Tescos Adaptation To The Irish Market
Tescos Adaptation To The Irish Market
Tescos Adaptation To The Irish Market
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BFJ
103,2 Tesco's adaptation to the Irish
market
Claudio Vignali
146 Principal Lecturer, Manchester Metropolitan University,
Manchester, UK
Keywords Retail trade, Globalization, Supermarkets, Ireland
Abstract Examines the debate on internationalisation versus globalisation with specific
reference to Tesco UK's expansion into Ireland. First, Tesco UK and Tesco Ireland are
introduced in their respective markets. Following this, an analysis of the relevant elements of the
marketing mix is presented. The degree of consistency between the companies' strategies and
tactics is then examined with the help of the MIXMAP model. Finally, conclusions are drawn on
the extent to which Tesco UK has had to adapt its marketing strategies to the sensitive Irish
consumer.
Introduction
Tesco first acquired stores in the Irish Republic in 1978 by purchasing a chain
of discount stores and immediately rebadging them as Tesco. The company
then became the discounter. However, due to a lack of emphasis on the Tesco
brand the venture was unsuccessful and the stores were sold in 1986.
Currently, Tesco is the UK's leading food retailer in an extremely
competitive market. For this reason it has decided to expand operations across
Europe. As part of this expansion programme, the company moved to Ireland
again in May 1997. It now has a total of 109 supermarkets and 46 off licences in
Northern Ireland and Eire, making it one of the leading food retailers in both
markets.
The company refers to itself as Tesco UK. Although Northern Ireland is part
of the United Kingdom, it is not regarded as associated with Tesco UK.
Therefore, throughout this article, the term Tesco UK refers to England,
Scotland and Wales, and both Northern Ireland and the Irish Republic are
considered separately under the name Tesco Ireland.
Globalisation
Globalisation, on the other hand, is the process by which the firm does not
merely trade internationally, but bases its operations internationally. If the
world were truly global, consumers, wherever they were in national terms,
would all exhibit more or less the same characteristics with regard to specific
consumption and private situations. The global company sees the world as one
market, minimising the importance of national boundaries. It therefore
integrates and standardises marketing actions across a number of markets.
According to Buzell (1968), the benefits of standardising marketing policies
are:
. cost savings in terms of product design, manufacture and advertising;
. consistency for consumers;
BFJ . improved planning and control; and
103,2 . exploitation of good ideas (as they have universal appeal, an effective
standard marketing message should be successful in any country).
Furthermore, homogeneous needs and preferences mean that the company can
create a global brand. Also, a larger amount of people are travelling more
148 widely, therefore allowing more products to be marketed to them on a global
basis. Finally, the company can profit from economies of scale and of
experience more easily, as a standardised marketing mix reduces costs even
further, letting companies offer consumers higher quality and more reliable
products at lower prices.
A mixed approach
The question of whether to adapt or standardise the marketing mix has been
much debated in recent years. However, Quelch and Hoff (1986) have suggested
that the decision is not a rigid one between complete standardisation and
adaptation, but rather that there is a wide spectrum in between and there are
degrees of standardisation. In addition, for most companies, the appropriate
degree of standardisation varies from one element of the marketing mix to
another. Similarly, the relative importance of the advantages and
disadvantages will vary from industry to industry and company to company.
Companies should therefore look for more standardisation to help keep costs
and prices down and to build greater global brand power. But they must not
replace long-run marketing thinking with short-run financial thinking.
Although standardisation saves money, marketers must make certain that they
offer what consumers in each country want. It seems, therefore, that for most
multinational companies to be successful they should incorporate ingredients
of both viewpoints.
Strategic element
Having already carried out the first element of the MIXMAP model research,
the next stage is strategic mapping. With regard to Tesco, the company life-
cycle and Boston Consulting Group matrix models will be discussed.
By the fact that both Tesco UK and Tesco Ireland implement strategies such
as product extensions and competitive pricing and also have a growing number
of competitors, we can presume that both companies are in the growth stage of
the company life-cycle (see Figure 1).
Tesco Ireland is positioned at the beginning of the growth stage due to the
fact that it is still perceived as a newcomer in the Irish retail market. Tesco UK,
however, is positioned towards the end of the growth stage nearing maturity.
Tesco's
adaptation to the
Irish market
153
Figure 1.
Company life-cycle
Tactical element
The tactical level mapping is the final stage of the MIXMAP model.
154
Figure 2.
Boston Consulting
Group matrix (BCGM)
Price
Pricing is the only element in the marketing mix that is revenue generating ± all
of the others are costs. It should therefore be used as an active instrument of
strategy in the major areas of marketing decision making. Pricing in the
international environment is more complicated than in the domestic market,
however, because of factors such as government influence and additional costs
(Becker and Thorelli, 1980).
When Tesco first moved into Ireland the products it sold were more
expensive than they were within Tesco UK stores. This was because the UK
suppliers were charging the Tesco Ireland stores more than they charged the
UK stores. However, in December 1997, Tesco issued a circular telling the UK
suppliers that they had to bring the prices they charged the company's Irish
stores into line with those operating in the UK. This circular was aimed at
creating cost transparency so that customers in both markets could receive
price equality. Consequently this has meant marginally lower prices for Irish
consumers.
Tesco UK has introduced ``local pricing'' in 300 of its UK stores, where what
are known as ``price sensitive'' customers pay less for a range of items than
more wealthy shoppers. Tesco Ireland, however, has said that it has no plans to
introduce a similar pricing strategy within the country.
Nevertheless, local pricing in Ireland is already in operation to a
certain degree, as can be seen by the Irish supermarket chain, Superquinn.
Whilst the company has a policy of uniform pricing, the chief executive
has said that ``we give the freedom to local managers to bring prices down''
(Irish Times, 1998). The difference between Superquinn and Tesco UK,
however, is that Superquinn does not offer local pricing for demographic
reasons, but because a competitor in the area has also reduced the price of
certain items.
BFJ Promotion
103,2 With regard to communications, the term ``brand globally, advertise locally''
(Sandler and Shani, 1991) can be used. This emphasises the need for a
consistent brand on a global basis in order to benefit from economies of scale,
whilst allowing flexibility in its implementation in order to facilitate adaptation
to specific local conditions arising from cultural and other consumer or market
156 differences.
Although Tesco aims to be consistent in its approach to branding, the
sensitivity of the Irish consumers means that the company has had to make a
number of adaptations regarding its advertising.
In addition, through its market research, Tesco realised that it needed to
undertake an original advertising campaign in order to promote a large amount
of its products as being Irish. This includes:
. stands displaying Irish products more predominantly than those from
the UK;
. posters and blackboards in some stores claiming ``all our beef is 100 per
cent Irish'';
. hieroglyphics on till receipts in the shape of a shamrock next to each of
the items produced in Ireland;
. a total at the bottom of receipts showing the number of Irish-made goods
and how much money was spent on them; and
. even the familiar red and blue of Tesco's UK livery has been given a
touch of green!
The company has also placed large advertisements promising to listen to
customers prior to any changes being taken.
Nevertheless, Tesco caused outrage amongst Irish beef farmers when they
placed an advertisement in the UK in an attempt to placate UK farmers. The
advertisement said that Tesco would ``not profiteer by opportunistically buying
abroad . . . Currently, we are only buying British beef''.
Place
The estimated cost of the total refit and rebadging (rebranding to the Tesco
label) of stores in Ireland is £50 million. With regard to this programme, Tesco
has stated that there will be no rigorous sameness about every store, rather
each store will feature layout ideas often taken from customers and staff,
suitable to the local area in which it finds itself.
Despite the initial mistake made by Tesco of submitting building plans
where areas were given in UK square feet, rather than Irish square metres, the
giant out-of-town superstores that are already operating in Ireland are said to
produce massive turnovers in the region of 30 to 40 million Irish pounds each
year. Additionally, the UK multiple is seeking to open in the Republic the type
of giant superstores which legislation in the UK has recently curtailed (those up
to 90,000 square feet). However, in direct response to this, the Minister for the
Environment in the Republic has announced an interim policy directive Tesco's
limiting the size of supermarket development to 32,000 square feet. adaptation to the
Within Northern Ireland Tesco has launched its convenience store format Irish market
exclusive to the province under the name, Tesco Local. The first store of this
kind was opened in Belfast after consumer calls for a small store with as full a
range as possible. However, this has caused outrage amongst Northern
Ireland's small retailers who are convinced that Tesco is preparing to launch an 157
all-out attack on their position in the province.
Regarding opening hours, a number of Tesco Ireland stores are already
operating the 24-hour shopping policy. In the run-up to Christmas 2000, all
Quinnsworth, Crazy Prices and Stewart's stores were expected to have
extended opening hours and face punitive action if they did not comply. This
has been received badly by the Irish Grocers' Association (RGDATA), who see
it as a disgraceful abuse of dominance in an attempt by Tesco to increase its
market share.
People
Throughout the store conversion process, Tesco has maintained that the use of
local contractors will be maximised. They are already using their own
approved contractors' guidebook drawn up by members of the Irish board and
estimate that 1,000 jobs will be created in the construction process over the next
three years. A further 2,200 jobs will be created within stores.
Currently, around 70 Irish import and distribution companies, employing
3,000 people, service Tesco's Irish chains. In addition, 16 new Irish suppliers
have been approved to supply to Tesco's own label range, bringing the total
number to 25 now selling into the massive Tesco network in the UK.
Since entering the Irish retail market, Tesco has interviewed over 11,000
Irish customers. Their suggestions, complaints and compliments have been
encompassed in a 12-point plan which Tesco Ireland is now implementing in
stores across the country.
Despite this commitment to local needs, Tesco has been accused by some of
taking a very arrogant approach to retailing in Ireland. The former chairman of
ICI has said that Tesco needed to realise that ``Irish people are not just Brits
who talk differently'' (Irish Independent, 1998).
An example of this is the fact that suppliers were being forced to man their
operations over the Christmas holiday period and staff were expected to forgo
their traditional holiday breaks to ensure that Tesco's demands were met.
Although the staff have been offered a ``goodwill'' package including increased
pay and better working conditions, an element of hostility is still felt towards
the company.
Tesco Ireland has also been heavily criticised by the Food, Drink and
Tobacco Federation, who claimed that the company had reneged on
commitments to Irish suppliers to consult them throughout, by dropping some
ten Irish distributors and importers and replacing them with the Dublin
distributor, O'Kane's, to handle all the new 150 imported products. Tesco
BFJ strongly disputed the criticism, maintaining that the pledges it made to consult
103,2 with Irish suppliers were made only to Irish manufacturers, and not to
distributors. However, the Irish Business and Employers Confederation (IBEC)
stated that the commitments Tesco made to Irish suppliers included
distributors as well as manufacturers and that the announcement was the first
time some suppliers had heard of O'Kane's getting the distribution business.
158 Along with job creation, the introduction of Tesco Ireland has also led to a
number of job losses, including the closure of the two food-processing arms of
the Stewart's Group. This has resulted in 200 job losses with a further 430 jobs
lost elsewhere, including the entire senior management team at the Stewart's
head office. There have also been a number of other closures as a direct result of
the takeover by Tesco of the Irish supermarkets, including one of the leading
sportswear retailers across Ireland, Lifestyle.
Service
Within the UK, Tesco's customers are offered an extensive range of services,
including the recently promoted premier store card, ``Clubcard plus'', which can
be used as a deposit account as well as a shopping card. Irish consumers have
initially been provided with the basic clubcard; however, the acquisitions in
Ireland almost guarantee that Irish consumers will eventually be offered a
similar range of services to those offered to UK customers.
Consideration was given in May 2000 to introduce into Ireland the range of
financial products developed by Tesco UK. However, developing a financial
supermarket in Ireland would take a good number of years to complete and the
impression is that Tesco Ireland has enough to concentrate on at the moment
integrating a new national chain to the Tesco way.
MIXMAPping
While looking at each element of the marketing mix, we have taken the two
variables (tactics) that are most important to Tesco as a corporate entity. By
using mix mapping, we can see to what extent Tesco UK and Tesco Ireland
adhere to these tactics.
Product
Both Tesco Ireland and Tesco UK consider that the quality of their products is
of prime importance. With regard to own brand penetration, however, Tesco
UK offers a much higher proportion of own-brands in their stores than Tesco
Ireland (see Figure 3). This is largely due to the fact that own brands are not so
popular with the Irish consumer as they see them as lower quality products.
Therefore Tesco has had to adapt its own brand penetration to suit the needs of
the market in Ireland.
From the model we can conclude that both Tesco UK and Tesco Ireland
place a high priority on value-for-money and also price consistency (see
Figure 4). However, with the introduction of local pricing in the UK the
company must be careful that it does not let its prices vary extensively from the
Tesco's
adaptation to the
Irish market
159
Figure 3.
Product: own brands/
quality
Figure 4.
Price: consistency/value
for money
160
Figure 5.
Promotion: point of
purchase/television
advertising
Figure 6.
Place: extended opening
hours/out-of-town
superstores
in Ireland has not yet reached the extent of those in the UK, due to the fact that
Tesco is still a relatively new retailer in the Irish market. Tesco UK has
successfully adopted the 24-hour shopping policy in a large number of stores;
however, Tesco Ireland, although slowly trying to implement this tactic, has
had to be cautious due to cultural difficulties.
Here we can see that both Tesco UK and Tesco Ireland place a high
emphasis on satisfying customer needs and ensuring employee relations (see
Figure 7). With the diversification of financial services, Tesco UK has tried to
associate even further with the particular needs of their customers.
Tesco's
adaptation to the
Irish market
161
Figure 7.
People: good employee
relations/satisfying
customer needs
MIXMAPping observations
According to Vignali (1994), ``congruence between strategy and tactics is
indicated where related elements and variables are consistently placed in the
same quadrant''. With regard to Tesco UK, therefore, it has shown a consistent
Figure 8.
Service: loyalty card
importance/
diversification
BFJ match between its strategies and tactics by being uniformly situated in box
103,2 number two. Tesco Ireland has also shown consistency in most elements of the
marketing mix; however, it has had to adapt a couple of its tactics in order to
satisfy the needs of local customers. This explains why it is not uniformly
positioned in box number two.
Further reading
FT McCarthey (1998), CD-ROM, May 1997-September 1998.
Tesco plc (1998), Annual Review and Summary Financial Statement 1998 (Information sent by
Tesco UK ``Tesco in Europe'').
Vignali, C., Vrontis, D. and Dana, L. (1999), An International Marketing Reader, Manchester
Metropolitan University, Manchester.