A Presentation for International Business: Tesco PLC and India

A Presentation By Group 5

• Tesco is one of the UK’s leading food and grocery retailers, currently ranked third1 globally

• The company presently operates in Europe, the US and Asia

• Headquartered in Hertfordshire, UK• Employees about 472,000 people2

• Revenue of USD 90,445.4 million with a Net Profit of USD 3,698.2 million during FY 2010 and increase of 5.9% and 9.1% respectively over FY 20093

Company Overview

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• 1,2 & 3 Source Datamonitor Tesco PLC company report dated August 13, 2010

• Tesco is a food, grocery and other household goods retailer

• It operates 4,811 stores in 14 countries worldwide1

• Tesco has a number of store formats (details next slide)• In addition to store formats Tesco offers

– Online shopping channels (www.tesco.com)– Broadband internet connections – Telecommunication services (50:50 partnership with O2)– Financial services through Tesco Bank and – Market research and intelligence through the research firm

Dunnhumby

Business Description

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• 1 Source Datamonitor Tesco PLC company report dated August 13, 2010

Business Description1

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Store Type Nos. of Stores Description

One Stop 521 Up to 1,500 sq ftOnly store without Tesco in their nameFood and cash machines

Express 961 Up to 3,000 sq ftOffer fresh food, bakery and wines at convenient locationsSell up to 7,000 products

Metro 174 Up to 7,000 – 15,000 sq ftCity center locations

Superstore 448 Up to 20,000 – 50,000 sq ftOffer food as well as non food products

Extra 200 75,000+ sq ftMainly out-of-town hyper marts

Homeplus 13 Up to 50,000 sq ftNon food items mainly furniture etc

• 1 Source Datamonitor Tesco PLC company report dated August 13, 2010 and company website www.tesco.com

1919

1929

1956

1990

2000

2011

History1

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Tesco was established as a tea manufacturing

firm

Opened first store in Burnt Oak,

Edgeware, UK

First self serving supermarket opened in

Maldon, UK

Opened first international stores

in Poland and France

Launched internet retail services

Plans to enter India

• 1 Source company website www.tesco.com

UK (+2.2%)67.6%

Europe (-1.2%)16%

Asia (+19.7%)

14.5%

US (+70.2%)0.6%

Other Businesses1.3%

Revenues1

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Sales of Tesco PLC (in percentage)Total Revenue FY 2010 USD 90,445.4 Million

Revenues grew by 5.9% overall for the firm from last year

• 1 Source Datamonitor Tesco PLC company report dated August 13, 2010

• Sustainable business model

• Value creation through diversification – primary growth driver for future

• Retailing services – high margin

• Leveraging of IT to achieve operating efficiencies

• High cost of growth in Central European markets compared to competitors

• Lack of market experience in Asia

• Non-food products may have an adverse affect due to low growth in markets

• Intense competition• Restrictive legislations

• Strong growth in Indian and other South Asian countries provides opportunities for long term growth

• Strong private labels portfolio

• Focus on fresh produce and convenient store formats in line with changing consumer preference

Strength Weakness

ThreatOpportunity

Tesco SWOT

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• Pegged at USD 1.3 Trillion the Indian economy is one of the fastest growing economies in the world

• It has shown a growth rate of 8.20%1 as of forth quarter of 2010

Indian Economy

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• * Depicts estimated figures from 2009 onwards• 1 Source Trading Economics www.tradingeconomics.com• 2 Source International Monetary Fund www.imf.org

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

500

1000

1500

2000

2500

3000

GDP India 2005 - 2015* (Billion USD)2

• The Indian food retail industry has a total revenue of USD 306.1 Billion In 2009 with a CAGR of 11.7% for the period of 2005-20091

• Convenience stores and gas stations proved the most lucrative with total revenues of USD 200.2 Billion almost 65.4% of total industry revenue2

• Forecasted CAGR for the industry is about 7.7% for the period 2009-2014 and the estimated industry size of USD 443.7 Billion3

The Indian Retail Market

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• 1, 2 & 3 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

Indian Retail Industry

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• Figures for 2010 onwards are an estimate •1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

50

100

150

200

250

300

350

400

450

500

Indian Retail Food Industry Market Value1(Billion USD)

65.4%

32.9%

1.3%0.1%

0.3%

Indian Food Retail Segmentation 2009 (% Share by Value)1

Convenience Stores & Gas StationsFood and DrinksHypermart, Supermart & DiscountersCash & Carries & Warehouse ClubsOther

The Indian Retail Market

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• 1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

• India accounts for 25.9% of the Asia-Pacific food retail industry value

• Following players are the main competition in the retail industry– Pantaloons Retail (India) Ltd – Bharti Retail– Reliance Retail– Spencer’s Retail– Vishal Mega Mart

Competition

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• 1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

• Industry is highly fragmented with small stores providing the main channel of sales

• The hypermarket, supermarket segment is still nascent

Five Forces - Competition

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New Enterants

Degree of Rivalary

Supplier Power

Substitutes

Buyer Power

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Five Forces Analysis (Industry Competition)

• Large scale retailers have advantage of operating business and economies of scale

• Entry and exit cost are low

• Strong growth rates makes markets attractive

Five Forces - New Entrants

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Market Growth

Low Entry and Exit Cost

Undifferentiated Product

Little Regulation

Supplier Access

0 1 2 3 4 5

Five Forces Analysis (Industry Competition)

• Chief alternative is food service

• Strong campaigns of fast food retailers

• The threat from substitutes is weak to moderate

Five Forces - Substitutes

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Low Cost Switching

Cheap Alternatives

0 1 2 3 4 5

Five Forces Analysis (Industry Competition)

• Consumers have virtually no switching cost

• Price is the main factor for decision making

• Revenue generates by any particular customer is minimal

Five Forces – Buyer Power

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Buyer Independence

Low Cost Switching

Price Sensitivity

Tendnecy to Switch

Undifferentiated Product

0 1 2 3 4 5

Five Forces Analysis (Buyer Power)

• Include food manufactures, farmers and agricultural co-operatives

• Firms maintain a wide base of suppliers

• Limited number of niche suppliers

• Retail companies maintain their own brands

Five Forces Supplier Power

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Quality

Cost

Switching Cost

Supplier Size

Forward Integration

Backward Integration

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Five Forces Analysis (Industry Competition)

• Operates multiple format retail stores• Over 1000 stores across 71 cities1

• Occupies retail space of 12 million sq ft• Offers foods products mainly through

the chain ‘Food Bazaar’ (Big Bazaar)• Apart from food also offers fashion

related products• Recorded revenues of USD 1,299.4

million for 20092

Pantaloon Retail (India) Ltd

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• 1 & 2 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

• Offers food and other products through retail chain ‘Easyday’

• Operates around 240 stores1

• Entered joint venture with ‘Wal-Mart’ in November 2008 offering cash-and-carry and supply chain management functions

Bharti Retail

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• 1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

• Manages the retail operations of Reliance Industries Ltd. (RIL)

• Operates ‘value’ formats that include neighborhood stores, mini-marts and supermarkets

• Has around 900 stores in 14 states

Reliance Retail

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• 1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

• Owned by the RPG Group• Established in 1996 presently in 66

cities1

• Offers fashion products, household appliances and other categories products as well

• Stores range from floor area of 1,500 – 15,000 sq ft2

• Revenues for 2009 were USD 450 million3

Spencer’s Retail

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• 1, 2 & 3 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

• Operates as Vishal Mega Mart• Has around 180 stores in 24 states• Provides products like home

furnishings, sports goods footwear apart from food items

• Revenues for 2009 were USD 281 million

Vishal Retail

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• 1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010

Business Description

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• 1 Source Datamonitor India – Food Retail Industry Retail report dated June 2010