The Association of Business Executives QCF

International Business Case Study Tesco plc

29 November 2011, Afternoon
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This is an open-book examination and you may consult any previously prepared written material or texts during the examination. Only answers that are written during the examination in the answer book supplied by the examination centre will be marked.

053886

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ABE 2011

J/601/2793

Notes
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As in real life, anomalies may be found in this Case Study. Please simply state your assumptions where necessary when answering questions. ABE is not in a position to answer queries on Case data. Candidates are tested on their overall understanding of the Case and its key issues, not on minor details. There are no catch questions or hidden agendas. After the publication of the Case Study, subsequent developments may occur. The examination is based on the published Case Study, and students who do not mention such developments will not be penalised. However, students may consider such developments in their answers if they wish.

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Tesco plc Tesco plc is a global grocery and general merchandising retailer headquartered in the United Kingdom. It is the third-largest retailer in the world measured by revenues and the second-largest measured by profit. It has stores in 14 countries across Asia, Europe and North America and is the grocery market leader in the UK (where it has a market share of around 30%). Tesco plc has come a long way since its humble beginnings in 1919. It is currently the leading grocery chain in the UK with a sizeable amount of sales in non-food items such as clothing and electrical goods. In a sense, it is a victim of its own success, and its high market share has led to regular calls for its market power in the UK to be curbed. Any such limitation will greatly affect Tescos sales and profit growth. This threat has led Tesco to focus more on developing its international business, a development that began at the beginning of the 21st century. Its main global competitors are the US-based chain Walmart and the Carrefour organisation, based in France. In the UK the various operations are operated as sub-brands under the main umbrella brand of Tesco, as shown below:
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Tesco Extra - these are larger, mainly out-of-town hypermarkets that stock nearly all of Tescos product ranges. Tesco Superstores - Tesco superstores are standard large supermarkets, stocking groceries and a much smaller range of non-food goods than Tesco Extra stores. Tesco Metro - these are smaller stores between Tesco Superstores and Tesco Express stores. They are mainly located in city centres, the inner city and on the main streets of towns. Tesco Express - these are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to small store size, and the necessity to maximise revenue per square foot) alongside everyday essentials. They are found in busy city centre districts, small shopping precincts in residential areas, small towns and on Esso petrol station forecourts. Tesco Homeplus - these are stores that offer all of Tescos ranges (except food) in warehouse-style units in retail parks.

There are other outlets which are operated under the One Stop and Dobbies identities. One Stop is a chain of convenience stores that was purchased in 2002 and Dobbies is a chain of garden centres (outlets which sell products for the garden), which Tesco purchased in 2007. These two businesses (One Stop and Dobbies) are the only exceptions in the UK to Tescos normal strategy of house name /umbrella branding. Appendix One shows the numbers and the size of each store category.

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The History of Tesco Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall at Well Street Market, Hackney, in the East End of London (ironically, the market is now much smaller than in those days; a large Tesco Metro store now sits on the site). The Tesco brand first appeared in 1924, Tesco was floated on the London Stock Exchange in 1947 as Tesco Stores (Holdings) Limited. The first Tesco self-service store opened in 1956 in St. Albans, Hertfordshire (Tesco was not the first organisation to open a self-service store in the UK). During the 1950s and the 1960s, Tesco grew both organically and also through acquisition until it owned more than 800 stores, mostly in the southern half of England. Jack Cohens business motto was pile it high and sell it cheap and this was the key element of Tescos strategy in the 1960s and 1970s. A major sales promotional tool at the time was the use of a scheme based upon giving Green Shield Stamps to further increase customer loyalty. However, in a massive repositioning of its business in 1977, it stopped issuing stamps and instead cut its prices by 25% overnight. In May 1987, Tesco completed its hostile takeover of the Hilliards chain of 40 supermarkets in the North of England for 220 million as part of its strategy of becoming a national chain instead of being perceived as a southern chain. In 1994, the company took over the well-respected Scottish supermarket chain William Low, which operated 57 stores. This paved the way for Tesco to expand its presence in Scotland, where it was weaker than in England. In 1995, Tesco introduced a loyalty card, branded Clubcard and, later, an Internet shopping service known as Tesco Direct. This incorporated a printed catalogue enabling customers to order from a vast range of non-food merchandise. As of November 2006, Tesco was the only food retailer to make online shopping profitable. In 1996, the typeface of the logo was changed to the current version with stripe reflections underneath, whilst the corporate font used for store signage was changed from the familiar typewriter font that had been used since the 1970s. Sir Terry Leahy assumed the role of Chief Executive on 21 February 1997. On 21 March 1997, Tesco purchased the retail arm of Associated British Foods, which consisted of grocery stores in the Republic of Ireland and Northern Ireland, plus associated businesses, for 640 million. The deal was approved by the European Commission. This acquisition gave Tesco a significant presence in the Republic of Ireland and also a larger presence in Northern Ireland than one of its main UK rivals, Sainsburys. In 1997, Tesco and Esso (the UK business of Exxon Mobil) created a business alliance that included several petrol filling stations on lease from Esso, with Tesco operating the attached stores under the Express format. In turn, Esso operates the forecourts and sells their fuel via the Tesco store. Two hundred Tesco/Esso stores now exist across the UK. In July 2001, Tesco became involved in Internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks. In 2002, Tesco purchased 13 HIT hypermarkets in Poland. It also made a major move into the UK convenience store market sector with its purchase of T & S Stores, owner of 870 convenience stores in the UK. In October 2003, the company launched a UK telecoms division, comprising mobile and home phone services, to complement its existing Internet service provider business. 2003 also saw further international expansion when Tesco purchased the C Two-Network in Japan and acquired a majority stake in the Turkish supermarket chain Kipa.
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In January 2004, Tesco acquired Adminstore, owner of 45 Cullens, Europa, and Harts convenience stores in and around London, which further strengthened its presence in this sector. In August 2004, it also launched a broadband service. In late 2005, Tesco acquired 21 Safeway/BP petrol filling station stores. In September 2005, Tesco announced that it was selling its operations in Taiwan to Carrefour and purchasing Carrefours stores in the Czech Republic and Slovakia. Both companies stated that they were concentrating their efforts in countries where they had strong market positions. In mid-2006, Tesco purchased an 80% stake in Casinos Leader Price discount supermarkets in Poland. In 2007, Tesco took part in a joint venture with the telecoms company O2 to form Tesco Mobile. Tesco continued to be a major advertiser on television and a television ad campaign featuring the Spice Girls was used in Christmas 2007. The Spice Girls were reportedly paid 5 million (US$10 million) to appear in the campaign. In April 2010, Tesco negotiated a deal to become the official England team sponsor for the duration of the football World Cup, which was estimated to have cost Tesco US$4 million. Tesco continues to bring effective solutions to the marketplace and, in February 2011, it announced that, as well as using home delivery for Tesco Direct products, it would set up a system whereby customers can collect their orders from the large Tesco stores (see Appendix Two). Tesco has, for many years, produced solid financial performances and is one of the most successful UK companies (the financial results are shown in Appendices Three, Four and Five). Tesco Corporate Strategy Tesco has successfully appealed to many, if not all, segments of its market. One element of the strategy has been Tescos use of its own-brand products, including the up-market Finest brand, which competes with retailers such as Marks and Spencer, the mid-range Tesco brand and the low-price Value brand, encompassing several product categories such as food and beverage which, together with low priced suppliers labels, enable Tesco to compete with the so-called hard discounters such as Lidl and Netto. It also has been successful in providing customers with home products and clothing. Other products such as mobile telecoms and financial services (insurance and banking) complete the range. Beginning in 1997, when Sir Terry Leahy took over as CEO, Tesco began marketing itself using the phrase The Tesco Way to describe the companys core purposes, values, principles and goals. This phrase became the standard marketing speak for Tesco as it expanded domestically and internationally under Leahys leadership, implying a shift by the company to focus on people, both customers and employees. A core part of the Tesco expansion strategy has been its innovative use of technology. It was one of the first to install self-service tills and use cameras to reduce queues. The way that Tesco has been able to introduce changes successfully, particularly in both the number and structure of its workforce, is clear testimony to the excellent quality of its management, and this flexibility enables Tesco to constantly evolve in line with changes in its trading environment. This can be contrasted with the problems that Sainsburys faced in trying to introduce new point of sale systems in the late 1990s. Tescos main advertising slogan is Every little helps. This simple advertising phrase in fact serves as a quasi mission statement and gives the company and its large workforce, the majority of whom are part-time, a broad guide on how to deliver excellent customer service. The Tesco

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advertisements in print and on television mainly consist of product shots (or an appropriate image, such as a car when advertising petrol) against a white background, with a price or appropriate text (e.g., Tesco Value) superimposed on a red circle. On television, voiceovers are provided by well known/high profile actors and television presenters. In early 2011, Tesco outlined its future strategy as follows: Tescos strategy is, and will remain, about broadly-based, profitable growth - and we have multiple opportunities to pursue that growth - in the UK, internationally, in food and other categories and in services. We also believe growth and sustainability are aligned, for example through our commitments to the communities we serve and the low-carbon programme we are pursuing in our business and our supply chain. So the fundamental elements of our strategy wont alter but some are evolving - as, for example, our increased focus on internet retailing, demonstrates. We have set six immediate team objectives against which we intend to be judged, they are as follows and we plan to report on these in each of our results announcements going forward: 1. 2. 3. 4. 5. 6. Keeping the UK business strong Becoming outstanding internationally - not just successful As the combination of stores and online becomes compelling for customers, we intend to become multi-channel wherever we trade We will deliver on the potential of Retailing Services - of which Tesco Bank is a big part By applying Group skill and scale we will add more value and competitive advantage to our businesses Delivering higher returns for shareholders - on a continuous basis Source - Annual report 2011

Tesco - Legal and Regulatory Concerns In 2007, Tesco was placed under investigation by the UK Office of Fair Trading (OFT), which was formerly known as the Monopolies and Mergers Commission, for acting as part of a cartel of five supermarkets (Safeway, Tesco, Asda, Morrisons and Sainsburys) and a number of dairy companies to fix the price of milk, butter and cheese. In December 2007, Asda, Sainsburys and Safeway admitted that they acted covertly against the interests of consumers while publicly claiming that they were supporting 5,000 farmers recovering from the foot and mouth crisis. They were fined a total of 116 million. Tesco, which maintains that it was not a part of the cartel, is still under investigation by the OFT. Walmart and Carrefour have both been the subject of similar investigations in their respective key markets. More recently, Tesco has been the focus of local protests in the UK with regard to its dominant position in some towns and cities such as Bristol and Liverpool, to the detriment of small businesses. In the case of Bristol, there was some civil unrest that was compared to the protests that have accompanied recent meetings of the G20 nations. Corporate Social Responsibility at Tesco In 1992, Tesco started a revolutionary computers for schools scheme, offering computers to schools and hospitals in return for obtaining vouchers from people who shopped at Tesco. Since the start of the scheme, it is estimated that equipment worth over 120 million has gone to these organisations. The scheme has also been implemented in Poland. Tesco has made a commitment to Corporate Social Responsibility (CSR) in the form of contributions of 1.87% of its 2010 pre-tax profits to charities/local community organisations. This

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compares favourably with Marks and Spencers 1.51% but unfavourably with Sainsburys 7.02%. In his role as chief executive of The Work Foundation, Will Hutton has praised Tesco for leading the debate on corporate responsibility (see Appendix Six). The following extract from Tescos 2011 annual report gives an insight into Tescos CSR policies: Communities are at the heart of what we do and we have established a leadership role on climate change. Our achievements this year include: Caring for the environment. We have exceeded our target to reduce carbon emissions from our baseline portfolio of buildings by 5.5% compared to 2009/10. In total we have footprinted over 1,000 products, and carbon labelled over 500 products in store and online in the UK. We have also continued our carbon labelling programme in South Korea. Actively supporting local communities. We have exceeded our 2010 target of donating at least 1% of pre-tax profits to charities and good causes, donating 1.8%. We have also exceeded our target to raise 7m for charity through staff and customer fundraising: in the UK alone, we raised 7.2m for our nominated Charity of the Year. Since the start of our computers and sports for schools schemes, we have given 170m worth of equipment to schools in the UK alone. We work with Marys Meals to provide daily meals to over 4,000 school children in Malawi, India, Kenya and Thailand. Buying and selling products responsibly. Under our Trading Fairly programme we now have our own experts in China, Bangladesh and South Africa working directly with local suppliers to tackle labour issues. We have increased sales of local products in the UK to 1bn. We are co-leading a project across the consumer goods industry to achieve zero net deforestation by 2020. Giving customers healthy choices. We have 100% nutrition labelling of eligible own-brand food lines in all our markets. In Thailand, around 4 million people participated in an aerobics competition, a Walkathon and football clinics. In the UK, around one million primary school children ran in the Great School Run and over 740,000 children have taken part in the F .A. (Football Association) Skills Programme. Creating good jobs and careers. We have increased the total number of staff in the Group by 21,000. Our basic hourly rate of pay for a customer assistant in the UK is 7% higher than our three largest food retail competitors. Also in the UK, 216,000 staff shared a total of 105.5m through our Shares in Success scheme in 2010, and we opened a record eight Regeneration Partnership stores this year. Inevitably an organisation the size of Tesco attracts controversy. In 2009, Tesco used the phrase Change for Good in its advertising, which is trademarked by Unicef for charity use but not for commercial or retail use. This prompted Unicef to say, It is the first time in Unicefs history that a commercial entity has purposely set out to capitalise on one of our campaigns and subsequently damage an income stream which several of our programmes for children are dependent on. They went on to call on the public, ...who have childrens welfare at heart, to consider carefully who they support when making consumer choices. (See Appendix Seven for further details.) Leadership in Tesco In 2010, Sir Terry Leahy (the CEO) announced that he was to retire. His replacement, another internal appointment, was Phillip Clarke. The key question is whether an internal appointment will give the organisation the necessary international perspective/leadership that say someone like Luc Vandevilt gave at M & S between 2000 and 2004. This is thought to be important especially for European markets.

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However Phillip Clarke, who has been with Tesco all his working life, has experienced at first hand the transformation of Tesco to become the worlds third largest retailer. After gaining a university degree, Phillip Clarke joined the Tesco Management Programme, which provided him with a perfect platform to work his way to the top of the organisation. Previously, he had direct and overall responsibility for the supply chain and information technology parts of the business. His expertise gained in IT is thought by many to show Tescos determination to take on Walmart, who are very good at using IT to maximise efficiency in all aspects of the business. More recently, he became responsible for the businesses outside of the UK, leading Tescos entry into China and the United States with the opening of the Fresh and Easy stores. Commenting on the appointment of Mr. Clarke a leading retail analyst, Rahul Sharma, from the organisation Neev Capital, believes that Mr. Clarke needs to sharpen the Tesco price image once again and should also be more open to the idea of recruiting external talent. The Global Grocery - Mass Retailer Market The global grocery market is dominated by three organisations who have expressed international ambitions - Carrefour, Walmart and Tesco. Alongside these, there are the so-called hard discount stores of Aldi, Lidl, Leader Price and Netto, who operate from smaller outlets with a restricted range of products, particularly in non-food items. When entering a foreign country, there is likely to be significant competition from domestic operators, such as exists in Germany and Spain. Carrefour With over 450,000 employees, Carrefour, based in France, is one of the worlds largest private sector employers. It is seen as a pioneering entrant in countries such as Brazil (1975) and China (1995). The group currently operates in three major markets: Europe, Latin America and Asia, with a presence in 34 countries. Over 57% of group turnover derives from outside France. The group sees strong potential for further international growth, particularly in such large markets as China, Brazil, Indonesia, Poland and Turkey. Their stores operate under many different brands, often reflecting the local situation. In 2009, the company had annual sales of 85.9 billion euros. Although a major presence globally, it is not the largest retailer in France, being ranked second behind the Leclerc group. Tesco Tesco currently operates in 14 countries. The property division of Tesco has established successful shopping mall businesses in South Korea, Thailand, Malaysia, Central Europe and China.

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Tesco International Results: 52 weeks ended 26 February 2011 million at actual exchange rates United Kingdom Revenue Trading profit/(loss) Walmart Sam Walton opened the first Walmart store in 1962 in the US. He had previous experience of regional discount stores. Expansion was comparatively slow until Walmart launched its shares on the New York Stock Market in 1972 and, within 8 years, the number of stores had grown to 276 across 11 US states. In 1983, the first Sams Club members warehouse store opened. By the end of the 1980s, there were 1,402 stores and 123 Sams Club locations. Its first real global initiative outside North America was the purchase of the Asda grocery chain in the United Kingdom in 1998. The company has more than 9,000 outlets, trading under 60 different banners in over 15 countries globally. The organisation employs over 2.1 million people, many of whom are part-time. The company views its people not simply as employees, but as associates. In 2010, total sales amounted to over $421 billion. Sam Walton died in 1992, but his philosophy of giving customers what they want still underpins the mission of the company. His main goal was to save people money to help them live better, and this has been translated globally into an internal productivity programme known as every day low cost (EDLC) which means every day low prices (EDLP) for its customers. International Sales versus Domestic Sales Store Group Carrefour Tesco Walmart Number of Outlets by Region Region Asia Europe North America Central & South America Middle East Africa Australia/New Zealand Carrefour - 2009 718 13,237 nil 1,365 23 72 nil Tesco - 2010 1,424 3,894 164 nil nil nil nil Walmart - 2010 747 386 6,468 1,381 nil nil nil International 57% 30% 30% Domestic 43% 70% 70% 40,117 2,504 Asia 10,241 570 Rest of Europe 9,159 527 United States 495 (186) Tesco Bank 919 264 Total 60,931 3,679

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Future Issues In addition to the impact of the PESTLE factors, there are specific issues regarding international retailing. The key question is: can retailing based upon grocery/food become a truly globalised brand and, if so, how can Tesco achieve this? A recent independent study identified some key factors in determining the strategy for international development for organisations such as Tesco, Carrefour and Walmart. These are: 1. 2. 3. 4. 5. 6. The degree of sophistication/development in the supply chain. The level of economic development in terms of the degree of car ownership, levels of urbanisation and disposable income after key costs such as housing expenses have been taken into account. The availability of suitable retail sites, notably out of town locations. The attitudes within the local culture towards customer service. The opportunity to use CSR activities to build relationships with local and national communities. The availability of suitable local managers.

There are problems facing development in countries such as India and many African nations where there are significant, and very remote, rural populations. These problems will require imaginative solutions, as illustrated by the initiative undertaken by leading global brands in India to ensure maximum distribution (Appendix Eight). For Tesco, the focus of future plans will be on how to repeat the successful UK strategy globally, and to what extent a standardised approach can be used. Rahul Sharma from Neev Capital, among others, stresses that Tesco needs to go global. He believes that growth opportunities in Tescos domestic UK market are limited because of competition and the fact that population growth is not at the rate that would be needed to enable Tescos profits to continue to grow at their current rate. Although Tesco has enjoyed success in most of its international operations, it is still to break even on its US operations.

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APPENDIx ONE Tesco outlets by type in the United Kingdom - 2011 Format Tesco Extra Tesco Superstores Tesco Metro Tesco Express One Stop Tesco Homeplus Dobbies Total Number 212 470 186 1,285 521 13 28 2,715 Total area (m) 1,400,885 1,297,112 194,632 272,392 74,044 51,468 121,053 3,411,586 Percentage of space 41.08% 38.04% 5.73% 7.99% 2.04% 1.53% 3.57% 100%

Source : Tesco Preliminary Results 2011

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APPENDIx TWO Tesco Direct looks at click-and-collect By Neil Crave 26 February 2011 Tesco is considering a plan to allow customers to pick up their internet orders from its vast network of convenience stores. The strategy would see the supermarket giant drop off orders from its nongrocery site Tesco Direct to about 1,400 Express and Metro stores through its existing delivery network. This could effectively cut out the need for the chain to rely on Royal Mail and significantly reduce the cost of delivery. Discussions about the project are understood to be at an early stage, but Tesco last year separately began trials of a grocery service commonly known as click-and-collect. Analysts said the plan for non-grocery items would require limited reorganisation in its shops to drop off packages and provide space to store orders, but would otherwise require little investment by Tesco. The last mile is seen as a key barrier for home delivery, said supermarket analyst Clive Black at stockbroker Shore Capital. A lot of people might be persuaded to order online if they could turn up to a local store rather than wait for hours at home until the delivery arrives. Tesco declined to comment. However, click-and-collect operations are becoming increasingly popular with shoppers and retailers. Black said Sainsburys, which has about 400 convenience stores, is likely to watch closely any developments at Tesco. Several other retailers have begun to encroach on the territory traditionally seen as the preserve of catalogue retailer Argos. Marks & Spencer operates a collect service called Shop Your Way, while John Lewis last year began allowing shoppers to pick up orders from its sister chain Waitrose. Tesco has also launched Argos* style catalogue service desks in some of its large Extra stores. * Argos is a retailer of non-food products such as toys and electrical goods that sells its goods through catalogues with customers placing and collecting orders from outlets which are smaller than traditional retail outlets because there is no need to display the goods. Source: Mail Online 26/02/2011

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APPENDIx THREE Summary of Tesco Financial Performance 52 weeks to 26th February 2011 Increase vs 2010 Group sales (inc. VAT) Group revenue (exc. VAT) Group trading profit Underlying profit before tax Group profit before tax Underlying diluted earnings per share Dividend per share Net debt Return on capital employed 67,573m 60,931m 3,679m 3,813m 3,535m 35.72p 14.46p 6.8bn 12.9% 8.1% 7.1% 7.8% 12.3% 11.3% 10.8% 10.8% Down 1.1bn Up 0.8%

Source: Tesco Preliminary Results 2011

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APPENDIX FOUR Tesco plc - Group Balance Sheet - million 2011 Non-current assets Goodwill and other intangible assets Property, plant and equipment Investment property Investments in joint ventures and associates Other investments Loans and advances to customers Derivative financial instruments Deferred tax assets Total Current assets Inventories Trade and other receivables Loans and advances to customers Loans and advances to banks and other financial assets Derivative financial instruments Current tax assets Short-term investments Cash and cash equivalents Sub total Non-current assets classified as held for sale Total Current liabilities Trade and other payables Financial liabilities - Borrowings - Derivative financial instruments and other liabilities Customer deposits Deposits by banks Current tax liabilities Provisions Sub total Net current liabilities Non-current liabilities Financial liabilities - Borrowings - Derivative financial instruments and other liabilities Post-employment benefit obligations Deferred tax liabilities Provisions Sub total Net assets 4,338 24,398 1,863 316 1,108 2,127 1,139 48 35,337 3,162 2,314 2,514 404 148 4 1,022 1,870 11,438 431 11,869 (10,484) (1,386) (255) (5,074) (36) (432) (64) (17,731) (5,862) 2010 4,177 24,203 1,731 152 863 1,844 1,250 38 34,258 2,729 1,888 2,268 144 224 6 1,314 2,819 11,392 373 11,765 (9,442) (1,529) (146) (4,357) (30) (472) (39) (16,015) (4,250)

(9,689) (600) (1,356) (1,094) (113) (12,852) 16,623

(11,744) (776) (1,840) (795) (172) (15,327) 14,681

Source: Tesco Preliminary Results 2011

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APPENDIX FIVE Tesco plc Group Income Statement 52 weeks ended 26 February 2011 2011 m Continuing Operations Revenue (sales excluding VAT) Cost of sales Gross Profit Administrative expenses Profit arising on property related items Operating profit Share of post-tax profits on joint ventures and associates Finance income Finance costs Profit before tax Taxation Profit for the year Earnings per share Dividends per share 60,931 55,871 5,060 (1,676) 427 3,811 57 150 (483) 3,535 (864) 2,671 33.10p 14.46p 2010 m 56,910 52,303 4,607 (1,527) 377 3,457 33 265 (579) 3,176 (840) 2,336 29.33p 13.05p

Source: Tesco Preliminary Results 2011

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APPENDIx SIx 10 May 2006 Tesco is leading the debate about what corporate responsibility means, says The Work Foundation Welcoming the launch of Tescos new community programme, Will Hutton, chief executive of The Work Foundation, today said: The Work Foundation commends Tesco for leading the debate about how big business should interact with society. Its 10 commitments put some detail on the aspiration of many leading businesses to be a good neighbour. Too often, corporate responsibility has existed at the level of rhetoric, while employers have struggled to spell out how it will change the way business is done. It has thus become easy to paint it as pure spin. Sir Terry Leahy has today broken with this tradition with a series of substantial pledges. The Work Foundation hopes that this programme acts as a tipping point for the development of new corporate sustainability initiatives among organisations. We hope it encourages other businesses to think in practical terms about a companys obligations beyond keeping shareholders satisfied. The Tesco plan looks good on paper; time will tell what effect it has on our lives as consumers and citizens. Source: The Work Foundation

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APPENDIx SEVEN Article by Louise McBride - Irish Times - Sunday July 26 2009 Supermarket giant Tesco in Ireland is refusing to pull (withdraw) the adverts for its latest price cutting campaign - despite complaints from the childrens charity Unicef Ireland. Tesco last month launched its 100m Change for Good campaign, which involves a nationwide roll-out of price cuts recently introduced in its border town stores - much to the annoyance of Unicef, which has been running a charity campaign under the same name since 1987. Under Unicefs Change for Good campaign, passengers on long-haul flights are asked to donate any foreign currency to the childrens charity. The campaign, which involves a partnership with the Irish airline, Aer Lingus, has raised over 6.8m for Unicef since 1997. Its a short-term campaign that we are running in Ireland. The two campaigns are completely separate, said a spokesman for Tesco. Unicef, however, said: it is the first time in Unicefs history that a commercial entity has purposely set out to capitalise on one of our campaigns. We fail to understand why a company with a multi-million euro advertising budget finds it necessary to use a childrens charity slogan which we have spent years developing, said Melanie Verwoerd, executive director with Unicef. Source: Irish Times 26 July 2009

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APPENDIx EIGHT The Big Brands reaching Rural India Lawan is a long way from nowhere. The remote village is dry, hot and dusty. It is still morning, but the sun is already burning. Only the brave venture out into the harsh, radiating heat. Glowing barbs of white sunlight bounce off the small, mud-brick buildings. The closest market to this village is nearly 40km away. The best way to get there is on a slow-moving tractor. These are not ideal conditions for a spot of shopping in rural Rajasthan. Reaching rural India For many years, rural India has been a somewhat untapped market for consumer goods and services companies. Big and small, Indian and foreign, many have tried to set up shop, but few have had lasting success. Hundreds of millions of Indians call rural and remote India home. Many of them live and work in tiny, obscure, off-the-map villages. In recent years, the big consumer goods companies that produce everything from toothpaste to crisps have established a presence in small and mid-sized towns and districts. However, few have been able to establish direct contact with villages of 5,000 people or less. United Villages, a new rural supply company operating in Jaipur in Rajasthan, believes it can fill the gap in rural Indias supply chain and get big brands to even the smallest of villages. The company claims that by combining the use of existing infrastructure with rural marketing and wireless applications, it can turn a $7.4bn opportunity into a rural retail reality. Chintan Bakshi, co-founder and chief operating officer of United Villages, says that multi-brand firms like Hindustan Unilever are able to reach out to rural India through rural-facing incentives and schemes. However, for small and mid-sized companies, the economics of operating in rural India do not, at present, make good business sense. The outsourcing of distribution by big companies means that smaller areas that fall outside targeted districts or regions are seldom tapped as potential sales areas. Experts have long said that technology will play a critical role in getting products, services and assistance to remote India. If done correctly, many argue, it could open up a potential consumer market of hundreds of millions of people. And not least, connect big brands with the smallest of villages, all at the push of a button. Hard work For nine months, United Villages has been operating in rural areas around Jaipur in Rajasthan. So far, it has built a distribution network that caters to more than 700 rural retailers. The company says the concept is simple: field staff take orders from retailers, wire them via a mobile application to a central warehouse, and products are delivered to local corner shops and stores, neatly packed in boxes. This, they say, is modern-day door-to-door service. Mr. Bakshi says the proliferation of mobile phones in rural India has made providing a service like this possible. Furthermore, reliable phone connections and networks have made establishing a mobile supply network in Rajasthan relatively easy. However, doing business in remote areas, he warns, is far from easy.

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Mr. Bakshi claims that one of the biggest challenges is hiring and retaining staff with good local knowledge and an ability to incentivise the use of new products and make bigger sales. Mahesh Sharma, a United Villages representative, travels from shop to shop in Lawan village, a little over an hour away from Jaipur. He says at first, retailers hesitate to buy new products and to stock unknown items on their shelves. But he adds that once they get used to the system, retailers begin to appreciate its benefits. According to the firms own research, retailers in Indian villages with a population of less than 10,000 people usually have to leave their immediate areas to procure 81% of their stock. Mr Sharma says that before United Villages began its mobile supply operations in rural Jaipur, retailers had to shut their shops and travel 30 to 40km to the nearest market to get supplies. That, he says, used to waste valuable time and lead to a loss of sales. Now, he claims, vendors can have products delivered right to their doorstep in a cost-effective manner that makes operational sense. Retailers such as Vinod Kumar Vati from Baswa village say it takes a lot to convince rural consumers of the benefits of trying something new. Checking inventory lists in his small corner store in a quiet, cramped lane, Mr. Vati says his customers like to stick to what they know. Be it cleaning powder or sweets, he says his customers insist on product guarantees. Doing business in rural India, face to face or through mobile technology, is all about building trust and sustainable relationships on the ground. Sales representatives and retailers agree that it may be some time before the consumption patterns of rural India begin to look like those of the countrys big cities. However, mobile technology may be the first step towards opening up potentially large and lucrative pockets of consumers to big retail business. Connecting the masses In recent years, the race to reach rural India has picked up pace. Companies big and small, as well as government-driven programmes, have been moving deeper into the countrys hinterland in a bid to generate more business and connect customers, vendors and industries together via mobile technology. From real-time mobile phone alerts updating farmers on the price of crops, to business correspondents taking portable banking to rural households, mobile technology is being used to unlock a potentially large and lucrative consumer base. However, when it comes to bridging gaps in the rural retail supply chain, United Villages claims it is not facing any direct competition. Mr. Bakshi says that some microfinance firms have piloted similar concepts in South India, but so far, United Villages hold a unique place in the countrys retail landscape. Mr. Bakshi insists that demand is not a problem, but bottlenecks in the supply system are.

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Big plans It is still early days for United Villages, but the company already has big plans for expansion. By the end of the year, Mr Bakshi hopes to have four operational hubs dotted across Rajasthan. Using them as bases to supply rural areas, United Villages aims to reach out to around 36,000 small retailers across the state. This, he adds, could then pave the way for expansion of the mobile retail model into surrounding states. There is a growing desire among people in rural India to be part of the countrys modernisation process, which includes the provision of modern goods and services. Experts claim that if mobile technology in rural India remains progressive and accessible, and if supply networks on the ground are built to last, more big brands may find themselves doing big business in places they may not have endeavoured, or thought, to visit before Source: BBC 27 March 2011 BBC MMxI

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APPENDIx NINE Location of Stores/Operations for Carrefour, Tesco and Walmart X = commercial presence Country Argentina Brazil Belgium Canada Chile China Columbia Costa Rica Cyprus Czech Republic Dominican Republic Egypt El Salvador France Greece Guatemala Honduras Hungary India Indonesia Iraq Ireland (Republic of) Italy Japan Malaysia Mexico Nicaragua Poland Portugal Romania Qatar Slovakia Singapore Saudi Arabia South Korea Spain Sultanate of Oman Taiwan Thailand Tunisia Turkey United Arab Emirates United Kingdom United States

Carrefour X X X

Tesco

Walmart X X X X X X

X X X

X X X

X X X X X X X

X X X X X X X X X

X X X

X X X X X X X X X X

X X X X X X X X

Source: Companies Annual Reports

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