deposit system, keeping them
tidy and enabling customers to get to and from the premises quicker, as well as making these
facilities readily available and quicker to obtain (P+).
Marketing and sales

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Marketing and sales are placed under downstream elements of the value chain. Club card gives
further discounts and loyalty for the customers (+). However, Tesco may also decide to attract
more customers by advertising lower prices advertising campaign or more discounts offers (+).
With a more customer sophistication and their awareness of ethical business practices, it may
give the company some constraints in terms of selling environmentally friendly products (-). In
return, Tesco can take it as an advantage and provide customers with more of the recycling points
and include information in their advertisements, adding value for customers who will believe that
by choosing to shop at Tesco, people are helping the environment (P+).
Support Activities
Company Infrastructure
Planning and control functions are the ones that account to provide the continued focus on the
costs and cash control of the companys operations (+).
And departments such as profit protection whose main jobs are to reduce shrink. The company
has now increased its staff count who are involved in upgrading its anti-fraud software
(infrastructure/technology interdependence), and installing new security systems which aim to
reduce internal theft, an expense the customer will now not have to cover in the price of their
purchases (+).
Human resource management
HRM is regarded as up and downstream activity, covering everything from recruitment to
management development. The company aims to increase the number of training schemes and
further develop its recruitment programmes so to pass on to the customer the benefits of a well
recruited, well trained staff, not the costs (+). Tesco continues to invest in customer service (+),
where training is also linked directly to pay, so the staff are motivated to learn, and are
encouraged to improve their approach to customers and service provision quality (P+).
Technology development
It is a downstream activity and is the ability to provide new innovative product ranges/ solutions
that anticipate customer needs. It also remains a key competitive advantage, adding value, as
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Tescos brand name gives the product vitality (+). However, installation and capital investment is
a long term process and needs total commitment of the staff. But who will be responsible for the
service provision and the floor personnel? (-)
Financial Performance Analysis.
Profit & Loss
Year Ended 27 February

2010

2009

2008

2007

2006

millions
Turnover

56910.0

53898.0

47298.0

42641.0

39454.0

Operating Profit

3457.0

3169.0

2791.0

2673.0

2280.0

Net Interest

-314.0

-362.0

-63.0

-126.0

-127.0

Profit Before Tax

3176.0

2917.0

2803.0

2653.0

2235.0

Profit After Tax

2336.0

2138.0

2130.0

1881.0

1586.0

Balance Sheet
Year Ended 27 February

2010

2009

2008

2007

2006

millions
Intangible Assets

4177.0

4076.0

2336.0

2045.0

1525.0

Tangible Assets

24203.0

23152.0

19787.0

16976.0

15882.0

Fixed Investments

1015.0

321.0

309.0

322.0

480.0

Total Fixed Assets

34258.0

32085.0

23864.0

20231.0

18644.0

Stocks

2729.0

2669.0

2430.0

1931.0

1464.0

Cash at Bank and in Hand

2819.0

3509.0

1788.0

1042.0

1325.0

Total Assets

46023.0

45564.0

30164.0

24807.0

22563.0

Creditors Amount Within 1 year

23928.0

22789.0

8179.0

6598.0

5786.0

Creditors Amount After 1 year

2616.0

1796.0

1202.0

1378.0

1534.0

Total Liabilities

31342.0

32658.0

18262.0

14236.0

13119.0

Key Figures
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Year Ended 27 February

2010

2009

2008

2007

2006

Earings Per Share Basic (p)

29.33

27.14

26.95

23.61

20.20

Earings Per Share Diluted (p)

29.19

26.96

26.61

23.31

19.92

Earings Per Share Adjusted (p)

31.82

29.06

27.37

22.36

20.30

Earnings Per Share Growth (%)

10

22

10

16

Total Dividend (p)

13.05

11.96

10.90

9.64

8.63

Operating Margin (%)

ROCE (%)

15

13

17

19

20

Dividend Cover

2.44

2.43

2.51

2.32

2.35

Dividend Yield

3.10

3.60

2.70

2.20

2.60

Price / Earnings Ratio

13.20

11.50

14.60

19.90

16.50

Tesco must also have in place both financial and strategic controls. Financial controls are in
terms of profit targets, capital bids and performance appraisal. Strategic controls in terms of
overall strategic balance, agreed business plan, optional services and infrastructure and any
short-term constraints such as human resources.
Recommendation
In this report, we find that the use of strong identities of the Value and Finest ranges (own brand
value) to transfer across the store could create a better customer experience. Tesco Stores
Malaysia needs to improve in term of quality of brand appearance. If they could create more
exclusive brand image of Tesco, customer might have good minded set of Tesco. Besides that,
Tesco Stores Malaysia should applied or adopt TESCO PLC strategy which to have an online
transaction such as Tesco.com. Customer could access to any of Tesco product online and have
more information about the product before buying it. This will totally increase the demand to
shop at Tesco.
Conclusion
The success of the Tesco Stores Malaysia shows how far the branding and effective service
delivery can come in moving beyond splashing one's logo on a billboard. It had fostered
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powerful identities by making their retailing concept into a virus and spending it out into the
culture via a variety of channels which are cultural sponsorship, political controversy, consumer
experience and brand extensions.
In a rapidly changing business environment with a high competitors pressure Tesco have to adopt
new expansion strategies or diversified the existing in order to sustain its leading market position
in an already established retailing market. The company must constantly adapt to the fast
changing circumstances. Strategy formulation should therefore be regarded as a process of
continuous learning, which includes learning about the goals, the effect of possible actions
towards these goals and how to implement and execute these actions. The quality of a formulated
strategy and the speed of its implementation will therefore directly depend on the quality of
Tesco's cognitive and behavioral learning processes.
In large organizations as Tesco strategy should be analyzed and implemented at various levels
within the hierarchy. These different levels of strategy should be related and mutually supporting.
Tesco's strategy at a corporate level defines the businesses in which Tesco will compete, in a way
that focuses resources to convert distinctive competence into competitive advantage.
References
http://www.tesco.com.my
http://www.tesco.com.
Johnson, G., Scholes, K., Whittington, R., (2005) Exploring Corporate Strategy Text and Cases,
7th Edition, FT Prentice Hall
M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press,
1985
Jeannet, J., Hennessey, D.H, Global Marketing Strategies, 6th Edition, Houghton Mifflin

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