Business at work

financial records.

Turnover and profits of Tesco in 1997-1998

The turnover and profits for the year ending 28th February 1998 were as

follows:

1. Group Turnover (incl VAT) - Ј17.8 billion (Ј17,800 million), an

increase of 18.7% on the previous twelve months. This figure is for 53

weeks compared to 52 weeks for the previous year and includes the

newly acquired businesses in Northern Ireland and the Republic of

Ireland. On a comparable basis with the previous year, excluding the

Irish acquisitions, turnover was Ј16.4 billion, and increase of 9.2%

2. Profits on ordinary activities before tax, integration costs and

disposal loss - Ј832 million, an increase of 10.9% on the previous

twelve months.

Changing of company's financial fortunes 1992-98

The changes in the company's financial fortunes are shown in graphs 1 and 2

Graph 1,2: Group turnover and operating profit 1992-8

Graph 3: Share earnings and dividends 1992-8

Profits share

In 1998 the profits from Tesco after tax were Ј505 million. About 50% of

the profits were distributed to shareholders as dividends. Subsequently

approximately Ј250 million was retained by the company for investment in

new stores and improving their service to customers.

Changing of share price in recent years

Between February 1997 and February 1998, the Tesco share price rose from

349p per share to 517p. It reached a peak in the period of 539p. In the

year 1998-9, the price continued to rise, being 586p on 21st April 1998,

and having peaked at 603p at the previous stock market high.

Market share of Tesco

In February 1998, Tesco had 15.2% of the UK retail food market. The

company's share has increased consistently since 1992 when it held 10.4% of

the market.

Graph 4: Market share growth 1992-8

Turnover, profits and market share of Tesco in 1999-2000

Profit and loss account

This year was another successful trading year for Tesco plc. Total sales

increased by 9.8% to Ј20,358m and underlying pre-tax profit increased by

8.4% to Ј955m. Adjusted diluted earnings per share rose 8.6% to 10.18p. A

final dividend of 3.14p per share is proposed, making the full year

dividend 4.48p, an increase of 8.7% over last year.

UK retail sales have grown 7.4% to Ј18,331m. Like-for-like sales were 4.2%

which consists of volume of 3.2% and inflation of 1.0%, with new stores

continuing to perform well, contributing 3.2% to sales.

UK operating profit increased to Ј993m up 8.1% on last year. Tesco’s UK

operating margin remained broadly flat at 5.9% in a year when Tesco made

substantial investments in price.

Company change programmes continue to deliver increasing levels of

efficiencies enabling us to invest for customers and grow profits.

Sales in the rest of Europe accelerated with total sales up 18.8% to

Ј1,527m and contributed an operating profit of Ј51m, up 6.3%. Sales in the

Republic of Ireland in local currency are up 6.1%, reflecting the benefits

of company’s store rebranding programme. In Central Europe sales are up

76.8% at constant exchange rates. Tesco 11 new hypermarkets across the

region have all traded strongly since opening.

Business in Thailand has seen good growth and the three new stores have

contributed to sales of Ј357m up 96%. In South Korea, Tesco Homeplus

achieved sales of Ј140m in the period since acquisition. In the Asian

region Tesco made a small operating loss of Ј1m.

Tesco Personal Finance has now been trading for nearly three years and

share of losses this year are Ј4m compared to a Ј12m loss last year.

Tax on underlying profit has been charged for the year at an effective rate

of 27.4%.

CHRISTMAS & NEW YEAR TRADING STATEMENT

Monday

15 January 2001

GROUP SALES GROWTH CONTINUING TO ACCELERATE

Group sales for the seven weeks ending 6 January 2001 increased by 15.4%.

This growth was driven by excellent performances from all four elements of

Tesco strategy: a strong core UK, increasing non-food sales, rapidly

developing international stores and expansion into retailing services.

OUTSTANDING UK GROWTH UP 10.5%

Total UK sales for this seven weeks, covering Christmas and the New Year,

were up 10.5%. Compared to last year this period included one extra day's

trading over the New Year. Like-for-like sales were up 6.9% driven by

excellent sales volumes of 7.3%. This performance reflects determination to

deliver the best offer for customers as Tesco continue to cut prices.

Overall deflation was -0.4%.

STRONG INTERNATIONAL PERFORMANCE

In 2000 Tesco opened 32 stores internationally adding over 3m sq. ft. of

new trading space. This represents an increase in International trading

space of over 45% on the previous year. International sales were up 50%

over the Christmas and New Year period as a result of existing stores

maturing and new store openings.

RECORD NON FOOD PERFORMANCE

Company’s strategy of offering excellent value in non-food to customers was

a resounding success this Christmas. Tesco achieved sales in all areas

including 14,000 DVD players and 8,000 widescreen televisions.

TESCO.COM SALES QUADRUPLE

The roll-out of Tesco.com to cover 90% of the UK population helped drive

the performance over Christmas with sales up 400% on last year. To meet

this demand Tesco.com recruited 400 new staff, allocated 10,000 additional

delivery slots and delivered 30m products.

Some examples of meeting its objectives by Tesco plc.

Product promotions

Objective: to give customers a broad range of strong relevant promotions in

all departments of the store.

Examples: hundreds of MultiSave, Link Save and Special Offer promotions in

all stores every month.

Product range

Objective: to give customers what they want under one roof.

Examples: constant development of new and exciting food products;

introduction of clothing, CDs and videos.

Pricing

Objective: to be competitive especially with regard to the basic lines.

Examples: Value Lines and Unbeatable Value pricing, giving low prices on

key brands and own-brand products.

Customer Service

Objective: to provide customers with outstanding, naturally delivered

personal service.

Examples: baby changing facilities, no quibble money back guarantee, "one

in front" queuing policy.

Store design

Objective: to provide an environment that is easy and pleasant to shop in.

Example: store layouts, fixtures and ambience improved to ease customer

flow and make shopping more enjoyable.

Store refurbishment

Objective: to upgrade existing stores to the standard that is expected from

Tesco.

Example: existing stores improved to include recent innovations.

Communications

Objective: advertising should appeal to all social and economic groups in a

relevant and friendly way. Example: recent television ads.

C2

How the organisational structure, culture and management style of the

business affects its performance and operation and helps it to meet its

objectives?

I have analysed each of the major functions of Tesco separately. However,

it is the effective interaction of business functions that is essential to

the success of an organisation in attaining its objectives.

Marketing

Advertising.

Tesco uses advertising in the press, on the radio as well as on television

to support the company’s marketing by making the public aware of the

products and services available in its stores.

The Tesco logo.

The Tesco logo is a vital part of its image. By 1995 many versions of the

logo had evolved and company’s corporate identity was not focused. Company

therefore began to use one single Tesco logo that is the same everywhere,

on stores, letterheads, posters, lorries....

The new logo has the company name in red, the underlining in blue and the

background white. However, given the cost of this change Tesco did not

immediately change every logo for the sake of it, but gradually as old

items were replaced, repaired, repainted, reprinted or re-designed. This

means that it is taking about three years for the new logo to completely

supersede all other versions.

Chef’s Club.

The Chefs' Club is an initiative which brings the best advice on food and

drink to customers and aims to make shopping more enjoyable. Tesco is

working with some of the country's top chefs and other experts who want to

share their passion for good food and drink with customers.

Tesco Packaging Design.

Tesco has many "Own Brand" products, and in order to promote its own brand

correctly Tesco has its own Packaging Design Department. Products sell for

a variety of reasons; in the first instance, the visual appeal of a product

is important to attract customers to the product initially, as it is only

after the first purchase that the customer is attracted because of the

quality of the product and its value for money.

Tesco Product Promotion.

Product promotion is the responsibility of the Tesco public relations

team. The team is always involved at the planning stage of any new product

or service, and its brief is to generate extensive and appropriate coverage

for the new product.Tesco has three key objectives for any product

promotion; these are:

. to reinforce the Tesco brand values of quality, choice, price and

service

. to maintain the Tesco image as a market leader through its products

and services

. to manage product issues - both positive and negative.

Distribution

Purpose of the distribution department

Its purpose is to ensure that Tesco stores have the right products

delivered against agreed delivery schedules and in good condition, enabling

the stores to provide a consistently high level of customer service.

Tesco products are sent to stores from distribution centres around the

country. Tesco runs 13 centres and a further six centres are run for Tesco

by contractors. A typical centre covers 300,000 square feet and handles

some 50 million units a year. The centres work around the clock, seven days

a week, providing 2,500 deliveries daily, amounting to 19 million cases per

week. Tesco employs 6,800 people in distribution (excluding the staff at

the contractor-run centres), and has about 1,000 tractor units and 2,000

trailers in its national vehicle fleet.

How does Tesco keep each store supplied with what it needs?

The key to the distribution system’s ability to supply each store’s needs

are the advanced use of IT at all stages of the distribution system.

Information from stores about their sales and requirements is sent to Tesco

Head Office and from there to the distribution centres. The centres run a

computer system that has been specially designed to fit with Tesco working

practices and to maximise efficiency).

How does Tesco achieve maximum efficiency in its distribution centres?

Computerised information arrives via printers in the warehouse offices. The

system feeds this information directly to the staff on the warehouse floor

via radio links mounted on the fork-lift trucks. The system helps to

control the movement of stock and the activity of staff. Thus when a person

has finished a particular job, the computer decides which would be the most

efficient job to allocate next to that person, based on his or her current

position in the warehouse.

Also, in the past, Tesco’s operations have been slowed down at peak times

by the need for product identification and purchase-order matching. Now

each goods-in checker is equipped with a scan gun which can scan the outer

case code of each product and radio the information back to the Head Office

computer, which matches a delivery with its purchase order in an instant.

As well as easing bottlenecks, this system enforces accurate outer case

coding, which Tesco believes to be essential to future developments in its

distribution system.

Human Resources

People are fundamental to business and the way company recruit, develop

and reward people is the key to success. Human Resourcing in Tesco is

therefore influential, leading edge and proactive to ensure continued

success.

Human Resources at Tesco is divided into a number of central areas which

focus on the design and research of Tesco HR policies and a number of front

line HR professionals that work in partnership with company’s Line Managers

to deliver the business plan.

Promote management development

Tesco does this by providing opportunities for everyone to increase their

learning, thus enabling Tesco to thrive in a constantly changing and

competitive market place. Tesco does this by:

designing training packages which equip people with the knowledge, skills

and experience needed to reach high standards of performance, and equipping

trainers to coach others thus maintaining excellent quality standards.

enabling training to be delivered in the workplace by people who know how

to do the job themselves.

exploiting new methods of learning, and thereby providing a supply of

general business managers for the future.

developing effective working relationships with colleagues and suppliers

through listening and challenging, and designing products which inspire

them.

Research and development of effective corporate human resource policies

Tesco does this by:

being constantly aware of UK and European employment legislation, and

translating it into policy that maintains a balance between cost

effectiveness, fairness, developing relationships with people, and

company’s business aims.

researching and developing people involvement strategies; this involves

analysing staff research, which includes both large-scale corporate surveys

and specialist staff research.

providing updates on employment law.

scanning and benchmarking other organisations, in order to import best

practice and maintain a competitive stance.

ensuring specific policies, for example regarding the employment of

disabled people and equal opportunities.

achieving external recognition, to ensure that Tesco is seen as a quality

employer.

Developing selection standards and implement corporate entry programmes

Two crucial roles for the Human Resources Department are:

developing selection standards which will enable managers to select the

best people who will continually increase value for customers.

implementing corporate programmes in order to ensure that the company's

manpower requirements are met.

Tesco does this by:

designing recruitment and selection processes which will equip managers

with the skill and knowledge to select the best.

training managers to maintain selection standards, and to select using the

most reliable and leading-edge processes.

developing corporate competency frameworks which enable managers to select

the right people, who have the skills the business will need in the future.

developing corporate entry programmes to ensure that corporate manpower

needs are met in terms of skills and numbers.

developing and implementing Tesco employment branding and marketing

strategy in order to ensure that Tesco is seen as a quality employer which

attracts the highest calibre candidates.

developing a pool of Excel graduates providing a supply of managers with

broad business experience.

developing at a national level links with leading education/industry

establishments, and planning initiatives whereby managers can develop links

with education at a local level.

Reward Development

Reward Development researches and develops rewards and organisational

design strategy which enable Tesco to recruit, motivate and retain the

best. Tesco does this by:

sourcing and analysing pay and benefits data to enable Tesco to keep

remuneration and benefits packages competitive.

continually shaping innovative ways of rewarding staff, thereby enhancing

the value of the reward package and increasing staff retention and

stakeholding.

developing performance management processes and tools which will improve

performance and encourage motivation in staff

providing advice and if necessary challenging organisational design,

thereby ensuring a maximum return on corporate reward spend and creating

organisational structures which will deliver business goals.

HR professionals

HR professionals operate out of the Line, working as part of the senior

management team in order to influence and implement HR strategy. They work

closely with the central HR departments and line managers to deliver key

aspects of company’s business plan:

Develop the best

Recruit the best

Retain loyal and committed people

Live the values of the company

Transfer HR skills effectively to the line.

Hence these functions help meet the objectives successfully. All Tesco’s

organisation structure works as links of a chain, if one link falls down,

all the organisation will experience difficulty. For example, most

important department of Tesco, I consider, is Distribution department. If

this department fails, products will not be delivered to the store, so

customers will go to another store. Tesco’s success is built on the good

work of each department.

As an example, Tesco has recently introduced Customer-Oriented

Initiatives, such as:

Loyalty cards

Clubcard was test-launched in October 1993 and was rolled out nationally

in February 1995. Clubcard has transformed the retail grocery sector and

has brought Tesco closer to its customer. At the heart of the programme is

one of the most sophisticated customer databases in Europe.

Clubcard is a magnetic "swipe" card obtained free in store. The checkout

assistant swipes the card prior to scanning the customers shopping. For

every Ј1 spent, one point is earned. Each point is worth 1p. When shopping

at the originating store, the till receipt advises:

. Points earned from that shopping trip

. Points accumulated during the quarter.

The points earned are recorded on a central computer and are converted into

money-off vouchers every quarter.

Customers can earn Clubcard points at:

. Tesco stores

. Tesco petrol stations

. B&Q

. Energi - through Norweb

. Tesco Personal Finance

. Tesco Home Shopping.

In addition Clubcard has recently been extended to Ireland and to the Tesco

Vin Plus store near Calais.

Home shopping

Many people today,

both single people and couples, are working longer hours and do not want to

spend part of their leisure time making a trip to the local supermarket. To

help people save time on shopping, Tesco has introduced Home Shopping, a

service which makes use of information technology so that people can do

their shopping via the Internet from their home computer. This was first

introduced on CD-ROM in July 1996, and Tesco followed this up by becoming

the first UK food retailer to offer an Internet-based home shopping service

in November 1996.

Personal Finance

In 1997, Tesco

decided to extend its customer offer to include personal financial

services. In partnership with the Royal Bank of Scotland, Tesco is

providing new ways of banking and other services to its customers.

C 3.

The impact of ICT on internal and external communications

Importance of ICT

IT is vital to Tesco because every aspect of its operation is controlled

or monitored by IT - stock, distribution, payroll, accounts, and so on. For

example, when an item has its barcode read at the checkout, the system not

only logs the price onto the till, but also logs the financial transaction

between Tesco and the customer and the fact that the stock has been reduced

by one item. On the distribution side, instructions from the mainframe

computer are sent directly to fork-lift truck operators at depots by radio

links.

All stores are connected to the mainframes at Head Office via the Tesco

Network. There are a large number of different applications that stores use

both independently and via the mainframe connection. For example there are

Personnel and Scheduling systems in-store, and access to electronic mail

via the mainframe.

IT capacity

Tesco has a three-level architecture with mainframe, middle system servers

and PC clients. Their main frame has a 6 million Mb storage capacity

(equivalent to 6 million 500-page books!). Their private digital network to

600 stores has a capacity of 11.5 Mb. They use some 100 Tesco-written

computer applications and over 200 PC packages.

How much does Tesco spend on IT each year?

Last year, Tesco spent about Ј133 million on IT, that is about 1.4% of

turnover.

How does that compare with other companies?

A recent independent survey of Europe's leading 500 companies in all

commercial and industrial sectors placed Tesco 112th overall in Europe in

terms of IT spending, but 3rd in the list of European supermarkets, and 1st

amongst British supermarkets. [Source: Information Week 19-20/12/97].

How many on-line card authorisation requests does Tesco receive each day?

Over one million on-line card authorisation requests are dealt with every

day.

Internet site

The Internet site receives 250,000 hits per week and was used to launch

Tesco’s home shopping service and the Tesconet Inertrnet Service provider.

The internet site has proved to be a great success, with the introduction

of Tesco Direct, the home ordering and delivery service. Such “home

shopping” is becoming increasingly important as more and more customers

gain access to the internet via home PCs. Sainsbury’s, one of Tesco’s great

rivals, has also now launched its own home delivery service via the

internet.

[pic]

Tesco own Internet site. Home page.

ICT systems used by Distribution Department

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