Review of Business & Finance Studies

Vol. 6, No. 3, 2015, pp. 91-103

ISSN: 2150-3338 (print)
ISSN: 2156-8081 (online) www.theIBFR.com

BUSINESS STRATEGY AND THE ENVIRONMENT:

TESCO PLC’S DECLINING FINANCIAL
PERFORMANCE AND UNDERLYING ISSUES
Julie Haddock-Millar, Middlesex University
Chris Rigby, Middlesex University

CASE DESCRIPTION

The case presents a teaching tool which requires students to: 1) analyze the financial performance of Tesco
Plc over the last four years; 2) compare Tesco’s market position with key competitors; 3) identify and
evaluate Tesco’s business strategy; 4) evaluate the causes of Tesco’s decline in performance; 5) develop
recommendations to address declining performance; 6) identify and evaluate the Human Resource strategic
role in addressing and supporting performance. The case is suitable for a business strategy or human
resource strategy class. The case is appropriate for use at the undergraduate or masters level. Students
should have some familiarity with business and human resource management strategy before being
assigned to the case. Students might be assigned to work individually or in teams on the project. Individuals
or groups may be required to present their research to the class for discussion and comment. Six to ten
hours outside of class should be required to complete the case study exercise. Classroom discussion should
be between two to three hours.

JEL: L81, L21

KEYWORDS: Retail Trade, Financial Performance, Business Strategy, Human Resource Management
Strategy

CASE INFORMATION

The Grocery Retail Sector

T he United Kingdom (UK) supermarket industry is dominated by the ‘big four’ supermarkets
including Tesco, ASDA, Sainsbury’s and Morrisons. Together, they accounted for over 75% of retail
grocery sales in the UK in 2013 (Grocery News, 2014). The high-end supermarkets, Waitrose and
Marks and Spencer and discounters, Aldi and Lidl are making significant shifts in market share, facilitated
by their clear brand image, focus on the target customer and transparent business strategy.

Tesco Plc

Tesco began trading in 1919 when Jack Cohen started selling surplus groceries from a stall in the East End
of London. The Tesco brand first launched in 1924 when Cohen bought a shipment of tea from a Mr T. E
Stockwell. The initials and letters were combined to form Tes-co and in 1929 Mr Cohen opened the first
Tesco store in Burnt Oak, North London. Tesco became a private limited company in 1932. In 1947 Tesco
Stores (Holdings) Ltd floated on the stock exchange with a share price of 25p. In 1968 Tesco opened its
first 'superstore' in Crawley, West Sussex. In 1974 Tesco opened its first petrol stations, and would become
the UK’s largest independent petrol retailer. By 1979 total sales exceeded £1bn, and within three years sales
had doubled to more than £2bn. In 1987 Tesco successfully completed a hostile takeover of supermarket

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rival Hillards for £220m. In 1992, the company launched is slogan 'every little helps', followed by the Tesco
Value range in 1993. The Tesco Clubcard scheme launched in 1995 and in 1995 Tesco became the UK's
biggest retailer. Tesco overtook rival Sainsbury's as the UK's largest food retailer. In 1996 Tesco introduced
24-hour retail trading in stores. Tesco expanded overseas in Poland, the Czech Republic, and Slovakia. In
1997 Tesco appointed Sir Terry Leahy as Chief Executive Officer. Leahy began his career with Tesco as a
marketing executive in 1979. Leahy was previously appointed to the board in 1992. Tesco.com was
launched in 2000 and the supermarket continued to expand its range of products, which now includes
clothes, electricals and personal finance products. In 2004 Tesco entered the broadband market. In 2006,
Tesco announced plans to open stores in the US under the name 'Fresh and Easy' and funded by existing
resources. By 2006 Tesco operated in 12 countries (see Table 1).

Table 1: Tesco Market Presence

Market Number of Stores/Customers Per Week Date of Entry and Trading Formats

UK 3,378 stores/ 38 million customers 1929 – full range of formats

Customer Insight Sector 350 million people in 28 countries 1989

Dunnhumby

Hungary 200+ 1995 – full range of formats

India Franchise agreement 2008 signed a franchise agreement with Trent Ltd, part of the Tata
group, to supply Star Bazaar with exclusive access to Tesco retail
expertise.

Ireland 146 1997 – full range of formats

Malaysia 49+ 2002 - hypermarkets
Poland 450+ stores / 5 million customers 1996 – full range for formats
Slovakia 150+ 1996 – full range of formats
Thailand 1,700+ stores / 12 million customers 1998 – full range of formats
Turkey 190 / 1.3 million customers 2003 – full range of formats
Financial Sector - Tesco 7 million customers access products 1997 - Offer a range of personal banking products, principally -
Bank mortgages, credit cards, personal loans, savings.

Czech Republic 300+ 1996 – full range of formats

This shows Tesco Plc’s market presence, number of stores and customers per week in each country including the date of entry and different trading
formats. The first column shows the country or sector. The second column shows the number of stores in each country and customers per week
where the data is available. The third column show the date of entry to each country or sector, including different trading formats.

Tesco now has five store formats: Extra stores which are large out of town hypermarket stores, Superstores
and Tesco Convenience stores, split into Metro stores and Express stores (See Table 2). In addition to this,
Tesco owns 12 Homeplus stores (non-food), 722 ‘One Stop’ convenience stores and 34 Dobbies Garden
Centres. Tesco now operates a variety of trading formats, designed for different shopping patterns.

In 2007 Tesco launched ‘Fresh and Easy’ in the US, California, Nevada and Arizona, at the same time the
country was about to enter recession and the subprime mortgage crisis, massively impacting consumer
shopping habits, shifting sharply towards price sensitivity (Hsu, 2012). The small-format stores, modelled
on the UK format, with self-service checkouts. Tesco intended to open 1,000 stores with projected
breakeven by 2009. However, by 2009 only 199 stores had opened in northern California (Goodwin, 2009).
By 2012 Tesco had pulled out of the US market, writing off £1.2 billion. Customers complained about small
portion sizes and short expiry dates. The traditional conservative customers failed to warm to the idea of
self-service checkouts. US customers were also confused about brand positioning. Fresh & Easy stores
were smaller than many of the US supermarkets. The customer expectation was that Tesco would focus on

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the basics: essential food and grocery items and low price points. Instead Fresh & Easy opened in upper
working-class areas, products and marketing seemed to be aimed at more affluent shoppers.
Table 2: Store Format and Shopping Patterns

Store Format Number of Stores in the UK Shopping Patterns

Customers wishing to shop a range of categories, food and non-food,
Hypermarket 247
alongside additional services such as coffee shops and restaurants.
Customers' main, weekly, food and grocery shopping. Family's needs
Superstore 482
can be met in one convenient time-saving trip.
Offers the choice and value of the superstore for workers and residents
Metro 195
in town centres.
The Express petrol forecourt and convenience store format serves
Express 1672
customers wishing to purchase little and often.
Homeplus 12 Customers wishing to shop a non-food range.
This show the range of store formats, the number of stores in the United Kingdom within each format and the shopping patterns associated with
each store format.

In 2008 Tesco bought a number of Somerfield stores on remote islands in Scotland, giving Tesco a presence
in every single postcode area in the country, with the exception of Harrogate in North Yorkshire. In 2009
Tesco Bank was launched as a joint venture with Royal Bank of Scotland to create Tesco Finance. In this
period of time, Tesco grew the hypermarket format and continued to invest heavily in land procurement,
amassing a huge land bank. According to the Guardian, Tesco has land and buildings stored in the land
bank, large enough to build 15,000 homes. Tesco store 310 separate sites in England, Scotland and Wales
vacant of Tesco stores, the majority of which is undeveloped. The Competition Commission inquiry found
no evidence that the land holdings of the major supermarkets impacted on competition.

In 2010, Tesco has announced that its CEO, Sir Terry Leahy, was due to step down in March 2011 after 14
years, leading the UK’s biggest supermarket Group. During his leadership period, he oversaw the
acquisition and launch of supermarket chains in Poland, Turkey, Thailand, Japan and the US, moved Tesco
into mobile phones, banking, and developed marketing intelligence database that is its Clubcard loyalty
scheme. Leahy’s focus was three-fold: 1) the customer; 2) reaching the number one spot in UK grocery
retailing; 3) identifying and developing new long-term growth in non-food, service and international
expansion (Sefton, 2010).

Leahy was replaced by Philip Clarke, previously ran Tesco's European and Asian operations and IT. Clarke
worked for Tesco for his whole career, following graduation at University. Soon after, Clarke announced
£1bn of new investment in stores to develop a new concept within the hypermarket format. Since Clarke’s
appointment, the grocery retail sector has seen a marked change in consumer shopping habits, caused by
the economic downturn and modern lifestyle. Over the last two years, shoppers have switched from the
large weekly shop to a convenience model, choosing to stop off at their local stores on the way home from
work rather than visit a supermarket. There are a number of specific reasons for the change in shopping
patterns: the qualities of the supermarket have now been brought to the local store; consumers are more
conscious about food waste as the economy and pockets are squeezed and are therefore opting to do mini-
shops; consumer are less responsive to large-scale food promotions on ‘unhealthy products’ and fresh
products on ‘buy one get on free’ offers which cause waste; consumers use convenience stores for ‘top-up’
shops to supplement online orders. Data from the Association of Convenience Stores (ACS) shows that 59%
of all shoppers visit convenience stores more than once a week.

The majority of the major food retailers have plans to increase the number of their convenience stores,
including Waitrose and Aldi. According to the Institute of Grocery Distribution (IGD), the convenience
stores market is worth £35.6bn, about a fifth of the total food and grocery market. By April 2018, this is

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estimated to have risen 30%. The company with the most convenience stores in Britain is Premier, which
is owned by the wholesaler Booker and has 2,800 sites, while Bestway has 2,600, Spar 2,400, the Co-
operative Group 1,800 and Costcutter 1,700.

The last two have seen a significant decline in Tesco’s performance. In 2013, Tesco reported its first drop
in profits for 20 years. Tesco’s sales are falling faster than any of the main competitors. Morrisons saw a
drop in sales of 1.8%, Sainsbury’s 3.1%. ASDA saw a rise in sales of 1%. Tesco’s are losing market share
to upmarket rival Waitrose and discounts Lidl and Aldi. Market share has dropped from 30.1% in 2013 to
28.8% in 2014. Waitrose experienced an increase in sales by 6.8%, Lidl 18.1% and Aldi 27.3%. The
retailer’s position in the middle of being squeezed both ends – the premium and discount ends of gaining
market share.

During 2014 a series of sackings and departures followed, resulting in Laurie Mcllwee (Finance Director)
stepping down (Quinn, 2014). Clarke was the only executive left on the board with retail experience. In
July 2014 it was announced that Clarke would be stepping down, replaced by Dave Lewis from Unilever.
This would be the first time an external CEO would be a helm of the business in over 90 years. In 2014, a
whistleblower alerted the new CEO, Lewis, to a shortfall of £263m in the retailer’s expected half-year profit
(Warner, 2014). The shortfall was caused by Tesco booking income from deals with suppliers earlier than
it should at the same time as pushing back costs. Tesco is currently being investigated by the Financial
Conduct Authority (FCA) and the Serious Fraud Office (SFO). Four executives have been suspended,
including the UK Chief Executive Chris Bush. The company hired Deloitte and its legal firm Freshfields
to investigate the cause of the shortfall.

Lewis is now attempting to reverse Tesco's falling sales (Ruddick, Marlow and Rushton, 2014). To try to
boost staff morale among the company's 300,000 workers in the UK, Lewis has launched a program called
'Feet on the Floor' that requires staff in Tesco's offices, including the executives, to work in stores once a
fortnight (Rickard Straus, 2014).

QUESTIONS

1. What is the Tesco share price history from 2010 to 2014? Identify key fluctuations in the share
price and what events might explain the fluctuations?
2. What is the market share trend from 2013 – 2014 across the retail grocery sector? Identify factors
which might explain the trends?
3. Where does the majority of Tesco’s revenue and profits come from? What do you believe to be at
the root of Tesco’s decline in financial performance?
4. Has Tesco’s business strategy changed in the last three years when new leaders have taken position,
and if so, how?
5. How can issues relating to poor financial performance be addressed?
6. What is role of the human resource management function in turning Tesco’s performance around?

REFERENCES

Goodwin, C. Retrieved November 10, 2014 from The Week website:

http://www.theweek.co.uk/politics/23805/fresh-easy-tescos-great-american-disaster

Grocery News Retrieved on November 10, 2014 from:

http://grocerynews.org/2012-06-16-08-27-26/supermarkets-market-share/grocery-stores

Hsu, T. Retrieved November 7, 2014from The Las Angeles Times website:

http://articles.latimes.com/2013/apr/17/business/la-fi-tesco-fresh-easy-20130418

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Quinn, I. Retrieved November 12, 2014 from the Grocer website:

http://www.thegrocer.co.uk/people/tesco-finance-boss-laurie-mcilwee-steps-down/356270.article

Rickard Straus, R. Retrieved November 7, 2014 from This is Money website:

http://www.thisismoney.co.uk/money/news/article-2776391/Tesco-chiefs-stack-shelves-man-tills-help-
understand-customers-reconnect-stores.html

Ruddick, G., Marlow, B. and Rushton, K Retrieved November 7, 2014 from The Telegraph website:
http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/10982151/New-Tesco-chief-executive-to-
lead-root-and-branch-review.html

Sefton, E. Retrieved November 7, 2014 from The Week website:

http://www.theweek.co.uk/business/14129/tesco-ceo-leahy-retires-philip-clarke-take-over

Tesco Plc Retrieved November 12, 2014 from Tesco Plc website:
http://www.tescoplc.com/index.asp?pageid=276

Tesco Plc Retrieved November 12, 2014 from Tesco Plc website:
http://www.tescoplc.com/index.asp?pageid=71

Warner, W. Retrieved September 9, 2014 from Telegraph website:

http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11125666/Problems-by-the-bagful-for-
beleaguered-Tesco.html

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BUSINESS STRATEGY AND THE ENVIRONMENT:

TESCO PLC’S DECLINING FINANCIAL
PERFORMANCE AND UNDERLYING ISSUES
TEACHING NOTES
Julie Haddock-Millar, Middlesex University
Chris Rigby, Middlesex University

CASE DESCRIPTION

The case presents a teaching tool which requires students to: 1) analyze the financial performance of Tesco
Plc over the last four years; 2) compare Tesco’s market position with key competitors; 3) identify and
evaluate Tesco’s business strategy; 4) evaluate the causes of Tesco’s decline in performance; 5) develop
recommendations to address declining performance; 6) identify and evaluate the Human Resource strategic
role in addressing and supporting performance. The case is suitable for a business strategy or human
resource strategy class. The case is appropriate for use at the undergraduate or masters level. Students
should have some familiarity with business and human resource management strategy before being
assigned to the case. Students might be assigned to work individually or in teams on the project. Individuals
or groups may be required to present their research to the class for discussion and comment. Six to ten
hours outside of class should be required to complete the case study exercise. Classroom discussion should
be between two to three hours.

GENERAL COMMENTS

This case requires students to use research skills, analytical, evaluative and synoptic skills. It
requires students to research information for a variety of sources, including, inter alia, company
and business websites, journals articles and text books. The students then need to make decisions
about what they believe to be the key drivers of business performance, weighing up and
considering numerous factors. The case study requires students to think about the relationship
between business and human resource management strategy and the functional areas of the
business. The subject of alignment is not explicitly mentioned, albeit the implicit expectation is
that students will refer to the importance of alignment in their discussion.

QUESTIONS

Question 1: What is the Tesco share price history from 2010 to 2014? Identify key fluctuations in the share
price and what events might explain the fluctuations?

Solution 1: The share price history can be obtained via a number of different websites, including Tesco Plc.
The share price history from 2010 to 2014 can be seen in Figure 1. Overall, the trend is consistently
downwards, falling from £450.70 on April 23rd 2010 to £184.45 on November 7th, 2014. In 2013, Tesco
reported its first drop in profits for 20 years. At this point, Tesco’s sales were falling faster than any of the
main competitors. This resulted in a drop in share value of 20% to £363.00. Following the announcement
of the accounting practices under investigation in 2014, the share dropped again to £184.45.

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Figure 1: Tesco Plc Share Price History 2010 – 2014

500

450 Tesco Stock History

400

350

300

250

200

150

100

50

0
4/1/2010
6/1/2010
8/1/2010
10/1/2010
12/1/2010
2/1/2011
4/1/2011
6/1/2011
8/1/2011
10/1/2011
12/1/2011
2/1/2012
4/1/2012
6/1/2012
8/1/2012
10/1/2012
12/1/2012
2/1/2013
4/1/2013
6/1/2013
8/1/2013
10/1/2013
12/1/2013
2/1/2014
4/1/2014
6/1/2014
8/1/2014
10/1/2014
This shows Tesco Plc share price history from 2014-2014. The vertical axis shows the share price in pounds (£), the horizontal axis shows the
period of time in quarterly increments.

Question 2: What is the market share trend from 2013 – 2014 across the retail grocery sector? Identify
factors which might explain the trends?

Solution 2: The market share trends show the growth in premium brands (Waitrose) and discounters (Aldi
and Lidl). The ‘middle’ market grocery retailers (Tesco Plc, Sainsbury’s) have lost market share primarily
to polar opposites (see Figures 2 and 3). German discounters Aldi and Lidl have seen the most significant
movement in market share, increasing year-on-year by 27.3% and 18.1% respectively.

The case study description notes “The grocery retail sector has seen a marked change in consumer
shopping habits, caused by the economic downturn and modern lifestyle. Over the last two years, shoppers
have switched from the large weekly shop to a convenience model, choosing to stop off at their local stores
on the way home from work rather than visit a supermarket.” Alongside this, price conscious consumers
are choosing to shop at the discounters, taking advantage of the cheaper prices. The prices are facilitated
by lower cost models, less capital expenditure and a reduced range of products which enables up to 50%
discounts on equivalent products in Tesco, Sainsbury’s and ASDA. Aldi and Lidl stock a high quantity of
own brand products which enables them to compete on price. In the UK, Aldi has won the Supermarket of
the Year by Which? for two years in a row (2012/13), and in 2013 Aldi won the Grocer of the Year Award.
Consumers that want to shop for high quality ranges will go to supermarkets like Waitrose and Marks and
Spencer, known for quality and service. All of these factors have influenced the trend which shows that the
retailers that sit in the ‘middle ground’ are losing their stronghold in the UK retail grocery business.

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Figure 2: Market Share Data Oct 2014 vs Oct 2013

Grocery Retailer October 2014 Market Share October 2013 Market Share % Change
Tesco 28.8% 30.1% (3.6%)
Asda 17.2% 17.3% 1.0%
J Sainsburys 16.1% 16.7% (3.1%)
Morrisons 11.6% 11.9% (1.8%)
Waitrose 5.2% 4.9% 6.8%
Aldi 4.8% 3.8% 27.3%
Lidl 3.5% 3.0% 18.1%
This shows the market share between 2013 and 2014 of the seven largest grocery retailers in the United Kingdom (UK). The first column shows
the retailer, the second column displays the market share in 2014. The third column shows the market share in 2013. The fourth column shows the
percentage change between 2013 and 2014.

Figure 3: Retail Grocery Market Share Fluctuations 2013-2014

35

30

25

20
2014 2013
15

10

0
Tesco Asda JS Morrisons Waitrose Aldi Lidl
This shows the market share fluctuations between 2013 and 2014 of the seven largest grocery retailers in the United Kingdom (UK). Tesco Plc has
had the most significant movement downwards, losing market share to Waitrose, Aldi and Lidl.

Question 3: Where does the majority of Tesco’s revenue and profits come from? What do you believe to
be at the root of Tesco’s decline in financial performance?

Solution 3: Despite Tesco’s growth internationally, the lion share of the business still comes from the UK.
Figures 4, 5, 6 and 7 chart Tesco’s performance over the last three years. Between 2011 and 2012 (see
Figures 6 and 7) UK sales were over £47 billion, followed by £48 billion in 2012/13. Over the same period,
the trading profit was over £2.4 billion (2011/12) and £2.2 billion (2012/13). The sales performance in the
UK was similar in 2013/14 at over £48 billion. Trading profit saw a downturn of 3.6% year-on-year at just
over £2.1 billion. Tesco’s interim performance in 2014 indicates sharp fall in trading profit of 55.9%. The
Asian and European markets have proved volatile over the three year period. In comparison to the UK
market, the Asian market accounts for approximately 15% of group sales and 27% of group trading profit.
The European market accounts for 18% of group sales and 10.8% of group trading profit.

There are a number of reasons for Tesco’s decline in financial performance, including external forces
driving down sales and profit and internal strategic business decisions. The UK market is underperforming,
driven by the economic downturn, increasing fuel prices, growing strength of the high-end brands and
discounters. During Clarke’s time at CEO, Tesco launched a significant capital expenditure program to re-
model hypermarkets to become destination shops, introducing Giraffe restaurants, coffee shops, buying
into to 49% ownership of Harris and Hoole and Euphorium bakeries (BBC News Business, 2013). The
business strategy behind the introduction of extended services was to encourage customers to visit
destination shops, utilizing additional facilities such as dining out. However, the tide was turning in 2012/13

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as more and more consumers switched to high street shopping, more regular convenience store shops and
retail supermarkets operating a discount price focused business model.

Figure 4: Tesco 2014 Interim Performance Results

Group UK Asia Europe Bank

TY £m LY £m Growth % TY £m TY £m TY £m TY £m
Sales (inc. VAT) 34012 35582 (4.4%) 23566 5078 4847 521
Sales Growth % (2.6%) (8.4) (9.3%) 4.6%
UK LFL (exc. Petrol) (4.6%)
Revenue (exc.VAT) 30473 31914 (4.5%) 21031 4766 4155 521
Revenue Growth % (2.8%) (8.4%) (9.3%) 4.6%
Trading Profit 937 1588 (41.0%) 499 260 76 102
Trading Profit Growth % (55.9%) (17.2%) 38.2% 15.9%
This shows Tesco Plc’s interim financial performance. The first column lists the performance areas. The data includes the company group
performance. This is broken down into United Kingdom, Asia, Europe and Tesco bank is columns five to eight.

Figure 5: Tesco 2013/14 Full Year Results

Group UK Asia Europe Bank

TY £m LY £m Growth % TY £m TY £m TY £m TY £m
Sales (inc. VAT) 70894 70712 0.3% 48177 10947 10767 1003
Sales Growth % (0.1%) 2.7% (0.4%) (1.8)
UK LFL (exc. Petrol) (1.3%)
Revenue (exc.VAT) 63557 63406 0.2% 43057 10276 9221 1003
Revenue
(0.1%) 2.6% (0.6%) (1.8%)
Growth %
Trading Profit 3315 3525 (6.0%) 2191 692 238 194
Trading Profit Growth % (3.6%) (5.6%) (27.7%) 1.6%
This shows Tesco Plc’s full year results in 2013/14. The first column lists the performance areas. The second, third and fourth columns presents
the group results, including the current year results, previous year results and percentage change in performance.

Figure 6: Tesco 2012/13 Full Year Results

Group UK Asia Europe Bank

TY £m LY £m Growth % TY £m TY £m TY £m TY £m
Sales (inc. VAT) 72363 71402 1.3% 48216 12317 10809 1021
Sales Growth % 1.8% 5.9% (4.9%) (2.2%)
UK LFL (exc. Petrol) (0.3%)
Revenue (exc.VAT) 64826 63916 1.4% 43088 11443 9274 1021
Revenue 2.0% 6.0% (5.6%) (2.2%)
Growth %
Trading Profit 4353 3969 (13.0%) 2272 661 329 191
Trading Profit Growth % (8.3%) (10.3%) (37.8%) (15.1%)
This shows Tesco Plc’s full year results in 2012/13. The first column lists the performance areas. The second, third and fourth columns presents
the group results, including the current year results, previous year results and percentage change in performance.

Table 7: Tesco 2011/12 Full Year Results

Group UK Asia Europe US Bank

TY £m LY £m Growth % TY £m TY £m TY £m TY £m TY £m
Sales (inc. VAT) 72035 67074 7.4% 47355 11627 11371 638 1044
Sales Growth % 6.2% 10.5% 7.7% 27.1% 13.6%
UK LFL (exc. Petrol) 0.0%
Revenue (exc.VAT) 64539 60455 6.8% 42248 10793 9826 628 1044
Revenue
5.3% 10.5% 7.93% 26.9% 13.6%
Growth %
Trading Profit 3761 3714 1.3% 2480 737 529 (153) 168
Trading Profit Growth % (1.0%) 21.8% 0.4% 17.7% (36.4%)
This shows Tesco Plc’s full year results in 2011/12. The first column lists the performance areas. The second, third and fourth columns presents
the group results, including the current year results, previous year results and percentage change in performance.

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Question 4: Has Tesco’s business strategy changed in the last three years when new leaders have taken
position, and if so, how?

Solution 4: There have been two new Chief Executive Officers since Sir Terry Leahy’s departure in 2011.
First Phillip Clarke took over, followed by Dave Lewis in 2014. During Leahy’s time, Tesco pursued an
international growth strategy, entering new markets such as Tesco banking and customer insight and
significant investment in land and property throughout the UK. During the time, Tesco developed a ‘broad
church’ product strategy, developing a Value range and finest range and introducing a vast array of non-
food items. This leads to the questions: can a grocery retailer be all things to all people? Following Leahy’s
departure, Clarke took over. Clarke pursued a strategy of investment in hypermarket superstores,
destination shops. Arguably Clarke has too little time to demonstrate his potential as CEO as the decision
to invest in out of town destination shops was seen as a fundamental mistake. Clarke was quickly replaced
by Lewis, an ‘outsider’ from Unilever. Lewis has been measured in his response, explaining that he will
take time to survey the business and understand what the underlying issues are in relation to poor
performance. Lewis’s immediate concerns are governance and auditing, with the announcement of an
investigation by the Financial Conduct Authority and the Serious Fraud Office (Warner, 2014). However,
he immediately recognized the need to be ‘customer-centric’, focusing on the target customer market (This
Money, 2014).

Question 5: How can issues relating to poor financial performance be addressed?

Solution 5: Tesco’s previous CEO, Sir Terry Leahy recently commented: the company had “focused too
much on what it isn’t, rather than remembering what it is ... what it is, is a very big brand in the centre of
the market, and clearly if you’re weak in the centre you can get attacked from all sides … but if you’re
strong in the centre and doing what you do well, it’s a good place to be – you can attract customers from
all parts of the market.” (The Guardian, 2014). Strategic models that take an external perspective and
internal perspective are useful in defining strategic approach and market position. Porter’s (1998)
competitive analysis is probably the most widely used model for strategic analysis, identifying five
fundamental forces which provide insight into the relationships and dynamics of the industry. This external
perspective can see the ease of substitution in the retail grocery market and change in consumer trends
which demand a more responsive strategic approach.

Management Today (2014) reported three strategic responses to turnaround the current performance issues:

1. Identify the target customer

“Tesco's major strategic problem is that it is currently unclear about who it should target – the
supermarket is caught somewhere between the more upmarket offer of Sainsbury's and Waitrose
and the discounters Aldi and Lidl. These discount rivals have put intense pressure on the UK’s
major supermarkets in the last few years, and critics say Clarke failed to cut prices early enough
to compete with the German discount brands.”

2. Brand identity
“In recent years, Tesco has been confused about its brand management and identity … Tesco’s
proposition, particularly in pricing, is muddled and confused … Tesco doesn’t necessarily need to
have the lowest prices to recover – instead its pricing needs more clarity, predictability and
transparency.”

3. Management strategy
Tesco has experienced significant changes in leadership and management. During 2014 a series of
sackings and departures followed, resulting in Laurie Mcllwee (Finance Director) stepping down
(Quinn, 2014). Clarke was the only executive left on the board with retail experience.

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What is clear is that the organization needs to look internally to understand what the brand is in 2014, what
is wants to be in the future and establish a clear market position. Alongside this, the leadership and
management team need to fully understand the market forces and how these shape the environment and
business. Where will future market growth come from? What will be the future cash cow? Where are the
rising stars and to what extent will these grow further? (Henderson, 1969).

Question 6: What is role of the human resource management function in turning Tesco’s performance
around?

Solution 6: Over the last ten to twenty years the role of human resource management (HRM) in the wider
business has shifted significantly. We now see language such as strategic partner and change agent (Ulrich,
1997), synergists (Caldwell, 2001) and HR leader (Ulrich and Brockbank, 2005). The language and roles
types signal a move away from ‘traditional’ personnel roles to a more pro-active, strategic role where HR
can make a real contribution to the organization. From the perspective of Ulrich (1997) HR needs to focus
on activities which support the strategic direction of the business, including strategic planning and scanning
the environment. In Ulrich and Brockbank’s (2005) later model, the idea that HR plays a key role in
corporate governance and acting as the organization’s conscious is introduced.

Lewis is in a position where corporate governance and accounting practices are at the very forefront of his
review of Tesco. Here. HR can play a key role in working with functional areas to ensure corporate
responsibility is at the heart of the business, ensuring the business operates in a responsible, sustainable,
accountable and transparent way (CIPD, 2014). It is important to restore competence, integrity and
confidence within all stakeholder groups.

Lewis has demonstrated the importance in focusing on the UK market with his new ‘Feet on the Floor’
initiative, seeing all head office personnel working in stores on a fortnightly basis to re-engage with the
core business and get to grips with the business at the frontline (The Guardian, 2014). Lewis has also
discussed the need to invest resources into to UK supermarkets in order to improve service levels and stock
availability. Alongside this, the capital expenditure on hypermarket superstores has stalled, shifting the
strategic focus away from the destination shop to the core offer. HR can engage with the resource and
capability agenda, aligning the organizational strategy with the HR strategy, policies and practices to
facilitate capacity and capability, particularly across the core business.

REFERENCES

BBC News Business Retrieved November 9, 2014from BBC News website:

http://www.bbc.co.uk/news/business-21769507

Caldwell, R. (2001) Champions, adapters, consultants and synergists: the new change agents in HRM.
Human Resource Management Journal, 11(3), 39-52

CIPD Retrieved November 9, 2014 http://www.cipd.co.uk/hr-topics/corporate-responsibility-

governance.aspx

Grocery News Retrieved on November 10, 2014 from Grocery News website:
http://grocerynews.org/2012-06-16-08-27-26/supermarkets-market-share/grocery-stores

Henderson, B. (1969) ‘The Product Portfolio’, Boston Consulting Group Perspectives: 66

Management Today Retrieved November 9, 2014 from Management Today website:

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http://www.managementtoday.co.uk/go/news/article/1304346/6-challenges-new-tesco-chief-dave-lewis-
will-tackle/

Porter, M.E. (1990) The Competitive Advantage of Nations. New York: Free Press

Quinn, I. Retrieved November 12, 2014 from:

http://www.thegrocer.co.uk/people/tesco-finance-boss-laurie-mcilwee-steps-down/356270.article

Tesco Plc Retrieved November 12, 2014 from Tesco Plc website:
http://www.tescoplc.com/index.asp?pageid=188&newsid=1074

Tesco Plc Retrieved November 12, 2014 from Tesco Plc website:
http://www.tescoplc.com/index.asp?pageid=17&newsid=954

Tesco Plc Retrieved November 12, 2014 from Tesco Plc website:
http://www.tescoplc.com/index.asp?pageid=17&newsid=764

Tesco Plc Retrieved November 12, 2014 from Tesco Plc website:
http://www.tescoplc.com/index.asp?pageid=17&newsid=613

The Guardian Retrieved November, 9, 2014 from The Guardian website:

http://www.theguardian.com/business/2014/nov/02/tesco-supermarket-loyal-customers-respite-economy-
sir-terry-leahy

The Guardian Retrieved November 9, 2014from The Guardian website:

http://www.theguardian.com/business/2014/oct/01/tesco-boss-orders-senior-staff-work-shop-floor

This Money Retrieved on November 9, 2014 from This is Money website:

http://www.thisismoney.co.uk/money/investing/article-2804736/Tesco-shares-drop-brave-investors-need-
buy-in.html

Ulrich, D. (1997). Measuring human resources: an overview of practice and a prescription for results.
Human Resource Management, 36(3), 303-320

Ulrich, D. & Brockbank, W. (2005) The HR value proposition. Harvard: Harvard Business Press

Warner, W. Retrieved September 9, 2014 from The Telegraph

website: http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11125666/Problems-by-the-bagful-
for-beleaguered-Tesco.html

ACKNOWLEDGEMENTS

This case study development was supported by a Middlesex University Teaching and Learning grant.

BIOGRAPHY

Dr Julie Haddock-Millar, Corresponding author.

LLB (Hons), LLM, BVC, PGDip, PGCertHE, MA HRD, DProf, SFHEA, Chartered MCIPD
Senior Lecturer (Practice) and Senior Teaching Fellow; Human Resource Management and Development,
Department of Leadership, Work and Organisations Room W121, Middlesex University Business School,
The Burroughs, London, NW4 4BT. Email: j.haddock-millar@mdx.ac.uk. Tel: +44 (0)20 8411 4849.

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Fax: +44 (0)20 8202 6011

Dr Julie Haddock-Millar is a Senior Lecturer (Practice) and Senior Teaching Fellow in Human Resource
Management and Development at Middlesex University Business School. Prior to joining Middlesex
University, Julie worked in a variety of business, project and human resource roles in the private sector,
ultimately responsible for the talent management and development of 10,000 employees, across 36 stores
with Tesco Plc. Julie completed her Doctorate in Professional Studies with Middlesex University in 2013.
Her research focuses on employability and professional development, with a particular focus on early career
entrants. Her professional practice involves working with organisations to develop a range of learning and
development interventions, including the creation, implementation of mentoring programmes for
employability and professional development. Between 2010 and 2013, Julie jointly led the Public Sector
Mentoring Scheme in which a strategic response to the UK Cabinet Office need to encourage greater
diversity at senior levels of the UK Civil Service was designed and delivered. Julie leads on a number of
postgraduate programmes, including the MA in Further Education Sector Management Practice, helping to
prepare College Principals for the next phase of their careers. She is a Senior Fellow of the Higher Education
Academy, Academic Assessor and Chartered Member of the Chartered Institute of Personnel and
Development, and was a finalist of the 2010 CIPD People Management Awards for her postgraduate
research studies.

Chris Rigby
BA(Hons), PGCE, MBA, Assoc CIPD
Senior Lecturer (Practice), Human Resource Management and Development, Department of Leadership,
Work and Organizations, Room W121, Middlesex University Business School, The Burroughs. London
NW4 4BT. Email: c.rigby@mdx.ac.uk. Tel: +44 (0)20 8411 6910. Fax: +44 (0)20 8202 6011

Chris Rigby is a Senior Lecturer (Practice) in Human Resource Management and Development at
Middlesex University Business School. He has over 10 years of experience of working with organisations
to ensure that strategy, systems and stakeholder interests are aligned. The earlier part of Chris’ career was
in secondary education and his transition to Higher Education has its roots in the completion of his MBA
at Henley Management College in 2006 where he researched leadership development programmes to
highlight the link between reflective practice and leadership development. His specialist areas include
individual, team and organisational learning, professional practice, coaching, mentoring and action learning.
Between 2010 and 2013, Chris jointly led the Public Sector Mentoring Scheme in which a strategic response
to the UK Cabinet Office need to encourage greater diversity at senior levels of the UK Civil Service was
designed and delivered. He currently leads postgraduate leadership development programmes within the
public and private sector designed to recognise the transfer of learning into the workplace. He is an
Associate Member of the Chartered Institute of Personnel and Development, a member of The European
Mentoring and Coaching Council (EMCC) and holds the Professional Certificate in Coaching from Henley.

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