Proposed Market Entry Strategy For Tesco - Indian Retail Food Market

Tesco Plc

Proposed Market Entry Strategy - Indian Retail Food Market

Background

Britain’s retail market for food is highly competitive and extremely sophisticated. During the past three decades the market has increasingly become to be dominated by the big four of Sainsbury, Asda, Tesco and Morrison’s at the expense of the independent sector and smaller specialist grocers, butchers or bakers.

The major chains have led the market into out of town retail complexes and into bigger and bigger stores with wider and wider product ranges. From essentially food retailers the big four have become retailers of white goods, brown goods, home furnishing, IT Equipment and much more. Home delivery is commonly available as is online shopping, insurance services and clothing ranges.

Having done a great deal to damage the High Street by such tactics the major chains subsequently diversified into convenience stores in town centres, at railway stations and petrol stations further squeezing the small independent operator and expanding their share of the market.

Today a clear market leader has emerged in the shape of Tesco Plc which has built a commanding position in the UK. Already nearly twice the size of its nearest rival it accounts for nearly Ð'Ј1 in every Ð'Ј7 spent by British shoppers. One consequence of this sustained growth is that Tesco is increasingly encountering barriers to further expansion within its home market.

As the UK’s leading food retailer Tesco Plc has for some time been developing strategies to address retailing opportunities consistent with its core competencies and business focus beyond the boundaries of the UK.

These strategies have led the establishment of Tesco Stores in 12 countries outside the UK including China, Japan, Hungary, Poland, South Korea and Thailand. This strategy has seen Tesco built the business into the number three supermarket globally.

In 2007, Tesco opened its first stores in the United States of America in an ambitious initiative. “If you look at the scale of the opportunity here” claims Tim Mason, Chief Executive, “it could be transformational for Tesco”. “If Fresh & Easy (the brand developed for the US market by Tesco Plc) is successful it will be the most exciting thing in retail bar none”.

The first stores, near Los Angeles, are part of a vision to create circa 1,000 stores generating nearly Ð'Ј4.9 billion of annual sales. The Fresh and Easy formula is for a chain of convenience stores in urban areas served by 600,000 sq ft distribution centres. In line with its traditional focus on price, quality and value Fresh and Easy claims to be 25% cheaper than its supermarket rivals.

Sir Terry Leahy, Chief Executive of Tesco Plc has said he wants to invest Ð'Ј1.25 billion over the next five years building the business by expanding in California and has hinted at much broader ambitions, suggesting that Fresh & Easy could stretch right across the United States.

Sources: The Times, October 3rd 2007 Business Section, Tesco begins its American dream by seeking gold in California.

The Indian Economy

The level of sustained growth achieved by the Indian economy over the past decade and more is truly staggering and the impact of its booing manufacturing and services sectors is transforming Indian society at an unprecedented rates.

India is the world’s largest democracy and has, since its independence in 1949, maintained a stable legal system with an independent judiciary, invested heavily in education and training building a wealthy middle class that rivals or exceeds Europe’s in terms of population size and affluence. Developed vibrant IT and Services Industries based upon well educated and generally English speaking middle class. The country has also developed its engineering and heavy industry base but its economy is less dependent upon low cost manufacturing (although this remains a significant area of activity) than that of China for example where India can find it hard to compete. India’s population is forecast to expand steadily as is shown below.

India Demographic profile

Medium variant 2000-2020Indicator 2000 2005 2010 2015 2020

Population (thousands) 1 046 235 1 134 403 1 220 182 1 302 535 1 379 198

Male population (thousands) 543 085 587 618 630 588 671 624 709 543

Female population (thousands) 503 150 546 785 589 594 630 911 669 655

Population sex ratio (males per 100 females) 107.9 107.5 107.0 106.5 106.0

Percentage aged 0-4 (%) 12.2 11.2 10.4 9.6 8.8

Percentage aged 5-14 (%) 22.8 21.8 20.3 19.1 17.9

Percentage aged 15-24 (%) 19.2 19.3 19.3 18.7 17.8

Percentage aged 60 or over (%) 7.1 7.5 8.0 9.0 10.2

Percentage aged 65 or over (%) 4.6 5.0 5.3 5.8 6.7

Percentage aged 80 or over (%) 0.6 0.7 0.8 0.9 1.1

Percentage of women aged 15-49 (%) 51.0 51.8 52.7 53.2 53.4

Median age (years) 22.7 23.8 25.0 26.5 28.1

Population density (population per sq. km) 318 345 371 396 420

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: the 2006 Revision and World Urbanization Prospects: the 2005 Revision, http://esa.un.org/unpp, Monday, December 10, 2007; 7:13:56 AM.

As India’s economy develops in leaps and bounds it is becoming to be seen as a very attractive market for many leading international business. The IT sector not only exploits the cost efficiencies of India call centres but makes use of the technical proficiency of Indian graduates in computer sciences and a broad range of related disciplines.

However the Indian market is not amongst the worlds most open and barriers to entry remain, many of them are significant. Sir Richard Branson, Chairman of Virgin Group has described the Indian market “as one of the worlds most protectionist”.

Increasingly