Tesco Company Profile

Tesco isn’t quite the dominant presence it used to be but it remains the UK’s biggest retailer, and one of the biggest in the world. Tesco has faced criticism for squeezing farmers and suppliers, exploiting workers, fudging its accounts, turning town centres into ‘ghost towns’, and generally contributing to some of the major social and environmental problems plaguing society today.

You can find our 2004 company profile below.

Click here for Tesco’s head office and other basic information from the opencorporates website.

Click here for details of Tesco’s latest profits and other financial results from the Bloomberg website.

There is also lots of useful information on Tesco’s website:

  • Click here to find out where the company is doing business.

  • Click here to find out who’s on Tesco’s board of directors.

  • Click here to download Tesco’s latest annual report and accounts.

For a more critical perspective on Tesco’s work try the Tescopoly website.

If you want to do some digging into Tesco yourself, have a look at our Investigating Companies: A Do-It-Yourself Handbook.

If you would like your website added to this list, or have any other links or suggestions for this page, please get in touch.

Tesco: Overview

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 1

‘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 2

1. The Company

Name: Tesco Plc
Industry area: Retailing goods and services

Contents

Summary

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 3

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%.4 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.5 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.6

Tesco’s favoured measure of growth is ‘like for like’ growth – sales growth on exixting 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.7 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.8 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.9

It operates 1,878 stores in the UK, 261 stores in Europe and 179 stores across Asia,10 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.11

A study carried out for the Sunday Times by research group CACI 12 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.13

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 10.14

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Pile ’em High, Sell ’em Cheap

 

Tesco was founded in 1924 by John Edward Cohen. Jack ‘the Slasher’ Cohen, as he was better known, started out as a market stall trader in the East End of London.15 The name ‘Tesco’, was first used on tea, and was derived from the initials of Cohen’s tea supplier, T E Stockwell, combined with the first two letters of Cohen. Tesco Stores Limited was incorporated in 1932.16

Cohen was responsible for several small revolutions in retailing which led to the rise of ‘the supermarket’ we know today.

In 1935, Jack Cohen visited the USA and was impressed by the supermarkets’ self-service system which enabled more people to be served faster, with lower labour costs. In 1947, the Tesco branch in St Albans, a small shop by 21st century standards (200 square metres) was the first Tesco to be converted to self service, although it didn’t immediately catch the public’s imagination.

In the early 1960’s, Cohen lobbied Parliament to have the Retail Price Maintenance (RPM) act abolished, efforts supported by Edward Heath. The RPM allowed manufacturers and suppliers to set the price of goods thus preventing large retailers, who could buy in bulk and had greater buying power, from benefiting from economies of scale and undercutting the prices of smaller shops. To get ‘around’ this, Tesco offered another incentive to get customers through the doors – Green Shield Stamps. These were collected by customers when they spent money in the store, and were then traded for goods in a catalogue. An effective discount.

In 1964, Parliament passed the Resale Prices Act, curtailing RPM, which by 1979 remained in force only on books and pharmaceutical goods.

In the 1960s, Tesco was buying up literally hundreds of grocery stores and small grocery chains around the country.17 It introduced ‘Home ‘n’ Wear’ departments into larger stores to carry higher-margin non-food merchandise, including clothing and household items, and opened its first 40,000ft ‘superstore’ in Crawley, Sussex.

Until the 1970’s, Tesco operated on the ‘pile it high, sell it cheap’ formula Cohen had imported from the USA. However, the market was changing, leaving the company with slim margins and a serious image problem. Under the leadership of Ian MacLaurin, who succeeded Jack Cohen in 1973, Tesco decided to try something dramatic and different: to become an ‘aspirational mass retailer’. It discontinued the use of Green Shield trading stamps and launched ‘Operation Checkout’ which cut prices across the board and started a price war with major rivals Sainsbury’s. Next, Tesco decided to modernise itself, closing 500 unprofitable stores, and extensively upgrading and enlarging others. At this time, Tesco prioritised the development of large out-of-town stores where parking was convenient, the selection of goods broad, and where a higher volume of business could be generated at increased margins while reducing overheads.

In 1974, in a deal with Esso, Tesco began to open petrol stations on the grounds of its superstores. The idea was successful and by 1991 Tesco was the country’s largest independent petrol retailer: it now accounts for 12.5% of all petrol sold in the UK.18

Other innovations throughout the 1980s included introducing own-label product lines; computerising and centralising distribution systems and developing shopping centres outside of the major cities. In 1983, Tesco Stores PLC renamed itself simply Tesco PLC.

In 1985, Tesco opened its 100th superstore on a 43-acre site in Brent Park, Neasden. From the time it acquired the site in 1978, it had come into conflict with the local council whose greatest concern was the impact that this, the largest food store in London, would have on retailers in the surrounding areas.

In 1993, when Tesco introduced ‘Value’ lines, a cut-price range of own-label goods, competitors scoffed and the share price sank. But Tesco had gauged the popular mood: after years of recession, shoppers were looking for bargains, and sales soared. A year later, Tesco started ‘One in Front’?opening a new till whenever a checkout line exceeded two trolleys. It cost millions in extra staff, but customers loved it.19

In 1995 Tesco became the first supermarket to introduce a company loyalty card, an idea developed by the then Deputy Managing Director, Terry Leahy. At first the other supermarkets were sceptical, but the concept caught the public imagination leaving the others racing to catch up. See under ‘Corporate Crimes’ for more on loyalty cards.

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Strategy

‘We have only got 5% of the non-food market in Britain, we’ve only got 6% of the convenience market and we have only got 2-3% of the banking market…In all those examples we could be much bigger’
Sir Terry Leahy, January 2004 20

‘Tesco’s strategy is far ahead of Sainsbury – it has grown a strong UK core, and then rapidly developed international stores, built good non-food sales, expanded into retailing services and exploited e-commerce successfully’
Datamonitor, food retailing analysts 21

Tesco’s success in recent years has mainly come from expanding overseas, shifting to ‘higher margin’ non-food merchandise and maintaining a strong UK core business. Its UK success has been built on low prices, cultivating customer loyalty, offering a range of different store concepts and expanding into retailing services, such as banking and insurance. Tesco’s focus on non-food items has led some to wonder whether it is fair to compare Tesco with the other grocery retailers at all as it seems to have become a consumer goods company.

At the annual Institute of Grocery Distribution conference in October 2003,22 Tesco Chairman David Reid made the assertions that ‘You cannot save your way to prosperity’ and that ‘Growth is crucial to shareholders…staff…and suppliers’. Investing in growth is really at the heart of Tesco’s strategy. This investment doesn’t just come from ploughing back profit. In January 2004, Tesco raised £773m by placing 315m new shares23, and in March 2004 announced a joint venture with property group Topland to release £650m from its UK property portfolio.24 The main reason for the new share offering is to pay off the company’s debt. Tesco’s credit rating had fallen the previous year because so much of its growth had been based on borrowing.25

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Core UK business

 

In its preliminary statement of accounts, April 2004,26 Tesco considers the following bullet points:

    • We have been investing in further improving our price position. £70m in January and a further £70m yesterday (19th April) are the two most recent price campaigns maintaining our position as the UK’s best value retailer.As Tesco is so large and successful it can afford to cut prices to a much larger extent than many of its rivals – for example in 2000, when there was a general price deflation in groceries of 2-3%, Tesco deflation was nearly 4%.27

 

    • During the year (2003-2004) we opened 21 Extra stores, of which eight were new and 13 were extensions giving us 83 in total.

 

    • We have further evidence that customers love our Express stores and we have grown our share of the convenience market to 5.9%. We now have 277 Express stores and the customer offer is the best in the convenience sector achieving high sales per sq. ft. and increasing returns.

 

  • Tesco executives look to the ‘street corner’ strategy, i.e. more Tesco Express convenience stores, as the key to continued growth in core UK sales. See also below in ‘C-store sector’ section.

Tesco’s sparkling growth has come at the expense of rivals, especially Sainsbury and Safeway, both of whom are battling to keep customers. The other UK supermarkets simply cannot compete on both price and range of different store formats.

Sainsbury was the UK’s biggest grocer until 1995, but was recently relegated to third position behind Tesco and Asda. Internal problems and strategic errors have left Sainsbury struggling. the company believed it could abandon the classic focus on ‘price’ in favour of refurbishing store ‘fascias’ (their own term for aesthetic design) and supply-chain improvements. Its loss of market share illustrates that price is still the key for many consumers. 2004 has also seen shareholder unrest for Sainsbury’s. Unpopular board appointments were compounded by the news that chairman Sir Peter Davis received a massive bonus despite the firm’s poor performance. He resigned in July 2004.

Morrisons is currently struggling to absorb Safeway and in 2004, issued its first profit warning in 37 years, leaving Asda as Tesco’s only really credible UK rival.

Asda, owned by US corporation Wal-Mart since 1999, is the only supermarket with the potential to become a thorn in the side for Tesco. Wal-Mart, with global sales of $256bn in 2003, is the biggest company in the world with annual sales eight times bigger than Tesco’s. Asda is rumoured to be about to acquire Matalan, the giant discount clothing and home furnishing store. Already, Asda’s George range of clothing is the best selling brand in the UK. Two million of its £4 pairs of jeans were sold during 2003-4.

Interestingly, many industry insiders believed that the only way to tackle Tesco’s dominance in the market would have been for the competition authorities to have allowed an Asda/Safeway merger, as this would have created a credible rival. In the event, out of the major supermarket chains competing, Morrisons acquired Safeway, although remarkably, Tesco has been allowed to buy 10 of the 52 Safeway stores which Morrisons was obliged to sell off for a rumoured £120m.

Asda showed a slight slow down in growth in the period to September 2004. This is probably in part due to the planning restrictions on large supermarkets which wouldn’t affect Tesco and other supermarkets concentrating on smaller store formats. Asda had tried to get around these restrictions through a planning loophole that allowed them to build mezzanine floors.28 Asda have also been affected by the Safeway store conversions by Morrisons.

Tesco used to be considered a cheap supermarket, compared to the more ‘up-market’ supermarkets like Waitrose and Marks & Spencer. However, in recent years, with the ‘Finest’ range, it has moved to capture that market too. M&S in particular is now struggling with poor sales in both food and clothing. M&S was also recently the target for an attempted hostile takeover bid by retail entrepreneur, Philip Green who already owns BHS and Top Shop amongst others. Today you can buy a £50 bottle of wine in Tesco, and the ‘Finest’ label food products are far from cheap. Tesco is rumoured to be considering an upmarket range of clothing bearing the Finest label.29

Many farmers, suppliers and researchers have highlighted another Tesco strategy that they do not broadcast so widely: abusing their monopoly (or, to use a more accurate term, ‘oligopsony’) position to force down the price they pay to their suppliers. This means that they profit not only from their consumers, but also by exploiting their suppliers. See later section on Tesco’s relation with suppliers and farmers.

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Non-food

 

For supermarkets, the appeal of ‘non-food’ products – from fashion to photo-labs, pharmacies to electrical goods – is that they carry much bigger profit margins than traditional food products, especially when they can be bought in bulk and sold at low-rent out-of-town premises. Wal-Mart introduced this strategy when it entered the UK market in 1999 with their acquisition of Asda.

In September 2004, Tesco announced that 20% of its sales now came from non-food goods, and that some of its stores were becoming a destination for non-food, such as its Tesco Extra hypermarket in Newcastle, where half of the store’s £100m annual turnover is non-food.30

Tesco claims that its clothing ranges, Cherokee, Florence and Fred, are the fastest growing in the UK both in value and in volume, with a 4.4% market share.

Petrol stations on the grounds of many superstores have also been a big winner, with high volume of sales offsetting the fact that Tesco does not always pass on oil price increases to the consumer.31

Tesco in-store pharmacies have been doing well; according to one report these sell more than Boots and Superdrug together32. Tesco also sells more top 40 CDs than many specialist music stores combined and is attempting to break the wholesaler monopoly on newspaper sales (which affects all newspaper retailers).

In 2002 Tesco, opened a ‘Nutricentre’ offering alternative medicine in its West Kensington store. Apparently, ‘The biggest surge in demand in Tesco has been for natural products to boost sexual performance, rising steadily at 140% a year, as customers discover their benefits to both men and women.’33

Since poaching Terry Price from Wal-Mart to head up its non-food strategy in 2003 , Tesco seems on course to become Britain’s largest non-food retailer, fiercely pursuing growth in this area.

Tesco Homes This seems to be the latest supermarket venture. Tesco is said to be looking at building 1,000 new homes over 2005, mostly to be concentrated around London. Some councils are suggesting that supermarkets build affordable housing in exchange for planning consent. Tesco is said to be working with a mix of partners including housing associations and construction companies.34

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Retailing services

 

In 1997 Tesco Personal Finance was launched as a joint venture with the Royal Bank of Scotland. During the late 90s Tesco launched, amongst other things, a visa card, home insurance, motor insurance, pet insurance and travel insurance. Tesco’s latest strategy is to launch ‘Tesco Telecoms’, which includes Tesco Mobile and Tesco Talk, a land line service. Tesco Personal Finance has proved a big success as one of Europe’s fastest growing financial service providers, with over 4 million customer accounts by August 2003, and 50,000 new accounts opening each week.35

Tesco has also expanded into selling over the Internet and is by a long stretch the world’s largest e-grocer. In 2001 Tesco.com broke even in its Internet sales for the first time.36 By April 2004 it had become a fast growing and profitable business, with sales of £577m and generating a profit of £28m, up from £12m the previous year. Tesco.com delivers 120,000 customer orders per week.37

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Legal services

 

‘Lawyers can be expensive – why not see if you can handle the problem yourself?’
Tagline for Tesco legal services

The term ‘Tesco law’ was coined by Lord Falconer in July 2003 when he announced a regulatory review of legal services. One of the things up for discussion was whether supermarkets should be allowed to offer off-the-shelf legal services. Despite claims that they have no immediate plans to offer legal services, Tesco is one among several supermarkets who appear to see it as a natural progression from selling credit cards and insurance.

In June 2004, the Government announced that non-legal companies could sell legal services, and Tesco responded by offering shoppers the chance to purchase documents such as do-it-yourself wills, rental agreements and a number of legal advice handbooks online. Visitors on the Tesco website can also search for lawyers in their area and buy various services, such as will storage, from legal services provider Lawpack.38

Under current regulations, Tesco is unable to develop this trend further and offer its own specialist legal advice to customers, but must instead refer them to Law Society regulated solicitors.

In a survey conducted by The Grocer, 31% of respondents said they objected to the idea, giving answers such as ‘They shouldn’t be allowed – there’s huge potential for something like that to go horribly wrong,’ and ‘It isn’t appropriate. If I’m buying food I don’t want to see a solicitor!’39

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International expansion or world domination

 

Tesco’s huge growth in this country is a hard act to follow. With the domestic market increasingly saturated, some UK supermarket chains, namely Tesco, Sainsbury (who have now sold their interests in the USA) and M&S have looked to overseas markets to maintain their positions. This is a whole new ball game, bringing into play competition with large firms from other countries, such as US retailing giant Wal-Mart and French multinational Carrefour.

Tesco began expanding internationally in the 1990s and now (2004) has outlets in the Republic of Ireland, Poland, Hungary, the Czech Republic, Slovakia, Thailand, Malaysia, South Korea and Taiwan. It has also recently bought chains in Turkey and Japan and is in the process of negotiating expansion into China.40

Early in 2004, Tesco reported that its international sales were up 29% to £6.7bn, with a 44% rise in profits to £306m. The growth has been especially marked in Asia, where the underlying group profit rose 71.8%.41

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International strategy

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.’42

The rest of this section surveys Tesco’s international activities and corporate crimes on a country-by-country basis.

Asia

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.’43

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.44

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.’45 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

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Thailand

‘Industry onlookers expect Tesco to use Thailand as a launch pad for a large-scale Asian expansion.’47

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.48 Tesco now has 64 stores in Thailand, 47 of which are hypermarkets, and plans to open another 57 stores in 2004/5.49 These will include 40 Tesco Lotus Express stores which will be attached to Exxon Mobil petrol stations.50

During 2004, Tesco also plans to buy the remaining stake in Tesco Lotus.51

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’52. However, today, it is embroiled in accusations of unfair trading practices and conflicts with local businesses:

Sourcing locally
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.

Exploiting suppliers
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.53

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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.’54

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’www.tesco.com. However, it seems to be starting a war – of prices, opening hours, and so on – that local retailers cannot possibly compete in.55 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.56 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’.

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Malaysia

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.58 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.59

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.60

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Local food?
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’.61 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.

South Korea

Tesco moved into South Korea in 1999 in a joint venture with South Korean company Samsung, opening the Homeplus chain of hypermarkets. It now has 28 stores, all hypermarkets, and plans to open four in 200562

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Japan

Selling whale, dolphin and porpoise meat

Tesco began its expansion into the notoriously difficult Japanese market in July 2003 by buying a 94.54% shareholding in the C Two-Network, a successful retailer with 78 neighbourhood supermarkets and some wholesale outlets around the Tokyo area. Tesco was delighted by the acquisition, Terry Leahy describing it as ‘a continuation of our international strategy for long term growth. C Two-Network provides Tesco with an excellent opportunity to enter a large and unconsolidated market where we have potential to grow.’

C Two-Network trades using the brand names Tsurukame, Tsurukame Land, Foodlet Tsurukame and Kamechuru. Food retail covers 87% of their total sales, the majority being packaged foods. In April 2004, Tesco also acquired Fre’c, another Japanese chain.63 Fre’c was a bankrupt Japanese chain, with 27 stores on the outskirts of Tokyo. Of Fre’c’s outstanding £50m debt, some is being rescheduled by the Industrial Revitalization Corporation of Japan, the rest will come from C Two-Network.

According to the Guardian, Tesco is expected to use C Two-Network’s links to processed-food wholesalers and Fre’c’s knowledge of fresh produce to open between five and ten small stores a year. In Japan, Tesco is relying on customer loyalty to the high street, whilst its US and European rivals, including Wal-Mart, CostCo, Carrefour and Metro believe their fortunes lie in encouraging a culture of out-of-town superstores.64

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Selling whale, dolphin and porpoise meat
Through its subsidiary C Two- Network, Tesco sells whale, dolphin and porpoise (cetacean) meat, both fresh and in cans. In 2003 the Environmental Investigation Agency (EIA) carried out a survey which discovered that all the canned cetacean products were sourced from Japan’s two major whaling companies, Nissui and Kyokuyo. These two companies own the majority of shares in Kyodo Senpaku, the company who leases whaling boats to the Japanese Institute of Cetacean Research so they can carry out Japan’s so-called ‘scientific’ whaling policy.

The scientific whaling policy was implemented in 1987 after a moratorium banned commercial whaling. Now around 700 whales are killed each year in the Antarctic and North Pacific in the name of ‘scientific research’, including minke whales, Bryde’s whales, sei whales and sperm whales. All the meat and blubber is then sold commercially within Japan. Up to 22,000 dolphins, porpoises and small whales are also killed every year around the Japanese coast in unregulated and unsustainable hunts.

As well as being involved in systematically exterminating cetaceans, these companies could be feeding high quantities of toxins to the consumer. Many of the whales they kill carry high levels of pollutants including methylmercury and polychlorinated biphenols (PCBs).

The EIA survey also found that more than 70% of whale meat sold is not identified by species and most retailers do not specify the source of the meat.65

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China

In March 2004, it was revealed that Tesco was negotiating to buy 50% of Ting Hsin International,66 which owns 25 hypermarkets in China, operating under the names Hymall and Le Gou. In July 2004, a £140m deal was confirmed that will give it a presence in some of the key Chinese conurbations, link it with a good local operator, and provide plenty of scope for rapid expansion. More than that, however, the deal will give it a market-leading position in Shanghai – China’s largest retail market – leapfrogging over arch-rival Carrefour in the process.67

Tesco follows Wal-Mart, Carrefour, the German chain Metro and the Dutch Makro, all of whom have recently moved into the Chinese market. China is considered an important but difficult market by international retailers. However, a relaxation of Chinese trading rules after the country’s entry to the World Trade Organisation could mean more Western companies move in fairly rapidly. China is seen as a desirable country for foreign investment because of the increasing encroachment of capitalism and the low cost of labour.

Statistics from the IGD’s Market Index (2002) illustrate that the most attractive markets for modern retailers are China, Italy and Russia. It remains to be seen whether Tesco make a move on the latter two.68

There is also a Chinese dental company called Tesco. As far as we can ascertain they’re not related.

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Europe

Tesco’s European annual turnover for 2003-4 was £3,385 million.69 Besides Ireland, all the European countries Tesco operates in – Poland, Hungary, the Czech Republic and Slovakia – joined the EU in May 2004. Tesco has recently acquired a chain in Turkey whose ‘European’ status is unclear. Turkey has application status to the EU but no timetable for joining.

In both Slovakia and Hungary – where it has had a presence since 1994 – Tesco describes itself as the ‘market leader’.70 In March 2004, Tesco opened its first petrol station in Hungary and is planning to build another five to seven in the country over 2004,71 having acquired a licence to build petrol stations at all of its Hungarian outlets.72

Turkey

In November 2003 Tesco bought the Kipa chain for £75m. Kipa is a ‘small and profitable chain’ that owns five hypermarkets in the Aegean region of Turkey.73

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Poland

Modestly describing itself as the ‘hypermarket leader’, Tesco has 69 stores and a new distribution centre in Poland and plans to open another ten over 2004/5.74 Transnational retailers are expected to control nearly 50% of Poland’s supermarket sector by 2006.75

Industrialisation of farming to feed EU shoppers

‘The conditions negotiated between the Polish government and the EU are not favourable. They will threaten many Polish farmers with destruction. There will be no local markets any more.’76
Marian Zagorny, Rural Solidarity campaigner

Poland joined the EU in May 2004. The Common Agricultural Policy (CAP) is likely to cause dramatic change for the predominantly agricultural nation. Agriculture in Poland has been small-scale, un-mechanised and practically organic by default – it is probably no coincidence that Poland has preserved some of the greatest biodiversity in Europe.

The CAP consumes almost half the EU’s entire budget. Under new CAP rules, subsidies will be paid per hectare farmed, but farmers in the new countries will be paid a quarter of the amount given to old members. With trade barriers coming down, Polish farmers will be forced into competition with highly industrialised farmers from across Europe. With less subsidies than their Western European counterparts, they will have to massively increase ‘productivity’ to keep in business. Major European and US agribusiness have now moved into to Poland to take advantage of the cheap land, cheap labour and new markets.

There is already high unemployment in Poland – up to 40% in some of the old state farming areas. With EU accession and the CAP, this will doubtlessly increase. Officials in Poland and Brussels are assuming that large numbers of small, traditional farmers will go out of business. Henryk Zatorski, director of the agricultural chamber for the Wroclaw region believes ‘In this region the 40,000 (farmers) with seven hectares [17 acres] or less will not survive’.

Bad news for most ordinary people living in Poland perhaps, but great news for Tesco and other transnational supermarkets. A study by Verdict (2003) forecasts ‘real growth opportunities’ for grocery retailing in the newly enlarged EU and mentions Tesco, Carrefour and Metro as the most likely to benefit quickly. Verdict goes on to suggest that these corporations’ next priorities should be: ‘improving the efficiency of their supply chains, driving productivity initiatives and increasing sales volumes, targeting non-food sales, corporate merger and acquisition activity and developing their multi-faceted trading strengths.’77

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Ireland

Tesco has been in Ireland since 1997 when it purchased the chain Power Supermarkets, owners of Quinnsworth and Stewarts. Since its launch Tesco has spent nearly ?500m (£335m) on modernising and expanding its network of stores. By 2004, Tesco had 82 stores, with eight more being built during 2004/5.78 In 2003 Tesco achieved a 24% market share in Ireland, and opened its first petrol station and its first distribution centre. Tesco has been highly successful in Ireland, reaping the benefits of its huge investment. According to one report, one out of every four Euros spent on grocery shopping in Ireland ends up in a Tesco till.79 Tesco claims to be the largest private employer in Northern Ireland, with around 7500 employees.80

Allegedly bullying farmers
Irish farmers are concerned by Tesco’s economic power over them. In December 2003, a senior Tesco executive allegedly warned growers that if they wished to continue selling to Tesco, they must not supply discount retailers Lidl and Aldi. He is also reported to have said that Tesco aimed to have 35% of the Irish grocery market within five years. A spokesperson from Tesco denied the allegations, adding: ‘Nor do we have an expectation of reaching a 35% share of the grocery market, though a 35% share of the fruit and vegetable market is possible.’ The Irish Farmers Association is hoping to discuss the matter further with Tesco.81

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Below-cost selling
Tesco Ireland has been fined for selling products below their cost price in an attempt to undercut other retailers, and for selling certain products at a higher price in Ireland than in the UK. In Ireland, the Groceries Order makes persistent below-cost selling illegal, mainly because only big retailers who benefit from economies of scale can afford such practices, and it evidently puts smaller retailers at a disadvantage. However, rising inflation may see the Groceries Order lifted soon.82

Tesco’s co-accused on this issue is Dunnes Stores,83 which describes itself as ‘Ireland’s largest and most successful retailer’ and is therefore Tesco’s main competitor in Ireland. Other retailers welcomed the decision to prosecute. Ailish Ford, director general of independent retailers’ lobby group RGDATA, said:

‘It is vital groups with such incredible market power are not allowed to abuse it at the expense of consumers, suppliers and retailers.’84

When the case came to court in January 2004, Tesco and Dunnes were both fined 300 euros for each of seven counts of selling products below price.85

Worker’s strike
Discontented Tesco workers rarely raise their voices. In June 2001, Tesco workers in Ireland voted overwhelmingly to go on strike over pay. Workers at Tesco were earning £4.85 an hour, which the unions claimed was some 20p to 25p lower than wages paid by Tesco competitors.86 The strike was estimated to have cost the company up to IR£4 million as 9,500 staff walked out for 24 hours.87 Unions accepted a revised pay deal in July 2001.

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Moving in on the convenience (c-store) sector

 

Tesco executives look to the ‘street corner’ strategy (i.e. more Tesco Express convenience stores) as the key to continued growth in core UK sales. This takes advantage of a major shift in food consumption patterns – away from the family meal to 40% of people eating alone; away from Saturday morning traipsing round the hypermarket, to a small shop where the harried commuter can pick up a microwaveable ready meal on the way home from work, and not mind paying extra for the convenience.

While Tesco has 27% of the market share in grocery retailing, it only has 7% market share in the convenience store sector. Although many would consider convenience stores as supermarkets, the Competition Commission in its report on supermarkets (2000) made a clear distinction between the two sectors based on the fact that convenience stores are smaller, in terms of floor space, than supermarkets, and that they cater for ‘top-up’ rather than ‘one trip’ shopping.88

This ‘helpful’ distinction basically gave the green light for the supermarket chains to buy up convenience store chains since it creates a loophole in anti-monopoly laws. Despite recent challenges from remaining independent c-stores and the Federation of Wholesale Distributors, the Office of Fair Trading (OFT) refuses to change its mind on this.89

As usual, Tesco was quick off the mark, acquiring T&S Stores, the highly successful c-store and CTN (confectioners, tobacconists, newsagents) chain, in October 2002. T&S Stores’ main c-store fascias are One Stop and Day & Nite, both acquired by the company on the way to becoming the UK’s leading specialist operator of c-stores. T&S Stores also operates as Dillons newsagents, and Supercigs, a discount tobacco format. Supercigs has since been sold and Tesco is rumoured (June 2004) to be in negotiation with TM Retail, which operates Fourbuoys and Martins, to sell Dillons.

The T&S Stores acquisition brought Tesco 1,202 outlets, 862 of which were formatted as convenience stores. Its intention is to convert those stores suitable for its Express format (around 450 stores) and retain smaller c-stores within the T&S Stores operating company. These stores will continue to trade as One Stop. It seems as though Tesco was mainly interested in the largest stores.

Absorbing so many stores requires impressive management, and of course, Tesco has not failed. In its 2004 interim report, Tesco state ‘We are pleased with the trading performance of the T&S stores. They are ahead of plan and we are looking to convert 136 stores this year.’

This success spurred it onto another convenience store chain acquisition in March 2004; London-based Administore, which operates 45 stores under the trading names of Harts, Cullens and Europa.

Tesco plan to consolidate Tesco Express, Administore and T&S stores into one group headed up by T&S former boss, Colin Holmes. Tesco is currently the fourth largest c-store operator behind Spar, Londis and the Co-op. Verdict research claim that within a few years, Tesco will be vying with Spar for the top spot. As one City analyst stated, ‘Tesco has made no secret of its ambitions. It will look for further acquisitions in the c-store sector.’90 See Corporate Crimes section.
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Retailtainment

 

‘Well it’s activity and theatre, and people create activity and activity creates theatre, it’s an interchange and its different every time you come, there is always something exciting about it.’
Ken Morrison, of Morrisons 91

On average, Britons spend around 3% of their waking lives in supermarkets, so the big chains have realised that it pays to make them more fun. Lighting, ambience and presentation all mix to convince shoppers they are having a good time. Tesco’s approach to retailtainment isn’t as overt (and embarrassing!) as Asda, with their store greeters and price cuts constantly announced over the aisles, or Safeway, where opera singers announce the pizza spinning.

Tesco’s latest innovation is in-store TV advertising for products, sold through advertisers JC Descaux. Adverts for products are blasted at consumers in the form of recipes and helpful suggestions. By the end of 2004, the TV advertising will be available in Tesco’s 300 largest stores. Since 70% of purchase decisions are apparently made instore, this gets consumers where they are most vulnerable or suggestible. Meanwhile, these adverts are not regulated by the media regulator, OfCom, but that’s okay because Tesco’s ‘Editorial Governance Team’ will make sure Tesco doesn’t brainwash us. It is important to note that numerous complaints have been made against Tesco advertising over the last five years, with several upheld.92

Tesco is also reportedly working on ‘The Trolley Tamer’ – a new kind of shopping trolley that plays DVDs and games to entertain children while their parents are shopping.93
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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’[94].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.

References:

1’Sir Terry Leahy’ Chris Blackhurst Management Today February 2004

2’Outgoing Safeway chief hits at Tesco’ Julia Finch. The Guardian 6/3/04

3http://news.bbc.co.uk/1/hi/business/3086625.stm viewed 29/6/04

4 www.tesco.com/corporateinfo

5’C-stores help Tesco drive market share’ The Observer 22/9/04

6Tesco Plc, Interim Statement of Results 24 weeks 9 August 2003, ‘More Customers Choose Tesco’ (16/9/03)

7’Tesco’s Clean Sweep’ Management Today December 2003

82004 edition of Mintel’s European Retail Rankings

9’Tesco: A new international company. A new perspective’ Speech by Sir Terry Leahy 26/1/04 www.tesco.com/

10www.tesco.com/corporateinfo/ viewed 24/3/04

11Tesco Annual Review 2004

12‘Tesco’s profits leap 20% as they gobble up corner shops.’ Robert Winnett. The Sunday Times 18/4/04

13’The Myth of Choice’ Felicity Lawrence The Guardian 15/6/04

14’Tesco’s Clean Sweep’ Management Today December 2003

15www.tesco.com/corporateinfo viewed 21/4/04

16International Directory of Company Histories Vol 2.

17See www.fooddeserts.org/images/suptime.htm for lists.

18 www.tesco.com/corporateinfo viewed 3/4/01

19www.economist.co.uk/research/backgrounders/displaystory.cfm?story_id=730271 viewed 8/7/04

20 Quoted in The Guardian, 16/1/04

21‘Sainbsury is still a long way behind Tesco, says CommentWire’ 17/1/02 Source Just-food.com

22Just-food.com www.just-food.com/features_detail.asp?art=789 viewed 12/4/04

23From Tesco’s preliminary statement of results 53 weeks ended 28/2/04

24The Grocer 27/3/04

25www.corporatewatch.org.uk/news/tescoAGM_2003.htm viewed 16/6/04

26www.tesco.com/corporateinfo/ viewed 20/4/04

27 Tesco Case Study by Allan Breese, Retail Director, TNS Supapanel www.kamcity.com/library/articles/Tesco.htm viewed 18/10/04

28See Corporate Watch profile on ‘Asda’.

29‘Supermarket Sweep’ by Julia Finch 16/1/04 The Guardian

30‘Tesco on target to rack up profits of £2bn’ Kate Rankine The Telegraph 22/9/04

31Interim results 2004/2005 21/9/04 www.tesco.com/corporateinfo viewed 22/9/04

32http://newsweaver.ie/trinityenews/index000038571.cfm

33www.nutricentre.com/Start/tescopress.aspx

34‘Supermarkets look at housing schemes’ The Grocer 27/09/2004

35Tesco Annual review and summary statement 2004

36 The Guardian 18/9/01, www.guardian.co.uk/Archive/Article/0,4273,4259567,00.html

37www.tesco.com/corporateinfo viewed 20/4/04

38www.just-food.com/news_detail.asp?art=57919 viewed 29/6/04

39www.grocertoday.co.uk/article.asp?a=261753

40 www.just-food.com/news_detail.asp?art=56896

41‘Tesco preliminary statement of accounts to the year ending 28th February 2004’. www.tesco.com/corporateinfo

42www.just-food.com/features_detail.asp?art=841

43ibid.

44Ibid.

45www.siamfuture.com/asiannews/asiannewstxt.asp?aid=2422

46http://81.201.142.254/presentResults/results2003_04/Prelims/site/a/a2.html

47www.just-food.com/news_detail.asp?art=49430&lk=nd02

48www.siamfuture.com/asiannews/asiannewstxt.asp?aid=2422

Tesco Plc: Who, Where, How Much?

Head office:

 

Tesco House

Delamare Rd

Cheshunt

Hertfordshire

EN8 9SL

01992 632222

‘The company is run from an ugly concrete building in rural Hertfordshire, next door to a handful of scruffy pubs and a betting shop. Inside, dimly lit and spartan, it would make a fitting home for a parochial British manufacturer.’1

Tesco’s head offices are situated along an industrial estate in Cheshunt. Its a far cry from the Mayfair or Park Lane addresses of many of the other FTSE 100 companies Corporate Watch monitors. In a way, this is reflective of Terry Leahy and his management style. It is all very ordinary. No fuss or fanfare, no pomposity or conspicuous consumption.Around 1000 support staff work in Cheshunt for the massive multinational.

Company Structure/Ownership

 

Tesco PLC is a publicly owned company.

Share Value

See www.tesco.com/corporateinfo

Major shareholders (% at 01/06/2004)2

1. Barclays Global Investors (3.82%)

2. Legal and General (2.79%)

3. Schroder Investment Mgt Ltd (2.87%)

4. State Street Global Advisors (2.73%)

5. Axa Investment Managers (2.63%)

6. Threadneedle Investments (2.33%)

7. Scottish Widows (2.08%)

8. M & G Investment Mgt Ltd (1.99%)

9. Morley Fund Management (1.88%)

10. UBS Global Asset Mgt (1.73%)
Group Sales

2003 – £28,280m

2004 (53 weeks) £33,557m

2004 (52 weeks pro forma) £32,989m

According to the Annual Review, this means that group sales rose 18.7% in 2004.3
Financial management

A tiny chink in Tesco’s armour can be seen from the fact that it is really spending at the edge of its means, as underlined by the £773m share placing in January 2004, and the £650m property sale in March 2004. This trend is set to continue with Tesco spending forecast at £7bn over the next three years, which will make big dividend increases and debt reduction difficult.4

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Board of Directors5

 

During 2004, several long serving members of the board have retired including former chairman John Gardiner.

Current directors:

Sir Terry Leahy, Chief Executive (48 years old)

Appointed 1997

Salary: £955,000 (£2.9m including benefits and profit sharing)

David Reid, Non-Executive Chairman (57)

Appointed 1996. Responsible for international development. Non Executive Director of De Vere Group Plc.

Salary: £691,000 (£2.977m)

Lucy Neville RolfeCompany secretary (51)

Appointed to the Board in April 2004

She retains her existing responsibilities for Corporate Affairs.

See section on ‘Government links’ for more details.

Richard Brasher, Commercial and Trading Director (42)

Appointed to the Board in April 2004. He has led the company’s non-food and commercial and trading activities, following his role as the UK Marketing Director.

Philip Clarke, International Operations and IT Director (43)

Appointed 1998

Salary: £531,000 (£1.657m)

Andrew Higginson, Finance and Strategy Director (46)

Member of the 100 Group of Financial Directors, Non-Executive Director of C and J Clarke Ltd and BSkyB.

Salary: £538,000 (£1.659m)

Tim Mason, Marketing and E-commerce Director (46)

Appointed 1995; Non Executive Director of Capital Radio Plc.

Salary: £538,000 (£1.681m)

David Potts, Retail and Logistics Director (46)

Worked in Ireland 1997 – 2000 before returning to take up current position

Salary: £531,000 (£1.661m)

Rodney Chase, Deputy Chairman and Senior Non-Executive (60)

Appointed in 2002. He stood down as the Deputy Chief Executive of BP Plc in 2003.

He is also a Non-executive Director of Diageo plc and Computer Sciences Corporation.

Salary: £49,000 (half year)

Charles Allen CBE, Non Executive Director (47)

Appointed 1999, also Chief Executive of ITV, formerly Chairman of Granada Group Plc.

Salary: £47,000

Mervyn Davies, Non Executive Director (51)

Appointed July 2003. He is a Group Chief Executive of Standard Chartered PLC, a non-executive director of Tottenham Hotspur PLC and is a member of the Hong Kong Association Business Council.

Ken Hydon, Non-Executive Director (59)

Appointed in February 2004. He is the Financial Director of Vodafone Group Plc and a Director of Verizon Wireless. He is also a Non-Executive Director of Reckitt Benckiser Plc.

Dr Harald Einsmann, Non Executive Director (70)

Appointed 1999. Non Executive Director of EMI Group Plc, on board of Stora Enso Oyj (part of the Wallenberg Group), Director of British American Tobacco Plc, Operating Partner in EQT, a private equity group in Sweden.

Salary: £44,000

Veronique Morali, Non Executive Director (45)

Appointed 2000. Chief Operating Officer and Director of Firnalac SA

Salary: £ 44,000

Graham Pimlott, Non Executive Director (54)

Appointed 1993. Deputy Chair of Hammerson Plc. Non-Executive Director of Provident Financial PLC and Chairman of the Export Credit Guarantee Department.

Salary: £72,000
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Executive pay

 

According to the Guardian, the eight directors who run Tesco earned £26m between them in 2003-2004. 6 This is more than any other board of directors in the FTSE 100. The Tesco key players netted £4m more than directors from Vodafone, in the number two spot, and £23m more than rivals Sainsbury and Morrisons. None of the Tesco executive directors earned less than £1.8m.

The report notes that David Reid was the highest paid Tesco executive, making £8.6m last year, largely as a result of cashing in share options accumulated during his 20 years on the board of the grocery group. He became non-executive chairman during 2004.

Sir Terry Leahy, the chief executive, was paid £4.3m in cash and long-term incentives.

Average Tesco wages outside the boardroom were among the lowest in the survey. An analysis by the Guardian found that Sir Terry was valued the same as 335 of his employees.

The eight non-executive directors get paid between £44,000 and £72,000 a year for turning up to a few meetings.

At the 2004 Tesco AGM, Investor group Pensions Investment Research Consultants (PIRC) was critical of a proposed new incentive scheme. PIRC vowed to oppose rules which allow departing directors to claim average bonuses earned in the previous two years, which can add up to the equivalent of a year’s salary. PIRC was also critical of executives’ pay and bonus deals for 2003, although Tesco said its remuneration report was approved by 97.08% of votes cast. 7 In previous years, PIRC has been highly critical of Tesco directors’ pay as ‘overgenerous’ with ‘inadequate performance targets’. PIRC was especially critical of directors’ two year rolling contracts which have now been renegotiated (See below).8

The seemingly fierce competition between companies who produce similar goods and services actually masks some close corporate interconnections. Directors often move seamlessly between companies and lobby groups – such as Michael Wemms, who left Tesco after nine years as their retail director to move to House of Fraser as chairman in 2001 and then on to the chairmanship of the British Retail Consortium. Tesco directors Richard Brasher and Tim Mason were both in the running for the top job at Sainsbury before the appointment of Justin King, previously head of food at M&S, was announced.9
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Sir Terry Leahy

‘The only personality I believe in is Tesco’10

Terry Leahy, aged 48, joined Tesco as a marketing executive in 1979 and became chief executive in March 1997, taking over from Lord McLaurin. He rarely gives personal interviews, but it is known that he is the son of a Liverpool ship’s carpenter turned greyhound trainer. He studied for a BSc in Management Sciences at UMIST in Manchester, is married to Alison, a GP, and has three children. Based in unpreposessing headquarters in Cheshunt, Hertfordshire, Terry, by all accounts, is just a very ordinary affable guy, who is totally, some say obsessively, committed to the Tesco project. He drives his own car to work, doesn’t keep a large support staff, and won’t take outside directorships because he believes being ‘chief executive of Tesco is a full-time job’.11 Nevertheless, Tesco shareholders have seen their holdings double since Leahy took over in 1997.

He ascribes Tesco’s phenomenal success under his leadership to his policy of ‘listening to the customer’. Though every company claims to listen to its customers, genuinely doing so requires a humility that is rare in senior management. Commentators claim that Leahy has it in spades. Raised on a Liverpool housing estate, Mr Leahy first stacked shelves in a Tesco store for a summer job. He claims ‘I’ve been fortunate enough to see all layers of British life…I feel I know personally all our customer groups.’12

Leahy very much believes that customers vote with their feet. ‘We’re selling 50% more food than we did five years ago; we’re the biggest customer of British farming there is and we’ve created 100,000 jobs in the last five years’. As Chris Blackhurst in Management Today says, ‘It’s those values that tell him he’s right to fight the farming and corner-shop lobbies…Some farmers who can’t match the quality he demands and some cornershops that can’t compete may go out of business, but so what?’13

Leahy was knighted in the New Years Honours list 2002 for services to food retailing, and in 2002 was also appointed Chancellor of UMIST. In October 2001, Leahy was awarded the Freedom of the City of Liverpool, his home town. He is apparently a fanatical Everton supporter.

Much to his shareholders’ chagrin, Leahy had been holding onto a two year-rolling contract that would have paid up to five times his salary or £4.5 million if he were ousted in a takeover or sacked. The Board of Directors had felt that the shareholders were getting ‘value for money’ from Leahy, but at the 2003 AGM, 40% of Tesco’s shareholders illustrated just how strongly they felt when they voted against or abstained from the vote on the length of Sir Terry’s notice period. In March 2004, Leahy finally caved in, accepting a one year rolling contract.

In January 2004, Leahy was named European Businessman of the Year by Fortune Magazine.

For more information on Terry Leahy, see ‘Influencing Government’ section.

Advisers

 

  • Stockbrokers: Deutsche Bank A + G London
  • Morgan Stanley + Co International
  • Auditors: PriceWaterhouse Coopers
  • Lawyers:(among others) Freshfields Bruckhaus Deringer14
  • Registrar:Lloyds TSB Registrars,
    The Causeway, Worthing, West Sussex BN 99 6DA
    01903 502541 15

Subsidiaries

 

Tesco has 150 subsidiaries, around half of which have ‘Tesco’ in their name and are based in Cheshunt. Please contact Corporate Watch if you want more information. Readers should be aware of Tesco Corporation, which is an energy and oil company and is not related to Tesco PLC.

As part of its acquisition of T&S stores, Tesco acquired Dillons the newsagents. The Dillons chain includes 180 stores selling newspapers, tobacco and grocery items. In July 2004, Tesco was believed to be discussions to sell Dillons to private convenience store chain TM Retail, who own Forbuoys and Martins.16

Matalan, the membership-based clothing and home furnishing retailer has been struggling through 2003/2004, and rumours have been flying for some time that Tesco may be interested in a merger.17 Asda is also rumoured to be about to make an offer (August 2004)

In a Telegraph article published in 1999, it was suggested that Tesco and the other supermarkets were on the verge of submitting bids to take over the running of the 103 very basic grocer’s shops inside British prisons. Hence capturing the spending power, all £10 a week on average, of British prisoners’ wages from cooking and cleaning etc.18 While this does not seem to have happened, it is interesting that Tesco and the other major British supermarkets have not actively been tendering for contracts in the public sector – e.g. running shops in hospitals.

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References
1. www.economist.co.uk/research/backgrounders/displaystory.cfm?story_id=730271
viewed 8/7/04

2. www.tesco.com/corporateinfo Information is updated every four weeks.

3. Annual Review and Summary Financial Statement 2004

4. Lex: Tesco in The Financial Times 22/9/04

5. From www.tesco.com/corporateinfo unless otherwise stated

6. ‘£26m puts Tesco at the Top of the Table’ The Guardian 27/08/04

7. ‘Tesco sales surge above forecasts’ 18/6/04 http://news.bbc.co.uk/1/hi/business/3817815.stm viewed 8/7/04

8. ‘Tesco targetted over ‘Fat cat’ pay’ 20/5/03 http://news.bbc.co.uk/1/hi/business/3045143.stm
9. www.telegraph.co.uk/money/main.jhtml?xml=/money/2003/
11/16/cnsains16.xml viewed 1/9/04

10 ‘Sir Terry Leahy’ Management Today February 2004

11. ibid.

12. ‘Leahy’s Lead’ 9/8/01 The Economist www.economist.co.uk/research/backgrounders/displaystory.cfm?story_id=730271
13. ibid.

14. www.freshfields.com/news/dynamic/Pressrelease.asp?newsitem=258
newsitem=258 viewed 8/7/04

15. www.tesco.com/corporateinfo
16. ‘Tesco: Selling Dillons, partnering e-Diets’ www.just-food.com 26/7/04 viewed 26/7/04

17. http://business.scotsman.com/retail.cfm?id=784612004
18. ‘Supermarkets strive to get into prison’ By David Bamber, Home Affairs Correspondent The Telegraph 19/9/99

Tesco Plc: Influence/Lobbying

‘What saps our strength are high taxes: excessive regulations; inflexible working practices; and the gold plating of EU directives. All of this undermines British businesses on the home front as they battle in global markets.’

Sir Terry Leahy1

As the above quote highlights, Tesco has a bit of a problem with national and European regulation, and through lobby groups and close links with government, has sought to loosen ‘restrictive’ regulation.

Influencing Government

‘Tesco supports the Government of the Day’2

Tesco says it made no political donations during 2003. During the year the group made contributions of £44,713 (2003 – £31,282) in the form of sponsorship for political events: Labour Party – £14,368; Conservative Party – £5,502; Liberal Democrat Party – £6,340; Plaid Cymru – £1,300; Fianna Fáil – £1,203; Usdaw (the main union for Tesco employees) – £16,000.3

According to Red Star research, in the late 1990s Tesco executives featured on six government task forces, more than for any single company and far more than the other supermarket chains. These included Terry Leahy, who sat on the Board of Trade’s Competitiveness Advisory Group (although from the DTI website it is unclear whether this still exists in 2004)4 and former Tesco Retail director, Michael Wemms, who was a member of the New Deal Task Force.5

Currently, John Longworth, group trading, law and technical director of Tesco PLC, sits on the Government Advisory Committee on Packaging Waste and Recycling, and is also one of nine commissioners of the Health and Safety Commission.6 Lucy Neville Rolfe, Tesco’s Director of Group Corporate Affairs, also sits on Government committees (see below).

Tesco gave the Labour Party more than £5,000 in sponsorship in 1997 and 1998. It is the biggest backer of the New Deal scheme7 and has offered 1500 ‘opportunities’ for New Deal applicants.8 Tesco’s former Chief Executive Ian McLaurin sits in the House of Lords, and in 1999 Tony Blair’s government launched its first annual report in Kensington Tesco9.

Tesco was also a £12m sponsor of the Millennium Dome. It was reported in The Observer at the time10 that lobbying firm, LLM – involved in a campaign on behalf of Tesco to block plans for a tax on shopping centre car parks – had ‘suggested that a £12 million Tesco donation to the Millennium Dome was part of a ‘quid pro quo deal’?giving its support to a government project in order to endear itself to New Labour. The paper went on to say that there is no suggestion that Tesco made the Dome donation to help it get its way over the car park tax issue. But the plan to impose the tax was dropped from the White Paper on transport?and the terms of the exemption were exactly as LLM’s Ben Lucas had suggested. The Sunday Times11 said that the estimated cost to Tesco of the car park tax would have been £40 million.12

Tesco has had a prominent presence at Labour Party conferences. In 2002, it sponsored the National Reception at the Party conference.13 In 2003, it sponsored the Constituency Delegates’ Welcome reception, and co-ran a fringe debate ‘Promising the Earth? Food, Farming and Rural Communities’: presumably a fascinating ‘greenwash’ occasion considering the reality of Tesco’s total contempt for UK farmers and rural communities. See section on ‘Tesco’s dealing with suppliers and farmers’.

It is quite clear that Tony Blair has a fascination for successful corporate bosses, including Terry Leahy who was knighted in 2002. Rumours in Management Today (January 2004) suggest that the government wants Terry Leahy to sort out the National Health Service.

Many campaigners believe that supermarkets bring undue influence on local government, especially when seeking planning permission for stores. Transforming local government is certainly on Tesco’s agenda. Tesco is a corporate partner of the New Local Government Network (NLGN) which is ‘an independent think tank seeking to transform public services, revitalise local political leadership and empower local communities’. NLGN has been favourably endorsed by Tony Blair, ‘Modernising local government is vital to the future of our communities. NLGN contributes innovative and thought-provoking ideas to the debate on how we achieve that’.14

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Dame Shirley Porter – Heiress to the Tesco fortune

‘Shirley Porter was responsible for the worst, the most cynical and callous and indeed the most costly conspiracy of political corruption in this country in the modern age’
Peter Bradley MP

Eldest daughter of Sir Jack Cohen, Shirley Porter was the Conservative Party leader of Westminster council and later Mayor of Westminster during the late 1980’s and 1990’s. She is perhaps best known for the ‘Homes for Votes’ scandal in which council houses were sold off in marginal wards on the basis that homeowners were more likely to vote Conservative. After refusing to pay the £27m surcharge (plus interest and costs) for the costs to the Council of her actions, and initially insisting that her assets were only worth £300,000, she eventually reached a deal with Westminster Council, paying £12m in 2004.15

Revolving doors

Tesco is keen on employing former government officials. In 2001, it paid Philip Gould, one of Tony Blair’s most trusted political advisers, to help reorganise its publicity, media and lobbying operation. It also hired David North, the Prime Minister’s private secretary and a specialist in rural affairs, to take up a new position as director of government affairs and Corporate Social Responsibility, a post that was introduced as a direct result of Philip Gould’s advice. North represented Blair on the Rural Recovery Task Force, set up to rebuild British farming after the foot and mouth crisis. He also helped to run the Cabinet Office’s unit to support biotechnology at the height of the GM foods controversy in 1999.16

Conservative spokesman on environment, food and rural affairs, Peter Ainsworth, condemned the appointments, telling the Independent on Sunday, ‘This reinforces the sense that there is a charmed circle around the Prime Minister which major corporations feel they need to get inside.’

Tesco’s Company Secretary and Director of Group Corporate Affairs, Lucy Neville-Rolfe, is a fascinating example of ‘revolving doors’ between industry and government. At Tesco, her responsibilities include government, EU and competition issues, investor relations, communications, community affairs and corporate affairs policy for the international business in 10 countries. She reports directly to Terry Leahy.

Neville-Rolfe’s external appointments include business lobby groups, NGOs and government committees such as the CBI Europe Committee, UNICE Task Force on Enlargement and the boards of EuroCommerce and the British Retail Consortium. She also sits on a ‘work and enterprise’ panel for The Work Foundation and is on the advisory committee for the Economic and Social Research Council ‘Cultures of Consumption’ project. Another advisory role is sitting on the President’s committee of London First, which Tesco also sponsors.17 She has been a-appointed to the Foreign and Commonwealth Office Management Board,18 as well as to the Deputy Prime Ministers’ Local Government funding committee, which is looking into better ways of funding council services19, further crossing the line between influencing the government and being the government.

Neville-Rolfe joined Tesco from the Cabinet Office in 1997. She was formerly Director of the Cabinet Office Deregulation Unit under Michael Heseltine and later with Lord Chris Haskins who transformed it under New Labour. With Haskins, she wrote ‘Is there a future for European Farming?’ (2002) for the Foreign Policy Centre (see ‘Relations with Suppliers and Farmers’ section).

From 1992 to 1994 she was a member of the Prime Minister’s Policy Unit where her responsibilities included home and legal affairs and public sector reform. From 1973 to 1992 she worked at the Ministry of Agriculture, Fisheries and Food on EU and countryside issues and was Private Secretary to the late Rt Hon John Silkin MP. From 1991 to 1992, she was non-executive director of construction firm, J. Laing Plc.

Covering both bases (Labour and Tory) she spoke at the Conservative Party conference in 2003.

Neville-Rolfe’s husband, Sir Richard Packer, was Permanent Secretary at the Ministry of Agriculture, Fisheries and Food (now incorporated into DEFRA) from 1993 to 2000. He was mainly concerned with European Union polices on agriculture.

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Lobby Groups

 

Tesco, along with most other supermarkets, is a member of the Freight Transport Association, ‘the lobby group representing the interests of road hauliers …(which) campaigns against restrictions on lorries travelling through residential areas at night, against constraint on the size of lorries and for increases in the speed limit for large lorries on small country roads.’20 In June 2004, Tesco co-signed a letter to the Chancellor calling on him to increase transport spending and ‘fund the widening of the most congested parts of our key Trade Routes: the M1, M25, M4, M6, and M62’.21

Tesco is a member of the British Retail Consortium (BRC)22 , and regularly attends the BRC summer Parliamentary reception and the Scottish Retail Consortium (SRC) Summer Parliamentary reception, where guests were given weighty going-home bags courtesy of Tesco and others. John Longworth, group trading, law and technical director of Tesco PLC, sits on several British Retail Consortium policy committees. Michael Wemms, a former Tesco director who went on to become chairman of House of Fraser, is the new chair of the British Retail Consortium.23

Tesco is a member of the Institute of Grocery Retailers (IGD).24 John Longworth is also chair of the IGD Director’s Technical Forum.

Tesco also appears influential within the Confederation of British Industry (CBI), Britain’s biggest business lobby, with Terry Leahy being invited to address its annual conference in November 2001 and the CBI’s Business Summit in June 2004. Lucy Neville-Rolfe, Tesco’s Director of Corporate Affairs, sits on the CBI’s Europe Committee and accompanied a Foreign Office delegation to the Czech Republic in this capacity.25 In a recent poll of companies, the CBI supported Tesco’s claim that a high proportion of absence at work is due to feigned sickness.26

Lucy Neville-Rolfe also sits on the UNICE Task Force on Enlargement, UNICE being the Union of Industry and Employers Federations of Europe, of which the CBI is a member- federation.27 UNICE has been picked out by Corporate Europe Observatory for its lobbying against binding agreements on greenhouse gas emissions,28 which sits somewhat uncomfortably with Tesco’s professed concern about the subject. (see Corporate Crimes)

Terry Leahy is also on the Advisory Board of influencial policy think-tank, Demos.29

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Public relations

 

Tesco uses a range of Public Relations firms including:

Weber Shandwick Worldwide; 72 Point (part of the SWNS Group – the UK’s biggest independent press agency);

CHA, the workplace communications consultancy;

Good Relations;30

GGK Public Relations (Poland);31

The Maitland Consultancy.

Lawson Lucas Mendelsohn (LLM)32

Cause related marketing

 

Tesco is a high profile sponsor of Cancer Research (UK)’s Race for Life. It became a lead sponsor of the annual fundraising run in 2002, generating around 22% of the total £17m of funds. It undertook a large-scale recruitment campaign to encourage women to participate, supported through extensive TV, radio and in-store promotion. Cancer Research UK says the involvement gave the event a high street presence, with awareness among Tesco customers increasing from 14% in February 2002 to 39% in August. Funds raised by Tesco employees were topped up by 20% by the Tesco Charity Trust, resulting in a total contribution of £646,627. The company also delivered 55,055 of the 254,726 runners in 2002 (16,743 of these were staff), helping CRUK to exceed its participation targets.33

Special mention for Tesco champion, Prunella Scales

Prunella Scales’ adverts for Tesco, in which she played a busybody housewife, are reputed to have added £2.2bn to Tesco’s profits. Her support for Tesco is ironic given her concern for the countryside. From 1997 – 2002 she was the President of the CPRE, and is now the face of the (Tesco-sponsored) Woodland Trust.34

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Education

 

‘The school of the future will be franchised, branded and sponsored. To you it is a nightmare prospect. To New Labour it represents progress, modernisation and the future.’

‘The prime minister wants schools to be run like Tesco stores. We’ll have special offers. Two chemistry lessons for the price of one…’
Doug McAvoy, General Secretary of the National Union of Teachers35

Tesco began its Computers for Schools scheme in 1990. On a similar theme, to celebrate the Millennium, Tesco ran a project (which now appears to have disappeared from the web),36 called Tesco SchoolNet 2000. It was billed as the world’s biggest schools internet project. Thousands of kids from more than 8000 schools around the country created a unique record of the community life in the UK, ‘a Domesday Book for the 21st Century’ based on the national curriculum. Tesco provided curriculum support materials, 52 advisory teachers, 340 internet centres in Tesco stores, 17 internet centres in libraries in areas where there are no Tesco stores and a help team. Schools booked into the internet centres where they could upload pupils’ work onto the website. This work was showcased in the Learning Zone at the Millenium Dome, and due to its success ran into 2001.

Tesco and Education Action Zones

Education action zones (EAZs) were initially local partnerships between groups of schools, businesses, parents, local education authorities and others designed to boost standards in challenging areas. These are now being transformed into Excellence in Cities Action Zones (EiCAZs) or Excellence Clusters. Tesco has been very involved in these ‘public private partnerships’. Sponsored projects included a school tour of the local supermarket in the Digby Granby and Toxteth EAZ.37

Targetting Children and Influencing Education

Marketing experts reckon that if you start kids early on brand recognition, you’ve got them hooked for life.38 In recent years, many corporations have moved into schools offering educational materials, events and competitions, as well as supplying schools with technology in exchange for high company visibility.

Since 1992 Tesco has been running the Computers for Schools scheme, whereby tokens on certain products (Walkers’ crisps, Tetley tea and Mcvitie’s biscuits) or with any purchase of over £10 at a Tesco store can be exchanged for computer equipment for local schools. Tesco is very proud of this scheme, which in October 2000 won the Nestle Social Commitment prize [yes, really] at the Food and Industry Awards. However, parents and teachers have expressed concerns over the way the scheme encourages children to be brand-conscious consumers at an early age in order to get hold of the equipment their school needs.

A report by Which? magazine in 2001 showed that under the Tesco Computers for Schools scheme 21,990 vouchers were needed to buy a personal computer costing around £1,000. Parents would have to spend nearly £250,000 to obtain the necessary vouchers. Voucher schemes mean that pressure is put on parents to buy particular brands and shop in particular shops. This can cause additional financial pressures for less well off parents who might not normally shop there or choose to spend their income on junk food. It also puts pressure on pupils whose parents choose not to participate in a scheme.39

The provision of school equipment by corporations not only raises corporate brand awareness (the computers have Tesco’s logos on them) but also lets the government off the hook, ultimately allowing less spending on schools. The National Union of Teachers has voiced concerns about schools’ creeping reliance on corporations for the provision of essential equipment.40

There are also concerns that most of the products blessed with free computer vouchers come into the category of junk food. Children may learn about nutrition at school, but the next day in assembly they will be encouraged to buy as many crisps, biscuits and fizzy drinks as they can to enable them to get a computer. Tesco’s statement on this is profoundly unhelpful: ‘All products are clearly labelled and if a shopper should have any health concerns they should directly contact the product concerned.’ 41 Tesco also points out that customers do not have to buy the marked products to get tokens; rather than spending 35p on a packet of crisps, they can spend £10 on any purchase from Tesco and get a token worth the same amount. Cheers, Tesco.

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Universities

 

Research Tesco sponsors the Tesco Centre for Organic Agriculture at the University of Newcastle on Tyne42 to provide research and development support for the UK organic food industry. A five year £450,000 sponsorship has been given to focus on a range of research, from organic crop rotation to livestock nutrition. Tesco works with a similar project at the University of Aberdeen.43

Tesco provides core sponsorship for the ‘Food Animal Initiative’, based primarily at the University of Oxford, which develops new farming practices that are ‘welfare friendly, food safe and environmentally sustainable’. See section on ‘animal welfare’ in Corporate crimes.

Tesco also sponsored a Masters course in Strategic Communications at UMIST, along with Burson Marsteller and British American Tobacco. 44 This course, the ‘MSc in Corporate Communications and Reputation Management’ is now offered on a full time basis at Manchester Business School.45

Recruitment
Tesco estimates that between 20,000 – 25,000 of its staff work in Tesco while pursuing qualifications in further or higher education. It takes on about 120 staff a year through its graduate scheme.

‘Training in Partnership’

Since 1999, Tesco has run a Business Improvement Programme at Manchester Business School (MBS) for management staff.

In October 2001, Tesco and the University of Westminster pledged to work together over the only degree-recognised centre of excellence for Merchandise Planning. Tesco offers paid work placements and commercial rounding to 5 undergraduates in the second year of the course.

Tesco managers at distribution centres have the oppportunity to study through the Institute of Logistics and Transport.

Tesco has two Lifelong Learning Centres – at Welham Green Distribution Centre in Hertfordshire and Fennylock Distribution centre in Milton Keynes, where employees can sign up for e-learning through Learndirect.

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References
1. Tesco:a new international company, a new perspective Speech by Terry Leahy 26/1/04 www.tesco.com/corporateinfo
2. Management Today interview with Chris Blackhurst

3. Tesco Plc Annual Report 2004

4. House of Commons Hansard for 14th October 1997, http://www.parliament.the-stationery-office.co.uk/pa/ld199798/ldhansrd/vo971014/text/71014w03.htm
5. http://www.prnewswire.co.uk/cgi/news/release?id=47745 viewed 28/7/04

6. http://www.hse.gov.uk/aboutus/hsc/longworth.htm viewed 28/7/04

7. www.red-star-research.org.uk/subframe3
8. http://www.hm-treasury.gov.uk/budget/1998/chap3.htm
9. ibid p206

10.The Observer 26/7/98

11.The Sunday Times 12/7/98

12. As reported in www.publications.parliament.uk/pa/cm199899/cmselect/cmcumeds/21-ii/21app17.htm
13. See Friends of the Earth reports ‘Big Business in Bournemouth 2003’ http://www.foe.co.uk/resource/reports/exposed_bournemouth_2003.pdf and http://www.foe.co.uk/resource/reports/terrible_ten.pdf viewed 24/3/04

14. http://www.nlgn.org.uk/nlgn.php See ‘About NLGN’ viewed 8/7/04

15. http://news.bbc.co.uk/1/hi/uk_politics/3867387.stm viewed 28/7/04

16. ‘Tesco recruits two Blair Aides’ Severin Carrell Independent on Sunday 9/12/01

17. www.london-first.co.uk/about_us/ourmembers.asp?L2=79
18. House of Commons Hansard Written Answers for 23rd June 2000, http://www.parliament.the-stationery-office.co.uk/pa/cm199900/cmhansrd/vo000623/text/00623w04.htm
19. www.local.odpm.gov.uk/finance/balance/membrshp.pdf
20. George Monbiot Captive State 2000 p.176

21. http://www.fta.co.uk/news/pressreleases/archive/20040628Openletter.htm viewed 8/7/04

22. www.parliament.the-stationery-office.co.uk/pa/cm199899/cmselect/cmtrdind/678/9070622.htm
23. www.theretailbulletin.com/index.php?page=5&cat=rese&id=4308 viewed 28/7/04

24. www.igd.com/default.asp?/about/member_fs.asp?menuid=41
25. http://www.nds.coi.gov.uk/coi/coipress.nsf/898f421d664e93ca802567350057b240/5c6867abef1c2a5c802569dd0057df0a?OpenDocument
26. http://news.bbc.co.uk/1/hi/uk/3741275.stm viewed 8/7/04

27. www.esrc.ac.uk/newsociety/newsociety/whoinvests.html
28. see http://www.xs4all.nl/~ceo/greenhouse/european.html. For more on UNICE, see http://www.xs4all.nl/~ceo/ebsummit/factsheet2.htm
29. http://www.demos.co.uk/aboutus/ournetwork/advisorycouncil/ viewed 28/7/04

30. http://directories.mad.co.uk/mw/ccs/public-relations/goodrelations.asp viewed 8/7/04

31. http://www.zfpr.pl/ggkeng.htm viewed 8/7/04

32. www.red-star-research.org.uk/llm.html viewed 28/7/04

33. ‘Knowing which Lever to Pull’ by Liza Ramrayka The Guardian Society pages 17/11/03

34. See ‘The case against Prunella Scales’ The Ecologist special edition September 2004 p.g.49

35. ‘Union Leader warns of “nightmare prospect” for education under Labour government’ Liz Smith 29/4/04 wsws.org

36. Records from the projects exist on schools websites such as http://www.brynmawr.gwent.sch.uk/tesco2000.htm viewed 10/7/04

37. http://www.dgteaz.org.uk/news/tescometro.htm viewed 20/9/04

38. For an interesting article, see http://www.media-awareness.ca/english/parents/marketing/marketers_target_kids.cfm
39. National Union of Teachers’ briefing on ‘School’s Role in promoting Child Health and Combating Commercialisation’ www.teachers.org.uk/resources/pdf/combating_comm.pdf
40. www.teachers.org.uk/resources/pdf/combating_comm.pdf
41. Quoted in The Guardian 11/4/01

42. http://www.ncl.ac.uk/tcoa/ viewed 12/7/04

43. http://www.abdn.ac.uk/organic/organic_07.php viewed 12/7/04

44. The Guardian, 8/12/00

45. http://www.mbs.ac.uk/news/story.asp?story=43 viewed 28/7/04

Tesco Plc: Corporate Crimes

Greenwash

 

Greenwash is one of the Corporation’s most powerful weapons. Faced with increasing public concerns, appearing to be an ethical and thoughtful company taking heed of today’s social and environmental issues has become more and more important for corporations whose public image is vital to their sales.

So is Tesco the environmentally friendly company it claims to be? The www.tesco.com/everyLittleHelps/“>’Every Little Helps’ section on the Tesco website illustrates some of its efforts.

 

 

 

 

 

Customer packaging Tesco says it has reduced packaging waste in its internal systems, but it still generates a huge amount of packaging waste which ends up in landfill sites via its customers’ bins. Tesco currently distributes 1.4bn plastic bags a year, which if not reused, end up in landfill or discarded in the environment.1 Grocery packaging is roughly a quarter of all household waste,2 much of it plastic of which only about 7% is recycled in this country. Yet Tesco says nothing about reducing packaging sold to consumers, and this may actually be increasing.

Less than cosmetic perfection A recent Consumers’ Association report on supermarket fruit and vegetables3 illustrates it isn’t just EU marketing standards that insist on strict criteria for cosmetic appearance. The supermarkets all go one step further – Tesco has its own criteria that suppliers must meet for appearance and size. The Soil Association believes that supermarkets have similar tactics for organic produce: as a result up to 50% of a crop is likely to rejected. They sell flavourless fruit and veg that is picked un-ripe so that it will have a longer shelf life, only selling ripened fruit and veg at ainflated price in the Tesco Finest range.

Tesco’s real carbon blueprint In the ‘Every Little Helps’ section on their website, Tesco list their attempts to reduce its CO2 emissions which include:

  • encouraging staff to have green travel plans – car sharing and walking buddies;
  • trialing Greenergy Global Diesel (with 5% biodiesel) at the Hatfield petrol station and Thurrock Distribution centre in early 2003. Tesco own 25% of Greenergy;
  • increasing the number of products delivered to stores per vehicle, resulting in a more efficient use of the distribution fleet (rail delivery was judged unreliable);
  • making an eight-year commitment to reduce energy consumption per square foot by 35% by 2006 and investigating wind and solar (photovoltaic cells) power in store.

Its wonderful that Tesco has made such a huge commitment to reduce its CO2 emissions. It helps that they receive payment for each tonne saved from the government Emissions Trading Scheme.4

It is also hard to see how Tesco will achieve it if it considers its entire carbon footprint. In pursuit of cheap food available all year round it still transports millions of tonnes of food and non-food products around the world by air freight, and supports industrial agriculture which is highly fossil-fuel intensive. Large supermarkets are also hugely energy inefficient. The reliance on car use to get to out of town superstores causes pollution and congestion, and so does the massive system of lorries transporting products to distribution centres and then out to the supermarkets. Tesco lorries travel 68 million miles each year, with rail transportation of goods only 1.2% of this.5 Even the occasional locally-made product will have travelled across the country to a distribution centre and back before reaching the shelves.

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Supporting Kyoto Tesco says that it ‘fully supports the UK government’s commitment to the Kyoto protocol on climate change’. Which is a rather safe bet as it looks unlikely that the USA will ratify the treaty in the near future, and the treaty is non-binding without USA ratification.6 In a situation like this it is easy to say you support the government’s position, therefore looking as if you care, without actually having to do anything. As mentioned in the section on ‘Lobby Groups’, Tesco is represented in UNICE, which lobbies against binding targets for CO2 reductions, and as such it it part of the problem rather than part of the solution.

Tesco and Esso began a partnership in the 1970s. Tesco claims that Esso no longer supplies its own brand petrol stations,7 however the partnership includes around 115 forecourts which carry the Esso logo for the petrol, and have a Tesco Express mini-supermarket.8 Esso is part of the Exxon corporation, which has been heavily criticised for many environmental issues, including donating money to George W Bush’s election campaign and influencing US denial of climate change.9

Embarrassing stupidity Tesco released a press statement in November 2000 about how global warming would make it easier to produce wine from English grapes10. This should have been a major scandal for Tesco. Climate change is not about a warm climate for Britain, it is about weather chaos for the whole world. The huge storms and droughts which may well plague us in the future will do nothing for grapes nor for any other agriculture.

Tesco and pesticide use Tesco sources its products ‘according to its ‘own-brand’ Nature’s Choice standard that requires the rational use of pesticides. According to Tesco, 80% of suppliers worldwide comply with this scheme.’

‘Nature’s Choice’ supposedly encourages ‘rational’ pesticide use, but details of the scheme are not publicly available.11 Tesco says it works with suppliers to keep pesticide use to the minimum required, yet it refused to sign a Friends of the Earth (FoE) pledge to take action to deal with risky chemicals. In fact it didn’t even bother to reply to a FoE questionnaire on this issue. Despite its claims, FoE’s analysis of government data on Tesco for five years from 1998 to 2002 showed that Tesco had made no overall reduction in pesticide residues in its food. Over the five years, an average of 45% of Tesco fruit and vegetable samples contained pesticide residues.12

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The corporate takeover of organics Tesco are ‘aiming to sell more organic products than any other supermarket, with 100% of organic milk, eggs and other dairy products, chicken, lamb and mushrooms from the UK.’ According to Tesco, organic foods are beginning to appeal to a broader spectrum of customers and one Tesco shopper in four now buys at least one organic product. As a result they are broadening their newly designed organics range.13 Organic food has been identified as a large area of growth for supermarkets, with an increasing amount of processed organic food available. While Tesco claims to be sourcing many of its organic products in Britain, a recent survey by The Soil Association (19/04//2004) showed it imports half its organic pork and over half its organic beef. UK reared organic pork has to reach higher animal welfare standards than in other countries, which sometimes makes it more expensive.14

Many organic enthusiasts question whether the supermarkets’ general policy of sourcing their organic products from large industrial-style farms, who are attracted to organics because of higher profit margins rather than ethics, as well as importing from poor countries who can barely feed themselvse such as Zimbabwe, is really true to the original social and environmental aims of the organic movement. Very few supermarket organic products are locally sourced.

Overpricing organics A study authored by Dr Anna Ross (University of the West of England) accuses UK supermarket chains of overpricing organic goods.15 Media reports suggest that the Soil Association has been trying to suppress the findings. Dr Ross found that the same basket of vegetables bought in a sample of farm shops were found to be 63% more expensive in market leader Tesco; 59% more expensive in Sainsbury’s; and 38% more expensive in Waitrose. On average, she found the cost to be 64% more expensive in the multiples than local farmers’ markets. Dr Ross accused the Soil Association of being too busy trying not to upset the supermarkets, and encouraged consumers to shop elsewhere for better value. The major chains currently control 80% of the organic food market in the UK, which grew by 33% last year to £802m.

An organic label doesn’t necessarily mean that the product has been fairly traded or that the farmer has been paid a fair price by the supermarkets. An oversupply of organic milk in the UK has seen British organic farmers barely able to cover their production costs in sales to supermarkets. The fair trade and organic farming movements developed in part as a response to exploitation by supermarkets. It seems ironic that the supermarkets have now appropriated them. Selling some organic/fair trade ranges does not excuse the supermarkets for the way their rest of their food is produced.

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Importing staple British fruit unnecessarily and hiking the price In November 2003 Friends of the Earth published a survey16 of the apples, carrots and potatoes found in supermarkets, greengrocers and markets. Whilst most potatoes and carrots were thankfully UK-sourced, it was a different story for apples. 42% of Tesco’s non-organic apples were from the UK, compared with 46% in greengrocers and 62% in markets including farmers’ markets. None of the supermarkets surveyed were able to provide any local produce – hardly surprising when they operate through a few massive distribution centres. Out of over 2000 varieties of apples available in the UK, Tesco stocks only seven.17

Supermarkets generally did well in providing organic varieties, but only 23% of Tesco’s organic apples were from the UK, and 56% were from outside the EU.

Despite repeated claims to the contrary, all the supermarkets and convenience stores surveyed were found to be more expensive for fruit and veg than greengrocers and markets.

Former Government pro-GM apologist is Tesco Director Tesco are ‘committed to labeling all GM food. Fresh poultry, eggs and fish all come from animals fed on a non-GM feed diet.’

Tesco make it clear that their policy on genetically modified food is led by their consumers who ‘continue to tell us that they are not yet convinced of the benefits of GM’. Unlike Tesco director of government affairs and Corporate Social Responsibility, David North, who helped run the Cabinet Office unit to support biotechnology at the height of the GM foods controversy in 1999.18

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Continuing to sell GM-fed dairy and meat products Over the last six years, the major UK supermarkets have caved into consumer pressure to remove GM ingredients from their own-brand products. The one area where they have been resistant is in continuing to sell dairy and meat products from animals fed on GM cattle feed (maize and soya). Tesco specifically persists in selling dairy, lamb, beef and pork from animals fed on GM cattle feed. This despite a recent ICM poll that highlighted that 77% of people did not want to eat products from animals fed on a diet of GM feed.19 Tesco lays their inability to move further on this issue at the feet of the farmers ‘who tell us that to extend the range of meat we sell from animals fed on non-GM at this time would put immense pressure on them’. However, the Co-op and Marks & Spencer both sell meat and dairy products sourced from animals fed GM-free feed.

Farmers cannot move on this issue because Tesco pays them so little for their product. This means that farmers are forced to feed their cattle on low-cost high-protein imported soya and maize the growing of which is wreaking environmental havoc in Argentina and across the USA.20

Meat doctoring An investigation by Guardian journalist, Felicity Lawrence, revealed how the meat industry manufactures and ‘doctors’ the mountains of cheap chicken products we find on supermarket shelves. This includes pumping chicken breasts full of water.21 In September 2004, the Daily Mail alleged that Tesco’s premium pork chops are supplemented with water, despite costing £2 more than conventional cutlets. The company claims the additional cost is due to rearing the pigs outside.22

Animal welfare ‘Animal welfare is very important to Tesco and our customers, and we believe that awards such as this, which recognise research in this field, are important to improve standards throughout the industry’.

Michelle Waterman, Tesco Agriculture Manager, made this statement at the first Universities Federation for Animal Welfare (UFAW) ‘Tesco’ Award for promoting public understanding of animal welfare science.23 It was awarded to Dr Monica Winstanley of the Biotechnology and Biological Sciences Research Council (BBSRC) at an evening reception organised by UFAW at The Royal Society, for her booklet entitled ‘Science and Animal Welfare’. Tesco takes animal welfare very seriously, as we can also see from its funding of the ‘Food Animal Initiative’, based primarily at the University of Oxford, which develops new farming practices that are ‘welfare friendly, food safe and environmentally sustainable’. It is suprising, therefore, that Viva!, the animal welfare charity, in an investigation of a farm which supplies pigs to Tesco in 2003, found animals kept in appalling conditions.

Seewww.viva.org.uk/campaigns/pigs/tesco_investig.html“> www.viva.org.uk/campaigns/pigs/tesco_investig.html for more information.24

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Tesco and the Environment Tesco is a ‘Corporate Sponsor’ of the Woodland Trust. In fact there is a special area on the Woodland Trust website just promoting Tesco’s Christmas card recycling project.25 This is why it is even more hypocritical that Tesco is willing to destroy woodland and trees to increase store sizes. There is currently a campaign to save an 144 year-old Cedar of Lebanon in Slough, from Tesco expansion plans.26 In 2002, campaigners in Perth, Scotland also put out a call to protect a half-acre wood from the Tesco chop.

Tesco has also been named and shamed by the Environment Agency. In 2001, it was fined over £30,000 for dumped shopping trolleys.27 In 2002, it was fined £10,000 for a fuel leak into groundwater from underground storage tanks.28

Illegal timber sales In June 2003, Friends of the Earth revealed that Tesco has been selling garden furniture made from illegally sourced Indonesian timber. It has been illegal to export Indonesian logs since October 2001 when the Indonesian Government introduced a log export ban in a desperate attempt to control escalating levels of illegal logging. As a result of this exposure, Tesco has been expelled from the ’95+Group’, an influential ethical trading initiative run by the WWF, as the supermarket refused to give assurances that it would stop using illegally sourced rainforest timber, although it admitted there had been a failure of compliance. According to the Independent on Sunday, City sources suggest that Tesco could now be dropped from ethical share investment schemes.29

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Tesco ‘Healthy Living’ not very healthy

Tesco promotes its Healthy Living range of products and website to consumers who want to lead healthier lives.

A report by the Food Commission30 revealed that some of the foods in Tesco’s Healthy Living range may need to be relabelled because of the amount of salt, sugar and fat they contain. This is especially interesting considering the ‘traffic lights’ labelling system that Tesco is trialling to highlight nutritional levels in products.31 Tesco announced its decision in the light of increasing concerns about poor diet and the obesity crisis, and presumably to pre-empt any legislative action on food retailers to provide this information along guidelines set by the Food Standards Agency (FSA). One of consumers’ greatest worries is that they often simply do not know which products are genuinely healthy choices.

The trial uses different colours on the front of packs to highlight the levels of fat, saturated fat, salt and sugar in products. Research by the Food Commission suggests some products in Tesco’s Healthy Living range will have to carry either ‘amber’ or ‘red’ lights.

The Commission, which promotes healthy eating, compared products with nutritional guidelines issued by the FSA. Tesco said it was using a different set of criteria based on dietary targets set by the Committee on Medical Aspects of Food and Nutrition Policy and the World Health Organisation.32 The FSA guidelines would mean that Tesco’s Healthy Living Sultana Bran Flakes would carry two red lights because they are high in salt and sugar. Equally, Sunflower Spread would display red lights for fat, saturated fat and salt.

A Which? Report from 2003 reinforces this. It claimed, for example, that Tesco ‘healthy’ custard creams contain less fat than the standard options but they contain more sugar and more salt – hardly a healthy choice. And Tesco’s ‘Healthy Living’ apple juice only contained 67% apple juice – the rest is made up with water and sweeteners. As Which? points out ‘this reduces the sugar level, but it means that you are getting less apple juice than in the standard product. Is this really better for you?’33

In general we eat too much of the wrong types of food, and supermarkets such as Tesco, despite their labelling trials and Healthy Living schemes, have been, and still are, selling ready meals and other products full of fat, sugar and salt. Indeed, Tesco is opening a Krispy Kreme doughnut concession at its Watford Extra hypermarket in October 2004. The Consumers’ Association report ‘Recipe for Disaster’, May 2004, is a sobering reminder of the dangerous products on our supermarket shelves.

Tesco does encourage consumers to eat five portions a day of fresh fruit and vegetables in its stores and on the ‘Healthy Living’ website, but such produce, if not organic, may also contain an unhealthy dose of pesticides. See section above on ‘Greenwash: Tesco and Pesticides’. More and more fruit and vegetables are being grown in intensive hydroponic systems (i.e. in water rather than soil) – this is certainly the case in the UK with tomatoes and cucumbers. Supermarkets prefer this highly-controlled factory-farm method as they are more likely to get cosmetically perfect produce. Researchers believe that further research into the nutritional levels of hydroponic produce is essential as it may lack nutritional value.34

Tesco may be the leader of many a supermarket price war, but this is not the same as offering healthy food at an affordable price. Although Tesco and the other supermarkets sell some products cheaply, such as bread and milk, these are known as loss leaders and are used to entice customers into the store. Fresh fruit and vegetables are consistently shown to be more expensive in supermarkets than on market stalls and in greengrocers. Tesco Express convenience stores – which are springing up around the country as One Stop and Nite and Day are rebranded – and Tesco Metro stores are aimed at the lucrative ‘cash-rich time-poor’ shopping market. This excludes many local people who simply can’t afford to do their whole weekly shop in Tesco.

For more information on the role of supermarkets in promoting unhealthy food, see the Health Select Committee report on Obesity 2003 – 2004, in particular page 31 and pp.38-39. Also see the chapter on ‘The Ready Meal’ in ‘Not on the Label’. See ‘further reading’ section for full reference.

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The Tesco-isation of Britain

 

The ‘Tesco effect’ on other retailers

 

‘Just before Christmas, a large leisure company went shopping for 1,000 televisions. As a substantial buyer, offering cash, it approached a manufacturer direct for a deal. The price quoted, per unit, was around £10 more than the sets were being sold for in Tesco.’35

The reaction to the news that Tesco is squaring up for a scrap with you must be like that of a border state of the Roman empire finding 20 legions of grim-faced infantry camped on its lawn with catapults and javelin-chucking machines, led by Russell Crowe in his furs.36

The mechanics of oligopoly/oligopsony trading ensures that the supergiants can secure low prices and exclusive deals with their suppliers. Londis, the cornershop brand, has admitted that it is cheaper to buy brands from Tesco and resell them than to get the items from its wholesalers,37 and Musgrave, who own Budgens, claim that Tesco buys from wholesalers 11.5% cheaper than independent retailers.

While consumers might be excited by supermarkets ‘Slashing prices’ or ‘Special summer offers. Up to 50% off’, persistent below cost selling by the supermarkets is a nightmare for small retailers. As well as often leading to bankrupcy, it also affects their confidence in trying out innovative projects in marketing or products to win new markets.

Two recent reports from the New Economics Foundation entitled ‘Ghost Town Britain’ highlight that more than 13,000 specialist stores, including butchers, bakers, fishmongers and newsagents, closed between 1997 and 2002, leaving many communities without accessible shops and services.38

Unless they have a niche market or dedicated customer-base, smaller retailers will simply never be able to compete. Not only can they not get the wholesale price that Tesco gets, but invariably their overheads are higher too.

Its not just the independent grocery retailers who are suffering, but also Tesco’s key competitors (See section on Strategy: Core UK Business). But the net goes even wider. As the supermarkets move back onto the high street and into non-food goods (See earlier section on ‘Strategy: Non-food goods’), other major nationwide chains are feeling the pain.

In January 2004, Boots blamed 900 job losses on the tough competition from the supermarket chains. Earlier that month, Tesco, which sells more medicines and toiletries than Boots and Superdrug put together, announced that on a basket of 12 baby products, including baby powder and rusks, a customer could save 11% over a similar shop in Boots. 39

Verdict Research say that more than 600 chemist shops will close (5% of the current network) over the next five years.40 Tesco has been able to move into this area due to the unexpected ‘deregulation’ of the pharmacy sector.

There are similar stories in other sectors from clothing newsagents. Matalan, New Look and Marks and Spencer are all struggling in their clothing ranges. WH Smith and even Argos were hard hit over the Christmas period 2003-2004. With their products in direct competition with the supermarkets, they have to be able to offer something quite different to woo the busy shopper back out of the supermarket and into their stores.41

Many different groups have been opposed to Tesco’s takeover of c-store chains including the Association of Convenience Stores (which represents around 31,500 stores), the Federation of Wholesale Distributors and Bill Grimsey, chief executive of the Big Food Group which owns Iceland and Bookers wholesalers.42

In a recent poll by The Grocer, 64% of independent c-store operators are worried that they cannot compete with the supermarkets in this sector who have a huge advantage in marketing and brand awareness.43

In the words of one anonymous board member of another stock market listed grocery chain,

‘You can’t knock Tesco for its business acumen but it should provoke a wider debate about whether we want the choice of different types of shop ? or do we want a completely corporate Britain?’44

Tesco’s response to accusations of ruthlessness in recent months has been typically arrogant, ‘You do tend to get a bit of noise on these occasions.’45 Or as Terry Leahy put it, ‘Queuing at one store, then trudging down Watford High Street in the rain to another shop…Is this what people actually want to go back to?’46

It is important to also bear in mind the impact of the major supermarkets on the food service sector. Tesco and the other retailers have become major ‘wholesalers’ to restaurants, fast-food outlets and cafés.

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The ‘Tesco effect’ on local communities

 

As independent retailers go out of business, Britain’s high streets are becoming ‘ghost towns’. Its not just the local grocers and food shops who lose trade to ‘out of town’ shopping centres or Tesco convenience stores, but all the local businesses that work with them – from window cleaners to transport companies. While the supermarkets claim that they create jobs, in fact, evidence shows that jobs are either lost47 or replaced with banal shift work, and the town centre, part of the social fabric and character of any community, will begin to shrink.

Tesco is well aware of the effect that it has on market towns, which is why it has put out its leaflet, ‘Tesco and market towns’48 as well as identifying itself as a ‘Rural Action Leadership Company’ by sponsoring Business in the Community’s, ‘Putting Down Roots in Market Towns’ leaflet.49

Tesco argues that rather than having a negative effect on market towns, they recognise that ‘it is in our interests to contribute to the vitality of the local economy and community to ensure the long term success of our stores.’ In fact, they argue, ‘Tesco is beneficial to a market town as people from the surrounding community visit the town regularly and it can prevent ‘leakage’ to competing centres.’ As an example, they cite the effects on the local community of converting the historic cattle market in Beverley into a new Tesco. Whilst ‘concerns were raised over the changes it would bring’, the actual result, according to Tesco, is that the Tesco stores ‘has boosted Beverley’s reputation as a popular shopping destination’.

Of course, what it doesn’t mention is that the cattle market and local farmers who used to do business there were more than likely put out of business by Tesco itself, and its buying practices. Meanwhile, in other market towns, such as Stalham in Norfolk, it is clear that Tesco has in fact had the negative effect that many local campaigners fear. Tesco built its car park on the market site promising that the market could continue on Tuesday mornings. But once its store was open, Tesco backtracked on its promise, and the council relocated the market to a much less suitable site where it has dwindled to a few stalls.50

‘Before Tesco opened Stalham was a thriving market town, but now nobody walks to the high street, my business is down 40%’ Candy Sheridan, shopkeeper, Stalham.51

Tesco also claims to be working with National Association of Farmers’ Markets in Uttoxeter to develop a farmers’ market in its car park. As it turns out this is no longer true: FARMA, the merger of National Association of Farmers’ Markets and the Farm Retail Association is not working with Tesco on any projects at the moment.52 According to the local tourism office, Tesco does have a farmers’ market in its car park, which presumably also promotes great trade for Tesco too.

The leaflet contains other vague assertions about ‘our local store teams being at the heart of the community that they live in and serve’. Which is interesting when you look at Tesco’s agreement with North Norfolk district council and Norfolk county council to buy up the community centre, fire station and a block of flats used for social housing in order to secure a prime location for a superstore in Sheringham, North Norfolk. Sheringham is one of the last towns in Britain not to have a supermarket. This town of 7000 residents will soon have a superstore catering for 38,000 people in the region.

Local councils have traded community facilities, memorial gardens, allotments, social housing and an old soldier’s club in order to facilitate Tesco. Similar stories abound from Hadleigh in Suffolk to Shaftesbury in Dorset. In Hadleigh, Babergh district council has altered the district plan so that Tesco can build on a flood plain – directly against national policy.53

Many grassroots campaigners feel let down by the Government’s proposed changes to planning policy statement 6 (PPS6) that will favour large edge-of-town developments. Already local planning authorities are giving planning permission for stores even though it is clear that there will be a negative impact on the town centre.

‘This is a wonderful town but Tesco will suck the life out of the greengrocers, butchers, off-licence, and then it is only a matter of time for us too. The personal service is why holidaymakers come to Sheringham, but with a giant Tesco it will be like everywhere else.’ Ronald Wright, 73, of Blyth and Wright ironmongers, Sheringham, founded in 1898 54

Budgens, which also has a small supermarket in Sheringham, is now contesting the decision by North Norfolk council to grant planning permission to Tesco claiming that the planning decision was illegal.

Competition policy has failed small communities too. There have been further issues with the Tesco takeover of c-store chains, since in the conversion of former T&S stores to the Tesco Express format, in-store post offices have been closed down leaving isolated communities without easy access to a post office. This has been the case in Chalkwell Road, Sittingbourne,55 Shaw Village Centre, Swindon, Lisieux Way in Taunton and four One Stops in the West Midlands. It could also be the case in the two edge-of-town stores in Witney, Oxfordshire, that have been taken over by Tesco. Some local campaigns have been successful in persuading Tesco not to close their post offices including Longlevens in Gloucester and Jersey Farm, St Albans. With the Post Office ‘re-invention’ closing many small post offices and causing a huge furore, one wonders whether the Post Office is working in cahoots with Tesco. If Tesco closes a small post office because ‘it wants to make more space for shelving’, the Post Office doesn’t have to take the rap. Tesco is big and ugly enough to take the criticism as it knows that in most cases it has a captive market.

‘I am a pensioner and disabled and will be in difficulty if Cogges Post Office closes. Altogether the closure of Cogges Post Office will make difficulties for many people on the estates, especially for the elderly. I cannot agree with Tesco’s claim that they are coming to serve the local community. It seems to me that the community is being sacrificed to the god of money.’ Margaret Wardell, pensioner, Witney commenting on Tesco’s closure of two post offices in its stores (recently purchased from One-Stop)56

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Tesco and ‘cash-poor time-poor’ shoppers

 

‘You get all kinds of income levels shopping here…but Tesco is determinedly moving away from being down-market and price led….It’s trying to move into Sainsbury’s AB demographic’ Nick Gladding, Verdict Research57

In 1972 Tesco had 790 UK stores. During the 1970s many small inner city stores were closed. They were too small to have adequate economies of scale and were in areas of low spending power. Of the 518 Tesco stores of under 500 square metres sales area in 1972, just 190 remained by 1980.58

This pattern of supermarkets moving into an area, causing all the local shops to close, and then moving out again because business isn’t doing well creates something called ‘Food Deserts’. ‘Food Deserts’ are not just about access to food, but also about access to good quality, inexpensive, nutritious food. On the whole such deserts affect the most vulnerable and the poorest in society – the elderly and infirm, those without access to food information, those without access to private transport etc. Tesco may be rushing to service the ‘cash-rich, time-poor’ through its Tesco Metro stores, but as other grocery retailers move out, who is feeding the ‘cash-poor time-poor’ citizens? For more information, see ‘Inconvenience Food: The Struggle to Eat Well on a Low Income’ published by Demos (2002).59

Getting a low price in a Tesco store also depends on where in the country you live. The Competition Commission found that supermarkets, including Tesco, were putting prices up in areas where there was no strong competition.60

The Citizens’ Organising Foundation also discovered that supermarkets charge higher prices in poorer areas than rich ones. Poorer people are less likely to have cars and are therefore more of a captive market, unable to go in search of cheaper prices.61 Sainsburys and Tesco ‘have been fiercely criticised by the Citizens’ Organising Foundation for charging higher prices in poor areas than rich ones.’62

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Urban regeneration?

 

Meanwhile, under its ‘Regeneration Partnership schemes’, Tesco claims to be a shining light in deprived areas. Tesco has moved into areas which are not ‘commercially attractive’, and along with ‘other stakeholders’, is building on derelict sites in areas of high long-term unemployment, where there is a poor skills base and inadequate levels of public transport provision.

Quite how supermarkets, who make their money from encouraging consumers to spend more on things they don’t need or never knew they wanted, can regenerate an area is unclear. The jobs they provide are generally short term and banal, and very much depend on the supermarket not moving out again as soon as the area becomes unprofitable. Jobs will be lost elsewhere and opportunities for entrepreneurship stiffled. Most of the money generated goes back to Tesco shareholders, leaving the area poorer – economically and culturally – than it was before.

Tesco’s ‘regeneration partnership schemes’ pose big questions about the corporation’s role in development in general. In our era of Public Private Partnerships, corporations are increasingly taking over the services and roles we have expected from local authorities and government. But is the corporation, which is both unaccountable and legally obliged to put profit over people, really the best agent to do this? For a detailed critique of ‘public private partnerships’ check out the Public Services International Research Unit (PSIRU) atwww.psiru.org“> www.psiru.org and “Captive State: The corporate Takeover of Britain” by George Monbiot (MacMillan 2000).

Tesco makes much of its generous contribution to poor areas in submissions to the UK government regarding its tax burden.63

Meanwhile, in July 2004, Tesco announced it would slash 420 jobs in its IT support and invoice processing centres in Dundee, Cardiff and Welwyn Garden City and relocate to a new support centre in the hi-tech southern Indian city of Bangalore where it already employs 350 support professionals. Top-flight Indian graduates earn about £3,000 a year, a tenth of what an experienced accountant or IT professional could earn in the UK. The jobs to be cut range from data-entry assistants up to accountants and IT support professionals. Tesco claims it will offer UK staff jobs in other parts of the company ‘as long as they are flexible’.

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Relations with farmers and suppliers

 

  • Tesco is the biggest buyer of UK agriculture;
  • Almost 100% of our meat is British;
  • We are working with UK farmers to extend the growing season so we can source more in the UK;
  • We have 300 new UK suppliers this year.
    -John Gardiner Tesco Chairman at Tesco AGM 13 June 2003

‘Tesco buying managers have a reputation for securing the hardest bargains…One of them was given a new wine to taste…and was asked for his reaction. He sniffed the contents of his glass, tasted it and replied: ‘Not enough margin’. Tim Atkins, wine writer64

According to the Competition Commission report on supermarkets (2000), Tesco pays the lowest prices to its suppliers.65 Tesco uses its buying power in the system to pit farmers and food manufacturers around the world into fierce competition with each other to push down the farm/factory gate price. It is also free to set unfair and unreasonable terms and conditions for accepting produce/goods because it knows that if the suppliers kick up a fuss, they can easily be replaced with someone more compliant.

Tesco has made a fine art of its system of exploitation; exploitation that affects not only small farmers, but also the big brand manufacturers. Allegedly there are only a few brand name products that are exempt from this treatment due to their huge popularity – they include Heinz baked beans and Whiskas cat food.

Tesco effectively set the price or hold auctions, forcing farmers and suppliers into competition to produce at the lowest price possible, even if this means losing money or cutting health, environmental and animal welfare corners. It is not surprising too, that farmers and suppliers have become reliant on cheap undocumented migrant labour provided by gangmasters. However, for Tesco and the others, with so many millions at stake on any one product, savings of 2% or 4% quickly add up.

In the Friends of the Earth briefing ‘Tesco: Exposed’, Michael Hart, of the Small and Family Farms Alliance, gives several examples of clear supermarket profiteering at the expense of farmers,

‘In 1991, the farm gate price for potatoes was 9p per kg and the retail price was 30p; a 21 pence difference and a 233.5% mark up. In 2000, the farm gate price was 9p per kg, but the retail price was 47p per kg; the difference now being 38 pence, an huge mark up of 425%….[this product requires] no processing other than grading and packing…done by farmers before being put on the supermarket shelf, so clearly the increase in farm gate price to retail difference is due to supermarkets wishing to increase their profit margins at the farmer’s expense. This is a clear abuse of their power in the food chain.’

On other occasions, rather than raise the retail price, the supermarkets use the low farmgate price plus their usual mark-up to protect or increase their market share.

The price which farmers receive for their produce sometimes fails to cover the cost of production, and consequently only farmers who produce on a very large scale and can therefore produce more cheaply can afford to carry on this way. For others, spiralling debt has become the norm and has forced many out of business. Essentially, the major supermarkets are paving the way for the demise of small and family farms. Depending on the sector, such farms are either becoming modern day serfs to the big corporations or being replaced by huge corporate farming enterprises. This evidently leads to social dislocation in rural areas and environmental destruction.

Such behaviour is blatantly exploitative. This is reinforced by the fact that many suppliers are too afraid to complain openly, fearing losing their business altogether. John Breach of the Fruit Growers’ Association described the risk of being de-listed for raising objections to terms and conditions as ‘very real’, 66 and for this reason, it is difficult to be precise about the scale of the problem.

Although the Competition Commission, in its investigation into supermarkets (2000) highlighted numerous examples of anti-competitive behaviour by the supermarkets in their treatment of suppliers, no one, not even the big food multinationals, were willing to bring a complaint to the Office of Fair Trading under the current voluntary code of practice set up after the investigation. Probably because this voluntary code of practice, drawn up by the big four supermarkets themselves, required the complaint to be made to the supermarkets first, which would be commercial suicide. Unless the supplier can make their complaint with complete confidentiality, such a code of practice cannot protect suppliers and their contracts. Besides, buying and selling below the cost of production is not proscribed as part of the current voluntary code (See later for more details on the ‘Breaking The Armlock’ alliance).

The bottom line is that Tesco and the other three major UK supermarket chains have tremendous concentrated power in the supply chain to buy produce from farmers and suppliers worldwide. In economic terms, this is known as an ‘oligopsony’ – or a group of companies that have a monopoly on the supply side of their work. As a example, in August, Tesco dropped one of its three milk suppliers, Dairy Crest, the UK’s biggest dairy foods group. Tesco’s decision to take more from its existing milk suppliers, Arla and Robert Wiseman, has meant that Dairy Crest has lost its huge contract worth around £60m. This move is part of the general supermarket trend to consolidate for efficiencies and price stabilisation. It is unclear what the impact will be on small farmers at the bottom of the food supply chain.67

For more information see other Corporate Watch publications, www.corporatewatch.org/?lid=217“>’What’s wrong with supermarkets?’ and ‘A Rough Guide to the UK Farming Crisis’.

The most ignominious end for a farmer is surely working behind the deli counter at Tesco. Michael Soanes, from Beckley, Oxfordshire, is one such farmer who was forced to work at Tesco to make ends meet at the height of the foot and mouth crisis.

‘We are suffering dreadfully. The takings are down and I still have to pay the mortgage, so I’m working 30 hours a week at Tesco. That’s part-time as far as I’m concerned. I work fom 7am until midnight, either I’m busy at the farm or at Tesco.’68

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Tesco’s response to claims of exploitation

 

Tesco has put forward several arguments to counter these criticisms. For more detailed discussion on these issues, see Corporate Watch publication ‘A Rough Guide to the Farming Crisis’ www.corporatewatch.org.uk/agriculture/farmreport.pdf

The world market argument As outlined in a BBC report on dairy farmers’ protests,69 Tesco claims that it cannot raise the price paid to farmers for milk because it buys from processors, not directly from farmers, and it therefore pays market prices, which it is not allowed to fix. This, on one hand, is a result of neo-liberal economic trade rules, and shows how unfair these rules are towards small producers who are not allowed to systematically receive a fair price for their products. On the other hand, Tesco can take part in fairly trading tea and coffee, so why can’t it make all its products fair trade? As the supplier at the top of the chain, and the largest buyer of British farm products, Tesco could, if it believed in a fair price, instigate a fair trade system for farm products. No-one has more power to do so.

The subsidy Another argument that Tesco has used is that the price paid by retailers is not the most important issue, rather that farmers are suffering from the high rate of exchange of the pound, which gives them relatively less subsidy money.70 This is also a favourite argument of the National Farmers Union, but it is really quite peripheral. The reason why farmers need so much subsidy money in the first place is because they have been paid less and less for their produce over the years, and subsidies have become a form of welfare payments to farmers. If the supermarkets paid farmers a fair price, subsidies would not be needed.

In another effort to divert attention onto subsidies, Tesco director, Lucy Neville-Rolfe and former Northern Foods boss, Lord Chris Haskins co-wrote a policy document for think-tank the Foreign Policy Centre on ‘Is there a Future for European Farming?’ (2002). The general argument is that farmers orient what they are growing towards subsidies and not the customer. Given the argument above, it is, perhaps, understandable why farmers have focused on growing crops that receive subsidies.

Tesco is really the friend of British farmers At Tesco’s AGM 2003, Terry Leahy repeatedly insisted that Tesco only makes 3p in the pound profit so they cannot be profiteering from farmers. He claimed that it was the consumer, if anyone, who is benefiting from low prices. He also claimed that Tesco is forgoing huge profits by not importing from overseas and by buying British to support ailing farmers.

Tesco has outlined measures which it has undertaken to support British farmers by buying mostly British meat and dairy, which is at great personal cost to themselves because foreign produce is cheaper. Meanwhile, the bulk of products sold in supermarkets are processed and no notice is taken of their origins at all. No meaningful improvement for farmers in Britain and elsewhere can take place until the imbalance caused by artificially cheap transport has been removed and it becomes consistently cheaper to buy local. Furthermore, Tesco cannot be the saviour of British farming because it cannot deal on a human scale. Tesco can only achieve its much-publicised cheap prices through dealing in bulk and this excludes small producers. Supermarkets do sometimes begin to deal with small producers, but only with a view to making them larger and more ‘economical’ to deal with.

Tesco’s claims to be a friend to British agriculture, should really be read as a friend to the National Farmer’s Union. This probably says more about the National Farmer’s Union as a union fighting for farmer’s rights against corporate greed (or not!), than it does about Tesco. See Corporate Watch briefing ‘The National Farmer’s Union: Friend to Big Business not to Small Farmers’ for more details.71

In Tesco’s market town leaflet,72 Tesco also responds to the criticism of the way it deals with suppliers. The criticism is ‘wrong because it ignores a simple truth. A successful and sustainable food business needs excellent relations with its suppliers…so that they can supply the products to satisfy customer demands’. Whilst this may placate its customers, Tesco’s suppliers know that the balance of power in this excellent relationship is firmly in Tesco’s favour.

Its not true!

In February 2004, DEFRA commissioned ‘independent’ researchers, London Economics to investigate the increasing gap between farm-gate and retail prices in the UK.

The report only looks at whether reductions in farmgate prices are passed onto consumers, and finds that they are not in the case of fruit and veg. It does not look at whether the farm gate prices are reasonable in the first place and does not look at all the other ways in which supermarkets bully suppliers.

The results of the report are also wishy-washy and inconclusive as to the cause of this gap. Although the evidence does ‘not point to a systematic widening in the nineties of farm gate-retail price as a result of potentially stronger buyer power caused by increasing concentration in the food retail sector’, ‘one cannot therefore conclude that buying power was not an issue during the nineties’. It also recommends ‘these points need to be further explored before any firm conclusions regarding the impact of buying power can be drawn.’73

Nevertheless, the British Retail Consortium (BRC) put out a press release (30/7/04) claiming that this study ‘destroys the myth that supermarkets hold farmers in an armlock’. ‘It is time for those who constantly criticise food retailer’s relationships with farmers to admit that their attacks are based on nothing more than myth and prejudice’.74

The total misinterpretation of the figures illustrates an industry desperate to defend itself to consumers in the face of the increasing lobby for a fair deal for supermarket suppliers. Its not suprising that the BRC has taken up the supermarkets’ cause, as its Director General is Kevin Hawkins, OBE, the former director of communications at Safeway, and its new chairman is Michael Wemms, a former Tesco director. London Economics also has an interest in Tesco’s welfare as it used to write reports for it.

Meanwhile figures from the Liberal Democrats show that supermarkets’ operating profits have risen by 300% during the last 15 years, from £884m in 1988 to £3,355m in 2003, and their directors have reaped a 557% increase in pay. In the same period, farmers’ incomes have risen by 29%.75 According to Liberal Democrat food and rural affairs spokesman, Andrew George MP, Tesco’s profit is almost 50% of the £3.6bn generated by British farmers.76

Despite the general culture of isolation and despair in farming, several protests have taken place against supermarkets which are seen to have the most influence on the prices paid to farmers. These include Tesco’s distribution centres and Annual General Meeting. Farmers for Action have picketed Tesco distribution centres and in July 2004, farming campaign group, FARM gathered outside Tesco’s stand at the Royal Welsh Show to protest against its role in perpetuating low farmgate prices. FARM representative Robert Alderson said: ‘Tesco, and the other supermarkets, continue to pay the farmer less than the cost of production with the result that farmers are pulling out of production at an unprecedented rate.’77

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Farm labourers, packers, canners and undocumented migrant labour

 

‘The dominant position of the supermarkets in relation to their suppliers is a significant contributory factor in creating an environment in which illegal activity can take root. Intense price competition and the short time scales between orders from the supermarkets and deliveries to them put great pressure on suppliers who have little opportunity or incentive to check the legality of their labour. Supermarkets go to great lengths to ensure that the labels on their products are accurate…We believe they should pay equal attention to the conditions under which their produce is harvested and packed…Supermarkets cannot wash their hands of this matter.’ -UK Government Environment, Food and Rural Affairs Committee Report into Gangmasters 2003

The worst abuses of workers’ rights in this country are not so often against people working directly for supermarkets, but those working for companies doing contract labour for them, such as factory work and packaging. It is unclear how many migrant labourers, documented and undocumented, are working in the UK, but estimates vary between 100,000 and 2 million.78 Around 50% are controlled by ‘gangmasters’, who operate like informal employment agencies, and who until very recently were not required to register or be licenced in any way.

These suppliers are usually companies you haven’t heard of, but supermarkets would not be able to function without them. It is also very convenient for the supermarkets to pass the buck – ‘We’re very concerned but these people aren’t directly employed by us, what can we do?’ The workers concerned are often foreign, sometimes illegal immigrants, which makes it very difficult for them to expose their working conditions.

It seems that even once the problem of gangmasters has been recognised, and even if they have legitimate work permits, foreign workers are still not safe from extreme exploitation and humiliation. An article by Felicity Lawrence in the Guardian (March 2004) describes the ‘debt bonded labour’ conditions of some workers supplied by ‘an employment agency involved in a government-backed initiative to clean up the gangmaster industry ‘. The agency in question, Staffmasters, was supplying South African workers to a packhouse packing fruit and vegetables for various supermarkets including Tesco. Money was loaned to the workers to get a flight over to the UK and a two-year working visa, then deducted from their wages – which were below the legal minimum wage to start with – at 100% interest. With more money being taken out of their wages for accommodation, many workers were left with almost nothing at the end of the week. Workers claim that when they said they wanted to leave, they were told they could not do so until they had worked off their debt to Staffmasters.79

In May 2004 175 workers were sacked by Europackaging in Birmingham because they had joined the GPMU trade union. The workers had been forced to work 84-hour weeks on the minimum wage, often with no days off for weeks at a time. When the remaining workers went on strike, they were threatened with sacking too. Some staff remain on the picket line, meanwhile asylum seekers have been brought in to do the work instead.

Tony Burke, Deputy General Secretary of the GPMU said:

‘The treatment of our members there is utterly appalling. This is exploitation of British citizens just because English in not their first language and some of them do not speak much English at all. Now, if what is being alleged about taking on asylum seekers is true, that’s a whole new ball game. It is highly illegal and dangerous for those individuals, and supermarkets like Tesco and Sainsbury’s need to know of these circumstances as soon as possible.’80

The supermarkets claim that they do not benefit for the exploitation of migrant workers by gangmasters, because they pay the gangmasters the going rate. Nevertheless, they have created a climate that thrives on ‘flexible’ insecure working conditions through their ever changing specifications, seasonal and product demand, and because they sometimes demand that their suppliers produce for less than the cost of production. Therefore, sometimes the supplier will need a huge labour force and sometimes none. Sometimes they will require 18 hour working days, six days a week, and sometimes no work for months.

After years of campaigning by trade unions, the Gangmasters Licencing Act became law in July 2004, which should see UK gangmasters licenced and registered. Meanwhile the exploitation of undocumented migrant labour has been a feature of agriculture in Europe and the USA for years.

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Fair trade and treatment of overseas suppliers

 

‘No company can continue to pretend to be promoting ethical trade along its supply chains when it slashes supplier prices to the point where growers who pay a living wage, treat their workforce with respect and make environmental improvements are cut out of the market.’ -Alistair Smith, Banana Link81

Tesco stocks 60 Fair Trade product lines in the UK, making it the biggest seller of Fair Trade goods. It has now set up its own Fair Trade label, which includes South African wines and flowers.82 These products give the impression of a caring sharing corporation.

Tesco (along with most of the major supermarkets) is signed up to the Ethical Trading Initiative (ETI), a coalition of NGOs, trade unions, companies and government departments describing itself as ‘a ground-breaking initiative…with the aim of helping to make substantial improvements to the lives of poor working people around the world.’83 Established in 1998, it has drawn up a base code which all members have to sign up to which discusses working conditions, wages, hours, child labour and discrimination. The ETI covers supermarkets’ own-brand products.

Like all corporations, Tesco is keen to sign up to a ‘voluntary’ code of conduct for its plantation and factory workers, rather than have to cede to national or international labour rights legislation which would ensure workers a basic living wage, health and safety legislation and the right to collective bargaining. In particular, the ETI does nothing to challenge the power relations between suppermarkets and suppliers. In a letter leaked in ‘The Grocer’ in 2003, it was revealled that Tesco demands payments from its suppliers to cover the costs of its compliance with the Ethical Trading Initiative of US$119 or £69.50 per quarter per supplying site. A demand which according to one supplier hits smaller businesses hardest since they are more likely to have a number of sites.84

In November 2003, Insight Investment commenting on Tesco’s performance within the ETI said, ‘We are pretty concerned. [Tesco] did seem to lag behind the likes of Sainsbury’s and Marks & Spencer…There would be concern if labour standard abuses were found’.85 After general lobbying from investors, Tesco promised to catch up with its rivals by putting auditing systems in place to track trading policies. They claim ‘We’ve been trying to work out how to move it [the Ethical Trading Initiative] forward. We’re hoping we have something here that the supply chain can sign up to’.86

For this reason, many grassroots unions and Southern NGOs are quietly cynical about the ability of the ETI to be anything more than a talking shop.

Tesco has also, in recent months, made a mockery of ‘fair trade’. Evidence shows that supermarkets have exploited customers’ good will by overcharging for Fairtrade products.87 John McCabe, a retail pricing expert with consultants Connector Global, said ‘The supermarkets know that people do not go for the cheapest product when buying Fairtrade because they think the extra money is helping someone in the Developing world’. He accused Tesco, along with Sainsbury and Asda, of excessive mark ups on top extra that they pay the suppliers. As a result, the supermarket chain announced an 11p cut in the price per kilo of Fairtrade bananas.

In its report, ‘Trading away our Rights: Women in Global Supply Chains’, Oxfam make direct allegations against Tesco and its treatment of suppliers in South Africa. Its research shows how Tesco loads many of the costs and risks of its fresh-produce business onto farmers, who are passing them onto workers – especially women – in the form of precarious employment. These pressures include basing producer prices paid on target retail prices rather than actual production costs, raising producers’ costs without raising their prices and making farmers pay for the cost of special promotions.

Bananas are the most popular product sold in supermarkets. Tesco sells one in every four bananas, and BananaLink estimates that Tesco makes about £1m a week from banana sales. The price Tesco pays its suppliers has fallen 30% since the beginning of 2002. The price cuts are passed back to the importer/ripeners who are barely breaking even just to stay a supplier. They eventually end up passed back to the workers in terms of very poor wages, labour and environmental conditions. Essentially only bananas from unsustainable sources, where wages are rock-bottom, and unions cannot organise, can be sold at these prices. Costa Rica, Britain’s leading source of bananas, cannot now sell to Tesco or Asda unless suppliers there are prepared to make a loss or flout the legal minimum price. There is currently an attempt by bosses to quash the trade union at the Bribri plantation in Costa Rica which supplies Tesco.88

According to Friends of the Earth, it would take a fruit farm worker in South Africa, earning the current daily rate of pay, 15 centuries to earn the annual £1.9 million salary of Tesco deputy chairman, David Reid.89

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Potentially sourcing from the Illegally Occupied Palestinian Territories

 

At Tesco’s 2003 AGM, campaigners accused the company of sourcing products from the illegal Jewish settlements in the Occupied Palestinian Territories. The directors, who had earlier talked proudly of total product traceability, were unable to answer whether Tesco products which were labeled ‘Made in Israel’, thus allowed to be imported into the EU ‘tariff free’ under the Israel-EU prefential trade agreement, were in fact from the Occupied Territories, and subject to taxes and custom du

Links, Contacts & Resources

 

 

Campaign resources

 

‘Breaking the Armlock’ is a new alliance of 14 farming, environmental and consumer organisations calling for stricter controls over the major supermarkets’ trading practices, particularly to stop them passing on unreasonable costs and demands to farmers and growers in the UK and overseas. The Alliance says that supermarket power should be regulated by an independent watchdog with real teeth, supported by a legally binding Code of Practice.

Please ask your MP to sign Early Day Motion 817 Supermarket Code of Practice in support of the demands of the ‘Breaking the Armlock’ Alliance. http://www.breakingthearmlock.com/

Further reading

 

‘Not on the Label’ by Felicity Lawrence. Penguin books. 2004.

‘Shopped! The Shocking Power of British Supermarkets by Joanna Blythman. Fourth Estate. 2004

‘A Rough Guide the UK Farming Crisis’ by Kathryn Tulip and Lucy Michaels. 2004. Hard copies available from Corporate Watch or the Corporate Watch website.

‘Captive State: The Corporate Takeover of Britain’ by George Monbiot. Macmillan 2000. His website www.monbiot.com also has a section of articles about supermarkets.

‘Supermarkets: The naked truth’ The Ecologist Special Edition. September 2004. Includes excerpts from ‘Not on the Label’ and ‘Shopped’.

‘Pile it High Sell it Cheap: The Authorised biography of Sir John Cohen founder of Tesco’

by Maurice Corina. Weidenfeld & Nicolson 1978
Links to other Corporate Watch articles on Tesco

‘The Great Local Food Scam’, Corporate Watch Newsletter Issue 3, May/June 2001. www.corporatewatch.org.uk/newsletter/issue3/nl3lfs.html

’20 000 Jobs Created, thousands of livelihoods destroyed’ News updates 21/9/01
www.corporatewatch.org.uk/news/Tesco_jobs.html

‘Sold Out! Government gives in to supermarkets on Code Of Practice’, News Updates 9/11/01,
https://corporatewatch.org.uk/news/supermarket_code.html

Every Little Hurts – Tesco on trial at its AGM 13th June 2003 https://corporatewatch.org.uk/news/tescoAGM_2003.htm

 

Other resources

 

For a ‘No. I haven’t got a f**king loyalty card!’ t-shirt – Log on to www.fatlooby.com. £14.99 plus £2 postage.

To make your own ‘Tesco Value Farmer: £2.90 per hour’ T-shirt. Have a look at the FARM website – www.farm.org.uk

UK consumers against the pervasive use of RFID tags in UK society www.notags.co.uk/page4.html

Corporate Watch knows of many groups campaigning against Tesco developments/extensions and post office closures around the country. Please get in touch if you need support for your campaign.

 


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