Sonia and Rahul with help from Manmohan who are trying to benefit foreigners, should take a lesson from the case study of Tesco in Malaysia and Thailand.
They should also learn from Hindu school of economics based on dharma. See: http://bharatkalyan97. blogspot.com/2011/11/hindu- school-of-economics-based-on. html
(A Corporate Profile)
By Corporate Watch UK
Completed September 2004
‘Our market share of UK retailing is 12.5% – that leaves 87.5% to go after’ – Terry Leahy, Tesco Chief Executive, quoted in Management Today
‘Tesco will just sail away. It will become unreachable, and the Competition Commission has perpetrated that. The only thing that could bring Tesco down is its management, and they do not make mistakes’ – Carlos Criado-Perez, former chief executive of Safeway Plc
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Tesco, Britain’s biggest and most profitable supermarket chain, is the darling of the City. But behind the fascia of the ‘under one roof’ out-of-town Tesco Extra, or the friendly high street Tesco Metro, lies a ruthless billion pound operation.
In recent years, Tesco and its major supermarket rivals have faced criticism for abusing their monopoly positions and contributing to some of the major social and environmental problems plaguing society today.
These include exploiting small farmers in the UK and worldwide and hastening their replacement with industrial monoculture plantations where wages are low and labour rights are minimal; undercutting almost every other retailer and hence turning our town centres into boarded-up ghost towns; co-operating with climate criminals, Esso; as well as numerous other corporate crimes.
This profile was updated in 2004 as a reflection of Tesco’s continued meteoric rise over the last few years, with all the attendant social and environmental impacts.
Market share and importance:
‘No matter how fast we grew Sainsbury’s were always in front of us. But slowly but surely we managed to grind them down and grind them out.’ – Tim Mason, Tesco marketing director.
In 1995 Tesco overtook Sainsbury’s as the UK’s largest supermarket. In 2001 Tesco occupied 15.6% of the UK grocery retail market and was the market leader by 6%. Tesco’s enormous share is still growing: by September 2004, it had increased to a massive 28%, around 12% more than its nearest market rival, Asda. Some would argue that if we were to include Tesco’s share of the convenience store market (bizarrely considered a seperate sector by UK competition authorities) in this figure, Tesco could be said to control 34% of the grocery market.
Considering how concentrated and cut-throat the ‘supermarket’ market is, this is quite an achievement. In the UK, Asda’s only real shot at catching up with Tesco would have come from a merger with Safeway, which was disallowed by the competition authorities 2003. However, Asda’s parent company, Wal-Mart, the world’s largest company, with global sales of $256bn in 2003, is still eight times bigger than Tesco. At present the only threat to Tesco’s ever-increasing market share would come if the Competition authorities stepped in to enforce monopoly legislation which defines a ‘classic monopoly’ as 25% of market share in a given sector. Since they have already carried out an investigation into the power of supermarkets in the lifetime of the Blair government, it seems unlikely that the Competition authorities will step in to stop Tesco’s obvious and increasing anti-competitive position. On the contrary, they are just letting Tesco grow and grow.
In September 2004, after Morrisons bought Safeway, Tesco was permitted to buy 10 of the 52 Safeway stores that Morrisons were obliged to sell by the competition authorities as part of their acquisition. Tesco is equally impressive when considering its share of the total retail market. In its interim statement of results (August 2003), Tesco claimed ‘our share of the total retail market is just 12.3% and there is a lot left to go for.’ Already, ‘just 12.3%’ means that almost one pound in every eight spent in the UK is spent in Tesco.
Tesco’s favoured measure of growth is ‘like for like’ growth – sales growth on existing shopfloor space – which excludes growth from extra shopfloor space in new or extended stores. Even by this restricted measure sales grew 8.3% in the year to September 2004. Tesco profits have increased every year but one since 1987. In April 2004, Tesco announced profits of £1.6bn for the financial year ending on 28 February; £4.4m profit a day, 17.6% higher than the previous year. As a comparison, in 2003 Tesco made as much profit as M&S, Sainsbury, Next and WH Smith combined. Analysts are now forecasting Tesco pre-tax profits for 2005 will be above the £2bn mark, five times that of Sainsbury.
Tesco is Europe’s second largest supermarket after the French firm Carrefour, and according to Mintel market research in 2004, Tesco is closing the gap. It is the fourth largest supermarket in the world. Tesco operates 2,318 stores in 12 countries around the world and employs 326,000 people, 237,000 of them in Britain where it is the largest private employer.
According to Terry Leahy, Tesco is market leader in 6 out of the 12 countries that it operates in, with its largest store, not in Bristol or Birmingham, but in Budapest. It operates 1,878 stores in the UK, 261 stores in Europe and 179 stores across Asia, and plans to open 184 stores worldwide over the next year. In the UK, there are 83 Tesco Extra stores; 447 Tesco superstores; 161 Tesco Metro stores; 277 Tesco Express stores and 910 recently-acquired T&S stores still to be converted (see ‘Moving in on the convenience (“c-store”) sector’, below.
A study carried out for the Sunday Times by research group CACI revealed that Tesco has almost total control of the food market in 108 of Britain’s postal areas – 7.4% of the country. This includes Epping in Essex, Penarth in South Glamorgan and Buckingham. In a further 104 areas, it accounts for more than half of grocery spending. Competition law states that a corporation should not account for more than a quarter of the UK market nationally, but this study showed 325 areas where Tesco exceeds this limit. The populations in Buckingham, Bicester and Brackley can now choose from ‘Tesco, Tesco or Tesco’ as a result of the chain’s recent acquisition of the One Stop chain of convenience stores.
At the end of 2003, Tesco was voted most admired company and its chief executive, Sir Terry Leahy was voted most admired leader by Management Today. The most impressive aspect of Tesco’s triumph was the ‘margin of victory’ in both categories. Tesco also came top in other categories, ‘Quality of Management’, ‘Quality of Goods & Services’, ‘Ability to Attract, Develop & Maintain Top Talent’, ‘Value as a Long-Term Investment’, ‘Quality of Marketing’ and ‘Use of Corporate Assets’. Only in the rankings for ‘Community and Environmental Responsibility’ did it fall outside the top 10.
In most countries Tesco’s preferred tactic seems to be to buy an existing retail chain, or a significant share of one, and turn it into a Tesco subsidiary. Then it can begin the usual tactics undercutting local traders, aggressively competitive pricing, selling petrol, launching loyalty card schemes, 24 hour opening and so on.
Tesco has favoured large hypermarkets for its international stores, since in most countries it is easier to get planning permission for these than it is in the UK. The hypermarkets have an emphasis on non-food items: 55% of the sales area in a typical Asian hypermarket and 50% in a European one. Tesco is also opening petrol stations in Hungary, Ireland and Thailand. Rather than expanding into other West European countries, Tesco is focusing on ex- Soviet countries and South East Asia.
According to David Hughes, professor of agribusiness and food marketing at the Centre for Food Chain Research at Imperial College in London, supermarkets from rich countries feel obliged to do this because, ‘…they’ve got nowhere else to go. Their domestic markets are saturated, so they are looking for countries with large populations, high population growth, per capita GDP edging toward consumer levels, high income growth, and low supermarket presence. Countries with all five of these characteristics are a good bet, and companies rush to get there before everyone else.’
The arrival of Tesco and the other major international supermarkets means that retail patterns are rapidly changing in the developing world.
Tom Reardon, professor of international development and agribusiness/food industry at Michigan State University, argues that ‘this retail revolution poses serious risks for developing country farmers who have traditionally supplied the local street markets.’
A survey from the International Food Policy Research Institute suggests that farmers in Asia are having a hard time getting used to the procurement systems supermarkets set up. Rather than growing their produce and taking it straight to a market, they have to deal with a new chain of middlemen such as procurement officers, wholesalers and so on. They also have to deal with supermarkets’ standards of uniformity in shape and size, meaning that a lot of produce is rejected.
‘The small farmer will not be the one making the decision about what to grow. That’s a fundamental change for farmers,’ explains Jean Kinsey, co-director of the University of Minnesota Retail Food Industry Center.
Once the food has been grown, and if the supermarket chooses to accept it, farmers can also have trouble with transporting it. Payment is then often delayed for up to 60 days after the product has been delivered, too long for many people to wait. The system is set up so that supermarkets only have to deal with a small number of large and often mono-cultural farms, a fundamental change from the way food has traditionally been produced which means that a lot of small farmers who are used to producing a variety of crops will have to either make radical changes to their practices or go out of business.
The Malaysian and Thai governments are clearly concerned about Tesco’s power and are making attempts at curbing it. Tesco’s entry into both Thailand and Malaysia seems to have prompted a new wave of legislation aimed at reducing the power of foreign supermarkets and big business. However, Asian governments may feel they are treading a fine line between on the one hand encouraging foreign investment and boosting their country’s economy, and, on the other, letting multinational chains take over at the expense of local traders. But then they don’t always have a choice, since they risk WTO action if they take measures to restrict the power of the multinationals.
For example, the Thai government in November 2002 withdrew plans to legislate against foreign-owned supermarkets – who now control more than half the Thai market – by restricting their opening hours ‘because it feared retaliation under international trade rules’. The Thai Prime Minister, Thaksin Shinawatra, told a meeting of small shopkeepers, ‘We already have existing laws that can be modified and enforced quickly, which won’t be viewed as a trade discrimination practice. Why don’t we use them?…From now on, there won’t be a new law, just let it rest.’ However, Deputy Commerce Minister Wattana Muangsuk said that Thai policy would continue to use planning legislation to favour Thai traders.
In only seven years, Tesco has reached annual sales of £2.8bn in Asia. It has a total of 179 stores, covering 9.5 million square feet, and plans to open another 65 in the coming year.46
‘Industry onlookers expect Tesco to use Thailand as a launch pad for a large-scale Asian expansion.’
Tesco first moved into Thailand in 1998 by buying a large stake in the Thai-owned Lotus chain of convenience stores. Thailand was the first south-east Asian country into which Tesco moved on a large scale, and by the end of 2002, Tesco had already captured 31% of the Thai market. Tesco now has 64 stores in Thailand, 47 of which are hypermarkets, and plans to open another 57 stores in 2004/5. These will include 40 Tesco Lotus Express stores which will be attached to Exxon Mobil petrol stations. During 2004, Tesco also plans to buy the remaining stake in Tesco Lotus.
When it entered the Thai market, Tesco was keen to point out that it would be sourcing produce locally, employing local people, and generally benefiting the local economy – ‘the company is committed to helping its local suppliers access local and international markets, and sell to multinational retailers, by helping them improve their quality and service standards’. However, today, it is embroiled in accusations of unfair trading practices and conflicts with local businesses:
Tesco was very vocal about its intentions to source products locally. This sounds good, but it is hard to believe Thai farmers can keep working on a human scale when trying to supply produce for 47 hypermarkets. Even where Thai products are being used, they are still likely to have been intensively farmed at the expense of small farmers, traditional farming methods and the environment. The use of centralised distribution centres also means that even if a product is produced locally, it has probably been on an epic journey before it reaches the supermarket.
Sourcing local produce does not mean treating local suppliers any better. In July 2002 Tesco Lotus was taken to court along with several other international retail chains including Carrefour, and found guilty of charging slotting fees to carry manufacturers’ products, charging entry fees to suppliers, advertising fees and product display fees, and displaying own-brand products next to similar branded products.
Benefiting the local economy
It is impossible for Tesco to honestly claim to benefit the local economy. It may be increasing the general traffic of money in the area where it sets up new stores – i.e. creating a culture of wanting to buy more things and encouraging people to spend more money on things they would probably not otherwise even want – but a tiny percentage of this money stays with local people, even those who have been promoted to store manager. The vast majority of profit goes towards making the corporation – and the directors and shareholders – even richer.
In the words of Boonyoong Vimuttayon, a Bangkok grocery store owner whose sales have declined by more than half since a Tesco Lotus store opened on his street four years ago: ‘The foreigners get richer and richer, while we get poorer all the time.’
Tesco is very proud of its price reductions in South East Asia –
‘Just as in the UK and Europe we carry out price campaigns to deliver unbeatable value for our customers’ –
However, it seems to be starting a war – of prices, opening hours, and so on – that local retailers cannot possibly compete in. It is worth remembering that from Tesco’s point of view, the only serious rivals are other international companies, namely Carrefour and WalMart, and local ones who suffer as a result are merely ‘collateral damage’.
GM food dumping
According to a report from Greenpeace Southeast Asia, in 2003 a high percentage of GM soya was found in a Tesco Lotus own-brand Chinese Sausage which was not labelled as containing any GM product. The article points to Thailand’s weak labelling laws as the problem, but surely if Tesco was as committed to organic agriculture as they like to claim, there wouldn’t be GM soya in its products in the first place? It seems unlikely that Tesco would even consider taking such a risk in its UK stores, where GM is firmly on the agenda as a consumer issue.
A Greenpeace campaigner said:’The loopholes in the labelling law allow multinational companies to dump GM soya into Thailand. It is time to make this law stricter to protect consumers and give them a genuine right to know.’
The same article says that Tesco Lotus is on Greenpeace’s blacklist of businesses because of their use of GM soya and lack of labelling. Greenpeace South-East Asia continues to campaign against the use of poorer countries as ‘GM guinea pigs’.
Tesco has had a presence in Malaysia since 2002, and now has five stores and two more planned for 2005.57
New legislation just for Tesco
Despite having been in Malaysia for a relatively short time, and having few stores, Tesco’s presence has been controversial and a catalyst for the implementation of stricter trading laws. As of January 2004, there is a five-year freeze on the building of any new hypermarkets in Malysia’s three major cities Kuala Lumpur, Penang and Johor Bahru.
The article reporting this mentions Tesco and Carrefour specifically as foreign chains who will be affected by the ruling.
In 2003 the government ruled that plans for new hypermarkets must be submitted two years in advance and socio-economic impact studies carried out. There are also new ‘zoning rules’ which say that there can only be one hypermarket for every 350,000 people.
However, curbing Tesco’s power may prove to be difficult. In March 2004, Tesco decided to continue opening its Puchong store 24 hours a day despite having been told not to do so by the Ministry of Domestic Trade and Consumer Affairs who cited the negative effect it would have on other retailers in the area.
When it first began moving into Malaysia in 2002, Tesco was anxious to make assurances that it would ‘work closely with local suppliers to source many own-label products locally’. However, the same article states that these products will eventually be exported to Tesco stores in other countries, so it doesn’t really come into the category of local scale production. It is very hard to imagine how such a large company, with such an emphasis on hypermarkets in so many parts of the world, can ever realistically say it is going to source products for its stores locally.
The ‘Tesco’ approach
The final plank in Tesco’s strategy is the ‘Tesco’ approach – ‘To create value for our customers, to earn their lifetime loyalty’.
Its two values are:
‘No-one tries harder than we do for customers’ ‘
‘We treat people the way we like to be treated’.
These values are, however, rather selectively applied to customers and shareholders rather than farmers and smaller competitors.
Over the 80 years since its inception, Tesco has responded to and taken advantage of major changes in lifestyle patterns, and this is key to its ongoing success. Changes have included more women entering the workplace; greater disposable incomes; fewer cooked family meals, the advent of the weekly shop, made easier by the rise in car usage; and Britain’s cheap food policy adopted after the Second World War.