Tescos International Business Development Strategy Fraud order by dekiford at yahoo.

com Introduction Business development strategy plays a major role in ensuring the long-term health of the company, as is determines the opportunities for and the execution of entry into new markets (including both geographic and product-based markets.) One example of an international company undergoing significant current business development, particularly internationally, is that of Tesco Plc, a United Kingdom based supermarket chain that has in recent decades expanded into the European, North American, and Asian markets with success. All facets of the company operation have been affected by this expansion, including business structure, corporate culture, organizational structures, and the financial status of the company. Tescos most recent expansion, into the United States (California) in late 2007, provides an excellent opportunity to examine its business development and international expansion strategies in detail and to analyse the strengths, weaknesses, and potential success or failure of these business strategies. Company Background Jack Cohen (Tesco, 2008) founded Tesco Plc (TSCO.L) in 1919. After expanding into every available market in the United Kingdom, including developing new store formats for small areas (Tesco Metro) and a superstore format (Tesco Extra), new product lines such as electronics and home goods, and an environmentally-aware range of foods, the company began to expand internationally (Tesco, 2008). The first expansion was in 1995, when Tesco opened a store in Hungary (Tesco, 2008). Poland, the Czech Republic, Slovakia, Northern Ireland, the Republic of Ireland, Taiwan, Thailand, and South Korea followed this initial expansion in the 1990s (Tesco, 2008). Today, Tesco serves a total of twelve international markets, plus all areas of the United Kingdom (Tesco, 2008). Financial Performance Tescos financial performance has demonstrated strong growth over the last seven years, although growth was not as strong as expected last year due to extraordinary charges totalling 35 million, resulting from the 2005 tunnel collapse in Gerrards Cross. Tesco saw a profit in 2007 of 1,881,000,000, which is significant, particularly for a low-margin vertical industry such as the grocery market (Tesco, 2008). Earnings per share (EPS) for the company were 23.84p in 2007, compared to 20.07p in 2006, demonstrating strong growth within the market. Organizational Structure Organizational structure refers to the way in which people and jobs are arranged within the organization in order to assist the organization in meeting its goals and performing its tasks (Hofstede & Hofstede 2005: 252). Typical organizational structures include hierarchal structures, strategic business units and simple structures; however, the type of organizational structure chosen will vary not only depending on the industry and the company, but the host country in which the company was founded (Hofstede & Hofstede, 251). Organizational structure is one of the critical determinants of success in a global organization, according to Hofstede & Hofstede (2005: 253); however, it can also be one of the most difficult areas of the business development strategy to navigate.

Tesco has chosen to pursue a strategic business unit (SBU) across all of its business areas in order to maximize the degree of competitiveness within the individual market areas. According to Mockler (2002: 49), The SBU would cover the strategic foundation; size and scope of the operation; strategic thrust; the kinds of products or services sold and delivered; service quality and image; product/service brand identification and image; breadth of the product/service line; functions performed by the company; distribution outlets; customer market served; geographic market served; ownership; and financial targets. Tesco operates using four strategic business units Core UK, which handles United Kingdom grocery operations, International, which handles international holdings, Non-Food, which handles sales of electronics, home goods and other non-food items sold in Tesco Extra and other stores, and Retailing Services, which manages financial services, the Tesco.com web site, and Tesco Telecoms services (Tesco, 2008). A focus on the International strategic business unit, currently the focus of a lot of business development and change, provides insight into the company use of the SBU as a whole. According to Tesco (2008), the International group operates in eleven markets (twelve, due to the market entry into the United States late last year (Hirsh 2008)), with one hundred thousand employees, serving fifteen million in customers across its market areas. The company states that the 2007 results saw 11 billion in sales and 560 million in profits, and that over half the groups footprint space is outside the United Kingdom (Tesco 2008). The stated strategy of Tescos International SBU includes elements of flexibility, local operations including customers, cultures, supply chains and regulations, focus on a few countries, multi-format offerings in order to meet the needs of the local market, capability in people, processes and systems, and brand-building to create lasting customer relationships (Tesco 2008). All of these elements can be seen in Tescos expansion into the United States in late 2007. The International strategic business unit allows Tesco to tailor its market entry and offerings to the individual market area. The most recent international expansion Tesco undertook was into the United States, beginning with a small number of stores in Hemet and Riverside, California late in 2007 (Hirsh, 2008). The company intends to open up to forty-eight stores in the same area by the end of 2009, and then consider expansion into other areas of the United States (Hirsh, 2008). This most recent expansion provides insight into the use of the strategic business unit for development of international markets. Most noticeably, Tesco has tailored their product offerings and branding to the local market and culture. All aspects of the stores marketing and design were custom-tailored to the market region in which they were opening. The name, Fresh and Easy, was intended to take advantage of Californian culture and values. Their product offerings within the store, with a strong emphasis on fresh fruits and vegetables, natural and organic foods, were intended to not only appeal to the tastes of the local culture but also to fill a gap in the current supermarket offerings within the region. The locations, which are primarily urban, small footprint locations in city centres and underserved neighbourhoods, are intended to not only take advantage of the chance to enter an underserved market but also to fit the market needs of the surrounding areas and to integrate seamlessly into the neighbourhoods. These alterations to the core product (a small supermarket along the lines of a Tesco Express) have allowed for a successful entry into the Californian market, as Tesco have adapted to the local culture rather than attempting to import an unaltered product into an area. Tescos successful adaptation of their business practices to the new market has spurred reaction from their competitors, who almost immediately began improving their own fresh foods

offerings and acquiring space for their own small footprint, in-city format stores in order to compete (Hirsh 2008). The strategic business unit organizational structure provides Tesco with flexibility to expand its operations in many different directions it can expand its electronics line in the NonFood SBU without disturbing the policies, practices or resources devoted to the International or Core UK SBUs, which allows it a large degree of flexibility and customisation capability within the organization. It also allows the company to be successful internationally, as it can choose its market entry strategy to account for the needs of the new market, rather than simply mimicking the existing competitors or using the home country marketing, branding and business operation techniques. Tesco has been exceptionally successful at international business development, as is the market leader in five of its twelve international market areas (Tesco 2008). Corporate Culture Corporate culture is one of the main determinants of success or failure in a business development practice, because it largely determines how flexible, accepting of change and innovative a company tends to be. Fairfield-Sonn (2001: 36) provided a four-layer model of corporate culture that included cultural artefacts, cultural history, core ideology and core values that helps to quantify and describe the corporate culture of an organization. Thus, Tescos corporate culture can be determined from its corporate responsibility statements, which describe its core values and core ideologies as well as some aspects of cultural artefacts. Tescos stated core priorities include: Ensuring community, corporate responsibility and sustainability are at the heart of our business. Being a good neighbour and being responsible, fair and honest. Considering our social, economic and environmental impact as we make our decisions. (Tesco, 2008) These values have had a significant impact on the way in which Tesco does business, as well as its financial performance. For example, its expansion into California was designed to be not only profitable, but also socially responsible. As in the United Kingdom, American inner cities have a food supply problem wherein there are few large supermarkets and the smaller supermarkets do not have an adequate supply of fresh foods, including fruits, vegetables and proteins (Wankel & Stoner 2007: 223). Because supermarkets are reluctant to build in the inner cities and many residents do not have transportation outside the area, inner city residents do not enjoy an appropriate diet, and suffer health consequences as a result (Wankel & Stoner 2007: 224). Tescos corporate culture priorities allowed the company to consider opening stores in areas where native supermarkets were reluctant to go, and to provide services to the area that the local providers either couldnt or didnt consider. Thus, they opened stores in underserved regions, not only allowing them to express their core ideals, but also providing an opportunity to enter an almost untapped market. Although native retailers have scrambled to enter the markets in which Tesco is now providing services in the United States, Tesco will continue to have the advantage in terms of the markets it has already entered; it also has a corporate culture that encourages the expansion and service of these areas.

Another area in which the companys business development practices have both impacted and been impacted by the corporate culture is the introduction of lines of natural, organic and free-range foods to its stores beginning in the 1990s, and continuing into its development of the Natures Choice sustainable production lines over the past few years (Tesco, 2008). These lines, which include organic fruits, vegetables, meats and other proteins, dairy products, free-range eggs and other responsibly produced goods, has increased its importance in recent years to the companys bottom line due to growing awareness of environmental factors by customers. The provision of lifestyle ranges like those above is one of the core strategies of the Core UK strategic business unit (Tesco 2008), as it provides the opportunity to reach the greatest number of customers, particularly those who believe that the way in which food was produced is as important as the food itself. However, this provision is also mandated by the companys corporate cultures core ideals, particularly those of environmental responsibility and awareness. These ideals entered the corporate culture in the mid-1990s, at about the same time as the first environmentally aware lifestyle product range (that of free-range eggs) was introduced (Tesco 2008). Whether the shift in corporate culture inspired the change in development strategy or whether the shift in development strategy inspired the shift in corporate culture truly is a chicken and egg question! Risk Assessment and Management According to Rainey (2006: 138), risk management is one of the critical success factors for strategic business development, as well as being one of the reasons corporations are motivated to pursue it. Risk assessment includes evaluating and determining the potential for loss due to failure of the business development practice (Koller 2005). One typical means of evaluating risk in international business is the PEST (Political, Economic, Social and Technological) framework; this framework describes the potential for loss due to each of these macro environmental factors (Koller 2005). Loss includes both financial loss and physical threats to the organizations people and capital investments (Koller 2005). Tesco has undertaken a conservative business development strategy, in line with a conservative risk assessment (Tesco 2008). For example, it does not enter many new markets at once, but instead enters a single market and develops the market thoroughly before moving on to the next. In its expansion into California, it opened only a few stores in a concentrated geographic region, rather than spreading the stores out diffusely or entering a number of different states. This allows it to not only perfect its business model for the region before moving into other areas, but also to limit its exposure to loss in the event that its expansion is unsuccessful. This conservative strategy is appropriate, due to the high complexity of Tescos business lines and the generally low profitability levels of the grocery industry. Financial Performance Tescos development activities have had significant impact on its financial performance, as well. One example of the impact of its development activities on its financial performance is the contribution of its Non-Food strategic business unit, which focuses on sales of electronics, consumer goods, home goods and clothing rather than foods (Tesco 2008). The non-food SBU handles sales from Tesco Extra, Homeplus, Tesco Direct, as well as non-food sales from its food stores (which are handled by the Core UK business unit). Like the food offerings of the Core UK unit, the Non-Food offerings come in a large number of lines, including Tesco Finest, Tesco Value, Florence and Fred (a private-label clothing line that has

gained attention in fashion publications), and other lines as well as external brands and products (Tesco 2008). According to Tesco (2008) business within the non-food strategic business unit is growing at a rate faster than that of the core operation, making it a successful exercise in business development that has not only expanded the range and clarified the operations of the company but has also improved the bottom line. This type of business development, in which a market or industry outside the core strengths of the company is pursued, is often risky; however, according to Grant (2005) this growth outside core competencies is required if a business is to continue to flourish financially; otherwise, the company will eventually exhaust its market and will not longer have access to the required growth rates to sustain its growth. The choice of expansion into the non-food area was a good choice for Tesco; it is a complementary range of goods that can be marketed in existing facilities (as well as, is now the case, having devoted marketing channels), as well as being a higher margin market and offering a wider range of potential expansion opportunities. For example, Tescos recent venture into DVD marketing has opened a completely new market and put them in competition for electronic entertainment as well as their durable goods lines (Tesco 2008). This type of expansion not only improves the bottom line, but also creates greater flexibility and market reactiveness. Future Prospects and Challenges In order for business development to continue to be successful, it must be sustained. Currently, Tesco has a number of business development areas in which it could focus. The growth of the non-food business unit holds great promise, as it could take advantage of the growing demand for these products. However, this business units effectiveness may be compromised by current economic conditions. Sales of non-food products are largely driven by consumer confidence ratings, which are currently at a low (Cohen 2008). This means that the sale of large durable goods and luxury items, in particular, may be considerably depressed as consumers try not to make unnecessary purchases due to economic anxieties. Thus, continued development in the non-food strategic business unit may be counterproductive until the economic outlook improves. Before undergoing any further development in this area, a careful risk assessment should be undertaken A more successful area of business development may be the Core UKs development of environmentally aware and ethical food ranges. The public awareness of the environmental impact of their food is increasing, aided by campaigns by individuals like Jamie Oliver and Prince Charles raising the awareness of the importance of food quality and food sustainability. A growing awareness of the need for ethical treatment of animals is also a major feature of modern UK society, and should be taken into account. Natural and organic ranges, including not only foods but also cleaning products and personal hygiene products, are becoming exponentially more popular in todays society. This represents significant opportunity for Tesco to continue their development of these lifestyle ranges, particularly if they can reduce the costs of production and sale in order to make the goods more affordable to individuals who currently from purchase traditional ranges due to financial restrictions. Many people would be wiling to pay a small premium for these goods, but cannot afford the 50% or greater premium currently on them. Tescos Natures Choice range has already begun to explore ways to reduce the costs of ethically and responsibly produced foodstuffs; this development could continue to be enhanced as a way of capturing more of the market for them.

Finally, Tesco has an opportunity in the International market to increase its market penetration in the United States and the rest of North America by following its current strategy of entering underserved markets. This strategy has proven successful to this point, and will likely continue to be successful due to American food retailers reluctance to enter these areas. However, if further expansion into the United States is pursued it must be strictly governed by risk assessments that take into account the difficulty of creating a transport and supply chain network across regions; this could rapidly decrease the financial benefit gained by Tesco from these additional stores and reduce the effectiveness of the development activity. Thus, development should be concentrated in urban areas and should take place using a cluster-spread approach, rather than placing stores indiscriminately. One benefit of this approach is that food sales are often not significantly affected by economic downturns, unlike non-food goods. If Tesco can tap into the underserved market for fresh foods in the American inner cities and continue to provide reasonably priced and quality goods to these markets, they will continue to reap the rewards of this development activity even through economic downturns. 2.. Edition V. The Strategy and Structure of International Business 14. Entry Strategy and Strategic Alliances 230 The McGrawHill Companies, 2007 Tesco is the largest grocery retailer in the United Kingdom, with a 25 percent share of the local market. In its home market, the companys strengths are reputed to come from strong competencies in marketing and store site selection, logistics and inventory management, and its own label product offerings. By the early 1990s, these competencies had already given the company a leading position in the United Kingdom. The company was generating strong free cash flows, and senior management had to decide how to use that cash. One strategy they settled on was overseas expansion. As they looked at international markets, they soon concluded that the best opportunities were not in established markets, such as those in North America and Western Europe, where strong local competitors already existed, but in the emerging markets of Eastern Europe and Asia where there were few capable competitors but strong underlying growth trends. Tescos first international foray was into Hungary in 1994, when it acquired an initial 51 percent stake in Global, a 43-store, state-owned grocery chain. By 2004, Tesco was the market leader in Hungary, with some 60 stores and a 14 percent market share. In 1995, Tesco acquired 31 stores in Poland from Stavia; a year later it

added 13 stores purchased from Kmart in the Czech Republic and Slovakia, and the following year it entered the Republic of Ireland. Tescos Asian expansion began in 1998 in Thailand when it purchased 75 percent of Lotus, a local food retailer with 13 stores. Building on that base, Tesco had 64 stores in Thailand by 2004. In 1999, the company entered South Korea when it partnered with Samsung to develop a chain of hypermarkets. This was followed by entry into Taiwan in 2000, Malaysia in 2002, and China in 2004. The move into China came after three years of careful research and discussions with potential partners. Like many other Western companies, Tesco was attracted to the Chinese market by its large size and rapid growth. In the end, Tesco settled on a 50/50 joint venture with Hymall, a hypermarket chain that is controlled by Ting Hsin, a Taiwanese group, which had been operating in China for six years. Currently, Hymall has 25 stores in China, and it plans to open another 10 each year. Ting Hsin is a well-capitalized enterprise in its own Tesco Goes Global right, and will match Tescos investments, reducing the risks Tesco faces in China. As a result of these moves, by early 2004 Tesco had 261 stores in Europe outside the United Kingdom that generated 3,385 million in annual revenues, and 179 stores in Asia that generated 2,665 million in annual revenues. In the United Kingdom, Tesco had some 1,878 stores that generated 24,760 million in annual revenues. The addition of international stores has helped to make Tesco the fourth largest company in the global grocery market behind Wal-Mart, Carrefore of France, and Ahold of Holland. Of the four, however, Tesco may be the most successful internationally. By 2003, all of its foreign ventures were making money with the exception of Taiwan, which was expected to do so in 2004. In explaining the companys success, Tescos managers have stated that a number of things are important. First, the company devotes considerable attention to transferring its core capabilities in retailing to its new ventures. At the same time, it does not send in an army of expatriate managers to run local operations, preferring to hire local managers and support them with a few operational experts from the United Kingdom. Second, the company believes that its partnering strategy in Asia has been a great asset. Tesco has teamed up with good

companies that have a deep understanding of the markets they are participating in, but which lack Tescos financial strength and retailing capabilities. Consequently, both Tesco and its partners have brought useful assets to the venture, which have increased the probability of success. As the venture becomes established, Tesco has typically increased its ownership stake in its partner. Thus, under current plans, by 2011 Tesco will own 99 percent of Homeplus, its South Korean hypermarket chain. When the venture was established, Tesco owned 51 percent. Third, the company has focused on markets with good growth potential, but that lack strong indigenous competitors, which provides Tesco with ripe ground for expansion. 3. Edition V. The Strategy and Structure of International Business 14. Entry Strategy and Strategic Alliances 230 The McGrawHill Companies, 2007 Tesco is the largest grocery retailer in the United Kingdom, with a 25 percent share of the local market. In its home market, the companys strengths are reputed to come from strong competencies in marketing and store site selection, logistics and inventory management, and its own label product offerings. By the early 1990s, these competencies had already given the company a leading position in the United Kingdom. The company was generating strong free cash flows, and senior management had to decide how to use that cash. One strategy they settled on was overseas expansion. As they looked at international markets, they soon concluded that the best opportunities were not in established markets, such as those in North America and Western Europe, where strong local competitors already existed, but in the emerging markets of Eastern Europe and Asia where there were few capable competitors but strong underlying growth trends. Tescos first international foray was into Hungary in 1994, when it acquired an initial 51 percent stake in Global, a 43-store, state-owned grocery chain. By 2004, Tesco was the market leader in Hungary, with some 60 stores and a 14 percent market share. In 1995, Tesco acquired 31 stores in Poland from Stavia; a year later it added 13 stores purchased from Kmart in the Czech Republic and Slovakia, and the following year it entered the Republic of Ireland.

Tescos Asian expansion began in 1998 in Thailand when it purchased 75 percent of Lotus, a local food retailer with 13 stores. Building on that base, Tesco had 64 stores in Thailand by 2004. In 1999, the company entered South Korea when it partnered with Samsung to develop a chain of hypermarkets. This was followed by entry into Taiwan in 2000, Malaysia in 2002, and China in 2004. The move into China came after three years of careful research and discussions with potential partners. Like many other Western companies, Tesco was attracted to the Chinese market by its large size and rapid growth. In the end, Tesco settled on a 50/50 joint venture with Hymall, a hypermarket chain that is controlled by Ting Hsin, a Taiwanese group, which had been operating in China for six years. Currently, Hymall has 25 stores in China, and it plans to open another 10 each year. Ting Hsin is a well-capitalized enterprise in its own Tesco Goes Global right, and will match Tescos investments, reducing the risks Tesco faces in China. As a result of these moves, by early 2004 Tesco had 261 stores in Europe outside the United Kingdom that generated 3,385 million in annual revenues, and 179 stores in Asia that generated 2,665 million in annual revenues. In the United Kingdom, Tesco had some 1,878 stores that generated 24,760 million in annual revenues. The addition of international stores has helped to make Tesco the fourth largest company in the global grocery market behind Wal-Mart, Carrefore of France, and Ahold of Holland. Of the four, however, Tesco may be the most successful internationally. By 2003, all of its foreign ventures were making money with the exception of Taiwan, which was expected to do so in 2004. In explaining the companys success, Tescos managers have stated that a number of things are important. First, the company devotes considerable attention to transferring its core capabilities in retailing to its new ventures. At the same time, it does not send in an army of expatriate managers to run local operations, preferring to hire local managers and support them with a few operational experts from the United Kingdom. Second, the company believes that its partnering strategy in Asia has been a great asset. Tesco has teamed up with good companies that have a deep understanding of the markets they are participating in, but which lack Tescos financial strength and retailing capabilities. Consequently, both Tesco and its partners have brought useful assets to the venture, which have increased the probability of

success. As the venture becomes established, Tesco has typically increased its ownership stake in its partner. Thus, under current plans, by 2011 Tesco will own 99 percent of Homeplus, its South Korean hypermarket chain. When the venture was established, Tesco owned 51 percent. Third, the company has focused on markets with good growth potential, but that lack strong indigenous competitors, which provides Tesco with ripe ground for expansion. Sources: P. N. Child, Taking Tesco Global, The McKenzie Quarterly, no. 3 (2002); H. Keers, Global Tesco Sets Out Its Stall in China, Daily Telegraph, July 15, 2004, p. 31; K. Burgess, Tesco Spends Pounds 140m on Chinese Partnership, Financial Times, July 15, 2004, p. 22; and Tescos annual reports, archived at www.tesco.com. 4. ntroduction This report is aimed at critically analysing the macro, meso and micro business environment of Tesco, one of the largest food and grocery retailers in the world, operating around 4,331 stores. Strategic evaluation tools such as PESTEL, Porters Five Forces, SWOT and Value Chain analysis have been used by researchers in order to achieve this aim. Tesco Company Overview Tesco is among the largest food retailers in the world with revenue in excess of 54 billion in 2009 and employing over 470,000 people . They operate approximately 4,331 stores in 14 countries around the world. The company operates primarily in the USA, Europe and Asia and their Head Office is based in Hertfordshire, UK. According to Datamonitor (2010), the commercial network portfolio of Tesco comprises : over 960 Express stores which sell approximately 7,000 products including fresh foods at suitable localities ; 170 Metro stores which sell a variety of food products in town and city centres; and 450 superstores which sell both food and non-food items including books and DVDs. Tesco also provides online retailing services through their website tesco.com and Tesco Direct . In addition, they provide broadband I nternet connections and financial services through Tesco Personal Finance (TPF). Tesco was founded in 1919 and launched its first store in Edgware, London, UK in 1929 (Tesco, 2010); however, over the decades it has evolved to become the market leader within the UK food retail segment (Datamonitor, 2010). The comparative positioning of Tescos market share with respect to other leading players in the market has been illustrated as follows (Euromonitor, 2010):

Fig 1: Share of Leading Players in UK Food Retail Market 3. PESTEL Analysis The PESTEL framework below analyses the dynamic and unpredictable environment in which Tesco operates by identifying the forces that have the most impact on Tescos performance: Political Chinas accession to the WTO has promoted a free flow of foreign trades by removing all barriers encouraging Western companies, including Tesco, to make way into the worlds most profitable market encompassing over 1.3 billion people (Straits Times, 2010). In 2009 an agreement was signed by Tesco to set up a premeditated series of joint ventures for the development of shopping malls in China. This joint venture included three malls: Anshan, Fushan and Qinhuangdao. Furthermore, 18 new hypermarkets are expected to open in China by 2010 (Tesco, 2009). The growth of Tescos international business segment is on the rise and it is predicted to account for one quarter of the companys profit. Promotion of free trading blocs by governments to benefit from globalisation has been presented in the literature (Lynch, 2003). Immersion of 10 further countries into the European Union (EU ) took place in 2004 promoting trade between Western and Eastern European countries (BBC, 2009). This has provided Tesco with a platform to expand its retail network across the EU. Economic Economic factors are a matter of concern for Tesco since they impact directly on the buying behaviour of customers. Although the UK economy was declared officially under recession in 2008, the governments substantial reduction in interest rates helped to minimise further rises in unemployment during 2009 (Euromonitor, 2010). As a result of this, the spending power of consumers is again on a steady rise as they are more confident about their current financial situation. However, there is still a lot of financial uncertainty meaning that consumers are likely to spend less on premium products, encompassing organics and ready prepared meals, which will adversely affect both sales value and margins (Keynote, 2010). However, the positive aspect of recession is that the customers eat out less and eat more at home which provides opportunities for grocery retailers like Tesco to increase their output (Guardian, 2010). It must be noted that food is the last thing that customers will cut back on. The percentage of overall consumer spending on food has risen considerably over the years, as shown below (Euromonitor, 2010):

Fig 2: UK Spending on Food as % of Overall Consumer Spending 2004 to 2008 The economic downturn has been brought to light with the assistance of the following GDP growth graph since 1989 (Mintel, 2009):

Fig 3: UK GDP Growth 1989-2009 Social An analysis of the UK population shows that there are more retired people than children representing the Baby Boom generation (Herald Scotland, 2010). The ageing population is discouraging for the food retailers older people tend to eat less . They are less likely to travel to supermarkets to shop compared with the younger generation. Although internet literacy level drops over the age of 65 years within the population (Turban et al., 2001), it has nevertheless been predicted that the ageing population would find online shopping more convenient. However, small deliveries are considered to be ineffective and expensive. Consumers attitude towards food is incessantly changing as they have become more health- conscious . An increase in the demand for organic food has been accommodated by Tesco to reflect this change in demand. Payment by cheques and cash at the checkout was first made possible by Tesco . Technological One of the key macro-environmental variables that have directly influenced the supply chain, operations and processes of grocery and food retailers is technology. The operation of supermarkets is being affected by the use of the I nternet through online grocery retailing, which is showing steady growth. Subscriptions to the I nternet have grown by over

50% and it has been estimated that the I nternet is being used by 70% of the population in the UK ( Office for National Statistics, 2010). Loyalty programs are being introduced through information technology which discourage customers from switching over to their competitors (Sun, 2009). Mobile technology has also taken off as a platform for distribution within food retailing. New Wine App developed by Cortexica Vision Systems, for example, has been used by Tesco since 2009 via which the customers are directed to Tesco Wine enabling them to buy the selected wine directly from their mobile phone ( Tomlinson & Evans, 2010). Online retail shopping has gained considerable popularity due to the increased access to broadband internet in the UK. It has been highlighted by Keynote (2010) that the number of broadband users in the country is 15.5 million which accounts for 70% of the overall market. Environmental Environmentally friendly, reduced packaging is being promoted by the G overnment. It has been found by the Office for National Statistics (2010) that the percentage of consumers using reusable bags has risen from 71% to 74% and that those trying to cut down the number of plastic bags they take from the shops has risen from 65% to 68%. This assists in reducing the overall cost and is good for Tescos corporate social responsibility image. Due to the consumer awareness of the carbon footprint of the firm (Wood, 2009), Tesco has added carbon footprint data on dairy products, potatoes and orange juice, and aims at expanding it to bread and non-food items in 2010 (Tesco, 2010). Tesco has introduced its Greener Living Scheme to give consumers advice on environmental issues, including how to reduce food waste and their carbon footprint when preparing meals (Yuthas, 2009 ). Consumers reusing bags, recycling mobile phones and aluminium cans and preferring bagless deliveries are being rewarded through Tescos green Clubcard points (Tesco, 2009; Datamonitor, 2010). Legal It has been predicted that VAT would have to rise to 20% since the G overnment has to finance a huge budget deficit (HM Treasury, 2010). This will affect the non-food sectors of Tesco, such as clothing. Drawing upon the Low Pay Commission Report (National Minimum Wage, 2009), the 2008 and 2009 combined up-ratings have resulted in an increase in the minimum wage of 15.5%. This will result in an increase of operating costs of supermarkets. Porters Five Forces Analysis An analysis of the structure of the industry should be undertaken in order to find effective sources of competitive advantage (Porter, 1985). Therefore, in order to analyse the competitive environment of Tesco, Porters five forces analysis has been used by the researcher as follows: Threat of substitute products and services The threat of substitutes in the grocery retail market is considerably low for food items and medium to high for non-food items. In the food retail market, the substitutes of major food retailers are small chains of convenience stores, off licences and organic shops which are not seen as a threat to supermarkets like Tesco that offer high quality products at considerably lower prices (Financial Times, 2009). Moreover, Tesco is further getting hold of these shops by opening Express stores in local towns and city centres creating a hurdle for these substitutes to enter the market.

However, the threat of substitutes for non-food items , for instance clothing, is fairly high. It should be noted that so long as the economic recession prevails , customers will be inclined towards discounted prices hence Tesco is a threat to the speciality shops. Threat of entry of new competitors The threat of entry of new competitors into the food retail industry is low. It requires huge capital investments in order to be competitive and to establish a brand name. Major brands that have already captured the food retail market are Tesco, Asda, Sainsburys and Morrisons and they account for 80% of all shopping in the UK (Mintel, 2010). Therefore, new entrants have to produce something at an exceptionally low price and/or high quality to establish their market value. Gaining planning authorisation from local government takes a considerable amount of time and resources to establish new supermarkets and this is therefore a considerable barrier to new entrants. Intensity of competitive rivalry The intensity of competitive rivalry in the food and grocery retail industry is extremely high. Tesco faces intense competition from its direct competitors, including Asda, Sainsburys, Morrisons and Waitrose, which are competing with each other over price, products and promotions intermittently. It should therefore be highlighted that Asda is one of the key competitors in this segment with an increase of market share from 16.6% to 16.8% during the fiscal year 2010/ 09, while Sainsburys has shown an increase to 16.1% from 15.8% and Morrisons to 11.6% from 11.3% through the same period (Euromonitor, 2010). The slow market growth essentially means that these increasing market shares from competitors have intensified the market rivalry, which is threatening Tescos market leadership position. In rural areas where the nearest superstore can be some distance away, some primary consumers are attracted by retailers like Somerfield and Co-op . Hard discounters like Aldi and Lidl have taken over the market in times of recession. During 2008 they recorded a growth of sales of over 25% (Keynote, 2010). Bargaining power of buyers The bargaining power of buyers is fairly high. In cases where products have a slight differentiation and are more standardised, the switching cost is very low and the buyers can easily switch from one brand to another. It has been proposed that customers are attracted towards the low prices, and with the availability of online retail shopping, the prices of products are easily compared and thus selected. Bargaining power of suppliers The bargaining power of suppliers is fairly low. It should be noted that the suppliers are inclined towards major food and grocery retailers and dread losing their business contracts with large supermarkets. Hence, the position of the retailers like Tesco, Asda, and Sainsburys is further strengthened and negotiations are positive in order to get the lowest possible price from the suppliers. Detailed SWOT Analysis A strengths, weaknesses, opportunities and threats (SWOT) analysis of Tesco has been provided below. Strengths Drawing upon Datamonitor (2010), Tesco is ranked third largest grocery retail company in the world, operating over 4,331 stores primarily within the USA, Europe and Asia. The company held 30.7% share of the UK grocery retail market in 2010 (Euromonitor, 2010).

A strong financial performance has been shown by the company over the years, which underlines its strategic capabilities. According to Datamonitor (2010), Tesco is a 54billion turnover company recording an increase of 14.9% when compared to 2008. The foremost strategy that has been adopted by the company is the product and services customization in accordance with the market demands. The efficiency in performance of the company over the last decade can be summarised with the help of growth in following key indicators ( Fame, 2010):

Fig 4: Tesco Yearly Growth in Key Performance Indicators Tescos strategy aims to focus on product affordability which ensures that customer gets the product to suit their budget without compromising on the quality. During 2009 the sales from online non-food retail company Tesco Direct have increased by over 50% (Tesco, 2010). Tesco has a proven customer retention strategy with the help of its loyalty scheme called Tesco Clubcard . Drawing upon DunnHumby (2008), the company uses data collected from this loyalty scheme in its powerful CRM systems named Crucible and Zodiac, and this information is then used for effective direct marketing and various other promotional techniques. Weaknesses Tesco has not been able to perform well over the last year as compared to its competitors. According to Mintel (2010), a number of products were recalled by Tesco in 2009 that has resulted in a financial loss as well as damage to its brand image. These included companys value lines, which have been marketed as high quality cheaper alternatives to key brands. The key operations of the company are concentrated within the UK retail sector, where it recorded more than 75% of its revenue during the fiscal year 2009 (Tesco, 2010). This lack of geographic diversification can be seen as a key weakness for the firm as it is subjected to systemic risks of the UK market. Opportunities The commercial network portfolio of Tesco is on the rise . They opened over 620 stores in 2009 of which 435 were international (Mintel, 2010). This geographic diversification will

help the company in improvising its economy of scale, while minimising its systemic risk exposure. The popularity of Tesco.com is growing rapidly, accounting for over 1 million customers in 2010 (Guardian, 2010), which has provided an opportunity to the company to attract new customers and reduce the overall cost resulting in more profit. Company focus is on global expansion as is evident by its entry into the Indian market. This entry will strengthen its global market position. A limited franchise agreement has been signed by Tesco with Trent, retailer of Tata group, which is one of the largest industrial corporations of India (Daily Mail, 2010). It has been predicted that there will be a rise from 125 billion in 2009 to 145 billion in 2014 in the food retail market segment (Euromonitor, 2010). This is mainly due to the fact that even during times of recession, food retail is the toughest segment since having enough to eat is the priority. Threats The commencement of a global financial crisis has resulted in a contraction of the UKs economy by 2.4% in 2009 which is estimated to contract further by 4.2% by the International Monetary Fund (IMF) ( Poulter, 2009). Tescos concentration in the UK market can therefore have a detrimental impact on its financial standings. The decline in income and the rise in unemployment have affected the discretionary buying behaviour of consumers which has adversely impacted the companys sales, in particular the non-food items. There has been fierce competition in the UK grocery market . Tesco though has been leading this sector for 15 years (Mintel, 2010), but is now faced with intense competition from its competitors which are gaining in market share. These include the rest of the big four i.e., Asda, Sainsburys and Morrisons respectively. In light of the above key points, the abridged SWOT analysis of Tesco can be summarised in the following illustration:

Fig 5: Tesco Abridged SWOT Analysis Value Chain Analysis According to Lynch (2003), value chain is defined as the links between key value adding activities and their interface with the support activities. Value chain has been implied as a strategic evaluation tool used for distinguishing the strengths and weaknesses in value

adding processes (Audrestsch, 1995). The value chain of Tesco has been demonstrated in the following diagram:

Fig 6: Value Addition in Value Chain of Tesco Inbound Logistics The overall cost leadership strategic management of Tesco is exhibited in its lean and agile inbound logistics function. Drawing upon Abeysinghe (2010), the company uses its leading market position and economies of scope as key bargaining powers to achieve low costs from its suppliers. The analysts have also highlighted the constant upgrading of their ordering system, approved vendor lists, and in-store processes to induce effectiveness and efficiency into the companys inbound logistics operations. Operations Management Tesco has been praised by a number of supply chain management critics for its effective use of IT systems that facilitate the companys low cost leadership strategy. According to Tesco (2010), the company has invested over 76 million in streamlining its operations through their Tesco Digital program, which is a third generation ERP solution for the company. The company has achieved 550 million in increased profitability during 2009 alone due to the introduction of this system. This company -wide ERP system has also facilitated the minimisation of stock holdings within the company. Outbound Logistics Tesco holds leadership position in online and offline food retail segments, which is due to its efficient and effective outbound logistics. Drawing upon Mintel (2010), the company has developed a range of store formats and types, which are strategically placed to achieve maximum customer exposure. These formats include Express, Metro, Superstores, Extra and Homeplus, which are segmented according to the target population. Marketing and Sales Loyalty programs like Tesco Clubcard are being introduced through information technology advances which dissuade the customers from switching over to their competitors. Tesco has introduced its Greener Living Scheme to give consumers advice on environmental issues, including how to reduce food waste and their carbon footprint when preparing meals . Services Tesco has been pursuing a dual strategy of cost leadership and differentiation, which has led to an increased importance placed on customer service. Drawing upon Keynote (2010), this

dual strategy is exhibited through the development of self-service kiosks, financial services, focused direct marketing and promotions. In order to put Tescos value chain analysis into perspective, it should be noted that despite cost leadership strategy the company has been able to create a high degree of value in comparison with its key competitors. The relative analysis of the value created by the big four supermarket chains, i.e., Tesco, Asda, Sainsburys and Morrisons has been provided as follows:

Fig 7: Benchmarking Analysis: Cost as a Percentage of Sales Conclusion In light of the above analysis, it can be concluded that Tesco continues to hold its leadership position within the highly turbulent retail segment, where companies are required to pursue both cost leadership and differentiation strategies. Tesco has been able to achieve both with the help of a lean and agile supply chain management, along with the strategic use of information technology. The core competencies of Tesco have been seen to be aligned with the business environment, therefore highlighting a positive future outlook for the company. 5. We can play a positive role in tackling climate change and help create a revolution in green consumption. "Climate change is among the greatest challenges of our time. The debate is no longer about whether climate change is happening. We now know that it is." - Former Taoiseach Bertie Ahern, National Climate Change Strategy 2007-12 "I believe that by giving people information, opportunity and incentive and by trusting them to make wise decisions we really could see a green revolution." - Tony Keohane, Chief Executive, Tesco Ireland There is now an overwhelming scientific consensus that climate change is happening. Scientists tell us that man-made emissions of greenhouse gases are a key factor, and that urgent action by governments, businesses and individuals is needed to combat it. This means there needs to be less reliance on fossil fuel, and that we must nurture the idea of a low-carbon society. As a result, many customers now want to play their part. However, they need help to overcome some key barriers: A sense that their individual actions wont make a difference A lack of information about what to do and A worry that buying products that help the environment is expensive

Tesco is working to tackle these barriers so that we can help deliver a revolution in green consumption with the fight against climate change at the very heart of it. We also want to set an example by measuring and reducing CO2 emissions in our own business

Measuring our carbon footprint For the first time in Tesco Ireland we have measured our direct carbon footprint, so now we can identify our biggest impacts and provide transparency within our business about our progress. Our aim is to establish a clear baseline from which to track progress in reducing our emissions, and enable us to identify those areas of our business we need to prioritise.

What we measured We define the scope of our direct footprint in line with industry standards, which comply with the guidelines set out by the World Business Council for Sustainable Development (WBCSD). We included energy use in all Tesco stores, distribution centres and offices as well as emissions from primary distribution, business travel and our Tesco grocery home shopping delivery vans. We also included the impact of the HFC gases used for refrigeration. We recognise that we also have an important role to play in reducing our indirect carbon footprint and are examining ways to help our suppliers and customers reduce their emissions too.

Our impact The direct carbon footprint for Tesco Ireland during the financial year to February 2008 was 180,000 tonnes of carbon dioxide equivalent (CO2e) The footprint shows that the key causes of our emissions are: Heating and lighting our stores Chilling or refrigerating products and Transporting goods to our stores

Performance in our stores 2007 Tesco Ireland invested 30 million in energy-saving technology We recycled 64% of our in-store waste We are Ireland's largest provider of bring centres

Our objective At Tesco Ireland we are working with our customers, suppliers and partners to create a greener environment and raise public awareness of environmental issues. Tesco Ireland is playing its part in tackling one of the gravest threats we all face climate change. Thats why one of our Group policies is to "put the environment at the heart of everything we do". All our research tells us that our customers want us to do more in the fight against climate change. And they want us to help make it easier and more affordable for them to play their part in the green revolution. We are committed to a long-term programme of practical steps to reduce our energy consumption and greenhouse gas emissions. Our goal in sustainable consumption is to drive the trend towards green consumerism by using our power and reach to make it cheaper to go green.

Our actions Last year we launched our "Strategy on the Environment and Carbon Reduction". This outlines Tesco Ireland's commitment to minimising our carbon footprint and to tackling environmental concerns. This plan centres on recycling, packaging reduction and sustainable energy use throughout the companys operations. We are focusing on a number of critical areas to tackle climate change, including: Energy and CO2 reduction Packaging reduction Sustainable packaging Recycling Sustainable living 6.

Climate change Looking at ourselves Energy & CO2 Reduction Environment Climate change

Energy & CO2Reduction "I commend Tesco Ireland for the effective action taken on its path to becoming energy efficient. Tesco Ireland is to be congratulated for its foresight and I have no doubt that many more businesses will follow suit." - Eamon Ryan TD, Minister for Communications, Energy and Natural Resources Tesco Ireland achieved energy savings of 1.7 million in 2007 Over 11,000 Tesco Ireland staff members have attended energy awareness briefings Our target is to reduce carbon emissions in our distribution chain by 50% in the next five years Our energy management system builds on current practices to incorporate energy thinking into everything we do. Energy efficiency is now built in. This initiative will see us introducing energy-efficient technologies in all our stores including energy efficient ovens, refrigeration units, light timers and motion detectors. Tesco Ireland has already achieved significant energy savings through taking an integrated approach to energy management across the whole business. For an investment of 1 million, energy savings of 1.7 million were achieved in 2007. Energy management standard Tesco Ireland is working with Sustainable Energy Ireland (SEI) to achieve IS393 certification Irelands official energy management standard. Energy managment structure Tesco Irelands Energy Manager leads the companys energy policy and manages energy reduction initiatives. Our Energy Manager is supported by an Energy Specialist and an Energy Administrator, and also works closely with external bodies such as SEI, which is leading the national energy agreement programme. Among our energy management initiatives: All store managers are given targets for improving energy efficiency in their stores Our energy monitoring and targeting system helps to control energy consumption in all our stores and generates a set of easy-to-read reports for our energy team and senior management We have appointed Energy Champions in all our stores across the country. They monitor energy use, complete energy audits and provide staff with energy awareness information Besides energy awareness briefings for all store staff, energy awareness is now part of staff induction training Performance in our stores 2007 Every Tesco store in Ireland has an Energy Champion. These Energy Champions are trained to offer the crucial link with staff by identifying simple, positive steps we can all take to save energy across our stores. They are supported by posters, stickers and videos encouraging behavioural change, such as switching off lights and turning off taps. When we all work together, these small changes can make a big difference. Energy efficient design and technologies All our stores are built to the highest energy efficient standards and, in the case of our new stores, feature cutting edge energy efficient technologies including the following: Combined Heat and Power Units - We installed our first Combined Heat and Power (CHP) unit at our store in the Nutgrove Shopping Centre in Dublin in August 2007.

The gas burning unit generates electricity for the store while simultaneously recycling the waste heat used in the generation process. This recycled waste heat is then used to provide central heating and hot water for the store. It is estimated that the CHP will save 656 tonnes in carbon emissions each year. We plan to roll out more CHP units in the future. Lexan Film This is being installed on fridge glass doors in our frozen food aisles to reduce the energy usage of the refrigerated cabinets. Fan motors are also being replaced with energy efficient motors that use 80% less energy. PIR Lighting Lighting in all our stores is being changed from wall switch-controlled lighting to PIR lighting. PIR (Passive InfraRed) lighting has motion detection sensors and is installed in all staff areas. The lights automatically switch off when no one is in the room. Case study: Energy saving initiatives at our Celbridge store Sales floor lighting a Whitecroft dimmable lighting system to control the lighting level throughout the store Daylight control daylight control is used on the first two rows and switches off lights when there is sufficient daylight Lux levels in offices the offices are designed to maintain 300 lux Bulk store lighting bulk storage areas are designed to maintain 150 lux Energy sub metering - the store is sub metered to allow identification of the areas where energy is being used and wasted Cold air retrieval this takes cold air from refrigerated aisles and redistributes it in other areas Rainwater harvesting system uses collected rainwater to flush staff and customer toilets Air handling units switched off at night to conserve energy Tesco Ireland Eco-Store Tesco Ireland is building a new store in Tramore, Co Waterford, which will incorporate many eco initiatives. When completed this autumn, the Eco-Store will use 45% less energy than a supermarket of a similar size. It will set a new benchmark for green technology and construction in retail in Ireland. Key features include ecologically sound construction materials, new technology to create self-sufficiency for heating and hot water, solar panels to generate electricity, air retrieval and recycling measures. Transport/supply chain We aim to reduce CO2 emissions in our distribution transport operations. To meet this target, we have introduced 'Cases Delivered per Kg CO2' as an operational KPI (key performance indicator) at all our distribution centres. Our target is to achieve a 50% cut in CO2 created per case of goods delivered by 2012. In 2007, we reduced carbon emissions from our distribution centres by 18% per case delivered. The initiatives Tesco Ireland is taking to reduce carbon emissions in our transport and supply chain include: An improved centralised distribution network, reducing the number of journeys needed to take products to our stores 'Double Deck' trailers, introduced during 2007. We will be increasing their usage during 2008-09 these trailers are used in deliveries to selected long-distance stores and carry almost 45% more cases of goods than conventional trailers

Increased supplier collections: we are increasing the number of cases collected from our suppliers on Tesco vehicles by 25%. Instead of travelling back to distribution centres empty, our trucks where possible pick up goods from our suppliers en route, saving a journey and reducing the overall food-miles of our products We have introduced the Isotrak vehicle tracking system on our entire fleet to monitor key environmental KPIs (key performance indicators), including fuel usage We have introduced 5% biofuels across our entire fleet We have increased our local supplier base to reduce our food miles/carbon footprint 7.

Helping customers Promise 2008 Environment Progress 2007 Managing our impacts Waste in our operations We want to reduce the amount of waste created in our operations. One of our main sources of waste is distribution packaging removed at our stores. Packaging is required to protect products - a damaged or unusable product is highly wasteful. We look for opportunities to reduce the amount of waste we produce wherever possible, for example by working with our suppliers to reduce distribution packaging and encouraging those that use one-way packaging to clearly label recycled and readily recyclable materials. Our reusable transit trays - green trays - help us save packaging used for transporting and displaying products and are also used by some suppliers in many of the countries in which we operate. In the UK, green trays made 222 million trips in 2007, saving over 130,000 tonnes of cardboard. We are committed to reducing the amount of waste we send to landfill and have plans in all the countries in which we operate to reflect this. In Ireland we plan to be the first retailer to recycle 100% of store waste by 2010. The move will see in excess of 24,000 tonnes of waste recycled each year. In the UK in 2007, our stores created 487,000 tonnes of waste. This figure represents a reduction of 9% compared with the previous year, when the amount of total store waste was 535,000 tonnes. In 2007 we recycled 342,000 tonnes or 70% of this waste, mostly cardboard and plastic. The remaining waste was compacted on site and sent to landfill. This was below our target to recycle 75%. We will improve our processes and continue to trial technology to ensure that we meet our longer-term target to recycle 80% of our waste by 2009. It is important that we find ways of diverting waste from landfill that are sustainable. Tesco is the largest recycler of cardboard in the UK. In a closed-loop system, this cardboard is recycled in the UK and finds its way back into our stores as product packaging within 14 days. Disposing of food waste is a key challenge and we are looking for innovative solutions to tackle this. We donated surplus fresh food from 35 stores to homeless shelters in partnership with FareShare, a charity that works with food retailers to minimise food waste

and feed disadvantaged people. We are also continuing to investigate the diversion of food waste into producing energy, but progress on making this a reality has been slower than we would have liked. Biofuels We decided to sell biofuels in 2005 in the belief that they could help customers reduce their carbon footprint and decrease our dependency on oil as a source for transport fuel. Since then it has become clear that the impacts of biofuels are complex and any environmental benefits depend on how the biofuels are made. Our aim is to do the right thing for the environment and communities based on sound science. We recognise that the full impact of biofuels is not 100% clear. We are continuing to keep the science under review and to take note of expert opinion such as the Royal Society report on the future of biofuels. This is particularly important because from April 2008, along with other petrol retailers, we are obliged by the government through the Road Transport Fuel Obligation to provide 2.5% biofuels in our petrol. We want to make sure that this well-meaning legislation helps customers reduce their carbon footprint by ensuring that our biofuels are sourced sustainably. To help further understanding of the true impact of biofuels, we have asked the independent Sustainable Consumption Institute (SCI), based at the University of Manchester, to investigate. All SCI research will be made public. Palm oil for food products We are active members of the Roundtable on Sustainable Palm Oil (RSPO) and nearly all palm oil in our own-brand products comes from RSPO members. We expect certified RSPO oil to become available at the end of 2008 and we are working on incorporating this into our products at that time. Seafood We are playing our part in seeking to maintain a viable and long-term future for wild fish and shellfish populations. We seek to buy all our seafood from responsibly managed fisheries. We use the United Nations' Food & Agriculture Organisation (FAO) Code of Conduct for Responsible Fisheries as our sourcing reference. Understanding seafood sustainability requires an assessment of complex factors. Tesco is the first UK retailer to have appointed a dedicated expert for seafood sustainability as an integral part of the commercial teams. Beginning with the World Seafood Congress in Dublin in September 2007, and in a series of conferences worldwide with NGOs, we set out our view on defining seafood sustainability in a holistic way. We are the first supermarket in the world to do this. We believe the factors affecting seafood sustainability to be: stock depletion and impact on ecosystems; aquaculture; climate change; packaging and socio economic issues. Genetically modified (GM) foods We do not sell any own-brand GM foods in the UK, and use of GM feed is prohibited in organic products. Where we do sell non-Tesco brand products with GM ingredients, they are clearly labelled. Some own-brand products in other countries do contain GM products, and these are also clearly labelled so that customers can make an informed choice. Timber Tesco is committed to purchasing timber and timber products only from legal, sustainable sources. We use external certification to help verify this and to give our customers the opportunity to make informed choices. All sources of timber for our garden furniture range

continue to be either Forest Stewardship Council (FSC) approved or sourced from members of the Tropical Forest Trust, who are committed to achieving the FSC standard through the certification support programmes of ethical auditors. In 2007, we were also able to confirm that our own-label toilet tissue, kitchen towel and face tissues are FSC certified.

Helping customers Promise 2008 Environment Progress 2007 cont... Helping customers make green choices Customers tell us they want to make green choices, but only if they are affordable, convenient and of high enough quality. Our goal is to make that possible. Green Clubcard points One way we encourage customers to make green choices is to award Green Clubcard points to customers who recycle mobile phones and inkjet cartridges and reuse carrier bags. In 2007, customers gave a total of 305,000 mobile phones in return for 300 Clubcard points per working handset. We gave 100 points for each of the 765,000 used inkjet cartridges submitted in 2007. In addition, customers brought over 1,000 tonnes of Christmas cards to our stores for recycling, under our partnership with the Woodland Trust. Product packaging We are helping to reduce product packaging and to make recycling easier. Our targets in the UK are: to reduce the amount of packaging on own-brand products and branded items by 25% by 2010; and to provide recyclability information on all Tesco own-brand products starting in 2008, which, together with expanding our recycling facilities, will help customers to recycle more. We have developed an online database to support our packaging reduction programme. Suppliers enter information about their packaging, enabling us to identify opportunities for improvement. In 2007 we reduced packaging on some own-brand products, such as electrical items and some clothing lines, by as much as 40%. Our commitment to reducing packaging resulted in saving almost 6,000 tonnes of glass on own-brand wine bottles, over 3,000 tonnes of paper board on our flower boxes and 2,000 tonnes of plastics on our fresh produce.

1bn fewer carrier bags used in just 36 weeks Reducing packaging We have a target to reduce packaging by 25% by 2010. This year we have worked hard to reduce packaging on a variety of different products. For example, we have developed our fabric conditioner to be more concentrated so that less packaging is needed for the same number of washes. Point-of-sale signage helps give customers the information they need to make greener choices. Through our new Greener Living website and brand we want to make environmentally friendly choices more affordable and accessible for our customers. Recycling facilities In Ireland we responded to the Waste Electrical and Electronic Equipment (WEEE) Directive by hosting collection days across the country for customers and local communities to return old electronic equipment free of charge. Customers returned 15 tonnes of televisions and monitors, two tonnes of PCs, laptops, printers and scanners, as well as hundreds of other electrical items at just one such collection day. We are well ahead of EU targets for electrical and electronics recycling and are hosting more events across the country this year. We estimate that our customers recycle approximately 200,000 tonnes of waste each year at our facilities in the UK. In 2007, we aimed to increase this by installing 30 automated recycling units, known as 'reverse vending machines', which separate different kinds of recyclable materials and compact them ready for recycling. This brings the total number installed to 45. Tesco is the first UK supermarket to provide automated recycling units, investing millions to install and maintain them. FSC accredited Tesco tissues. Reusable green trays help us save packaging. Poster encouraging staff to save energy in Japan. Reserved parking for hybrid cars in the USA. Recycling facilities in Hungary. sourced salmon in UK stores.

These units are a 'one-stop shop' for recycling, accepting everything from carrier bags and plastic to glass and metal, making recycling quick, easy and convenient for customers. These machines have exceeded all expectations and customers have recycled more than double the amount compared with the previous facilities, recycling on average 8.3 tonnes each week compared with four tonnes previously. The automated units can hold roughly four times more than an equivalent standard unit, which means they have to be emptied less often, saving in transport and CO2 emissions. We plan to have over 100 machines installed at our sites by March 2009. Carrier bags We want to inform, encourage and empower customers to use fewer carrier bags. We believe that the right approach is to encourage customers to reuse bags rather than penalise them for taking single-use bags. In Poland, we are reducing the 400 million carrier bags our customers use per year by extending our 'bags for life' range. New options include a popular jute bag which is selling at a rate of 30,000 per month. We were also the first retailer in Poland to introduce free degradable single-use bags as our standard carrier bag. We met our UK target to reduce carrier bag use by 25% from the 2006 level of four billion by 2008 - over a year early. After just 36 weeks we achieved a 27% reduction - equivalent to over one billion bags saved. Our new target is to cut the number of carrier bags we give out by 50% by the end of February 2009 compared with May 2006. We offer customers one Green Clubcard point for each carrier bag saved, and awarded over 700 million points for reusing bags last year. We have ensured that our customers have a wide selection of accessible and affordable reusable bags in our stores. We encourage customers to buy high-quality, reusable 'bags for life', giving customers a new one for free when they wear out. In 2007 we sold over 26 million reusable bags. KPI 2007/8

Landfill avoidance To divert 75% of waste from landfill, as part of our long-term commitment to divert 80% from landfill between 2006 and 2009. Customer recycling To double the amount of customer recycling at sites where we introduce recycling units. Carrier bags Reduce carrier bags given out by 25% by May 2008 compared with May 2006. View the complete KPI table

Below target Close to target On target

KPI Above target Environment Promise 2008

2007/8

We will: increase the proportion of waste from our UK operations that we divert from landfill from 70% in 2007 to 80% in 2009; reduce the weight of packaging on Tesco own-label and branded products sold in the UK by 25% by 2010; double customer recycling at sites where we introduce automated recycling units during 2008, from 2006 levels; cut the number of carrier bags we give out in the UK by 50% by the end of February 2009, compared with May 2006; reduce water consumption per square metre by at least 2% against a baseline of 2006; work with the SCI to investigate the positive and negative effects of biofuels; continue to source seafood in a responsible way; and work to incorporate RSPO accredited palm oil into our products once it becomes available. 8. The major supermarket chains have announced numerous environmental initiatives. Tesco announced a Community Plan including an Environment Fund of 100 million in a speech by Terry Leahy in 2006, and have continued to announce further plans since then, including carbon labelling of their products. At the start of 2012, Tesco abandoned their carbonlabelling scheme, which had been running since 2006 in partnership with the Carbon Trust. Despite the many benefits of these initiatives, it remains the case that Tesco's size and growth, its numerous unsustainable products, and its impact on independent retailers stop it from being a truly green company. The same is true of the other large chains. With larger numbers of car-based hypermarkets and food being sourced from around the world, and trucked around the UK, these companies continue to damage the environment. Please see the Friends of the Earth's briefing "If Tesco really wants to be green," and press release on the environment fund and waste. George Monbiot in his book "Turn up the Heat" suggests that the increasing trend of individuals and companies showing their green credentials, is often green-wash hiding real environmental costs. Some of supermarkets' environmental costs include:

The food industry is responsible for a third of greenhouse gas emissions and therefore has a massive part to play in tackling climate change. The bulk of these emissions come from food production. Tesco and the other supermarkets must do more to make sure that their production lines are sustainable - this needs to be

prioritised above paying farmers the lowest possible prices. Research by Friends of the Earth has shown that low prices have reduced farmers' ability to produce food in environmentally friendly ways. This needs to stop. Fewer local farmers and shops mean both customers and goods need to be transported further. This means more pollution from cars, as people drive further to shop, and more pollution from aircraft and lorries, as food is transported from around the world. Indeed Tesco's business could be seen as one of the drivers behind the rise in UK CO2 emissions. More needs to be done to support local, seasonal produce - something that independent shops and supermarkets are well suited to. On the other hand, a 2011 investigation by the NFU Scotland revealed that Tesco and Asda were favouring cheaper imported meat over local produce. Tesco's store sizes means they are some of the most energy-inefficient buildings in the retail sector. A Sheffield Hallam University study found that despite the new stock, large superstores are the most energy inefficient buildings in the sector. It would take more than 60 corner shops and greengrocers to match the carbon dioxide emissions from one average sized superstore. Although they are taking steps to increase efficiency, their commitment to building yet more stores means that these savings will be cancelled out. Tesco also encourages shoppers to travel by car.One in 10 car journeys in the UK are now to buy food. Work for DEFRA shows that the distance travelled by car for food shopping has steadily risen by between 6-11% a year. Research for DEFRA also found that car use for food shopping results in costs to society of more than 3.5 billion per year from traffic emissions, noise, accidents and congestion. Tesco has been massively expanding into "Extra" format hypermarkets, which are particularly geared towards car-based shopping. Tesco boasts about its progress on reducing waste and how it is following a market trend to introduce degradable plastic bags. But grocery packaging still makes up roughly a quarter of household waste, and the UK's biggest supermarkets distribute billions of plastic bags, which end up in landfill. Even degradable bags do not help, as they will still predominantly go to landfill sites where the lack of sunlight and oxygen will hinder rapid breakdown. To make a real difference the supermarkets need to stop handing out free bags altogether. A large amount of food is being wasted. Around 300,000 tonnes of food waste per year is generated by supermarkets. Biofuels - Tesco is a major shareholder in and customer of Greenergy Biofuels Limited, a UK company promising customers climate-friendly, sustainable biofuels from UK rapeseed oil. The organisation BiofuelWatch has, however, undertakenresearch which reveals that Greenergy's biofuels contain increasing amounts of palm oil, soy and sugar cane. All three are crops linked to large-scale rainforest destruction, massive greenhouse gas emissions from deforestation and peat and forest fires, and in some instances to human rights abuses. For further information and to take action, please see the BiofuelWatch website.