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Last Updated: Friday, 3 June, 2005, 09:29 GMT 10:29 UK
Tesco: Supermarket superpower
By Hannah Liptrot
BBC Money Programme

A Tesco supermarket in London
Beat the rush: an unusually quiet looking Tesco store exterior
As tills overflow and rivals reel, Tesco is the UK's first supermarket superpower. The Money Programme reveals its route to the top - and asks if Tesco's dominance is in the best interests of the consumer

Tesco is a retail phenomenon. With profits topping 2bn a year, it has nearly a third of the UK's grocery market.

But having crushed its supermarket rivals, the red, white, and blue battalion is not stopping there.

Tesco already sells more chart CDs than Woolworths, more kids' clothes than M&S, and looks set to overtake Dixons as the UK's number one non-food retailer.

Basic lines

Not bad for a business which started as an East End market stall and made its name "piling them high and selling them cheap" to a generation of cash-strapped housewives.

In those days Tesco played second fiddle to an altogether classier outfit: Sainsbury's.

"Tesco would appeal to the sort of Barbara Windsor type of working class woman, whereas Sainsbury's was more Julie Andrews," says business biographer Judi Bevan.

I probably do 95% of my shopping at Tesco and that's only because I have no choice
Bicester resident Jo Scott

So how did this struggling store chain transform itself into a supermarket giant?

Tesco has rewritten the retail bible, with three simple commandments which led it out of the wilderness and to the top.

The first; if you want to be a supermarket superpower, you have to be everywhere.

And that's just what Tesco has set out to do. Tesco has an insatiable appetite for space, and is relentless in its pursuit of the best new sites.

'Smart move'

Tesco will build anywhere.

Just ask the residents of Gerrard's Cross, who are watching a 20,000 sq ft Tesco superstore materialising on top of the town's railway.

When it comes to gobbling space, Tesco leaves its rivals standing. In 2002, it stunned experts and the competition by buying T&S, a chain of 850 convenience stores across the country. The deal doubled the group's store count in the UK at a stroke.

"This was a really smart move by Tesco," observes Professor Paul Dobson of Loughborough University business school.

Tesco Metro store
Tesco stores of all types have been springing up across the UK

"The scale of it allowed them to capture quite an increase in market share, and they really caught the rest of the industry out."

But not everyone was impressed. The residents of Bicester in Oxfordshire had been happy enough with two Tesco stores in their small market town, but after Tesco bought T&S, they found themselves with six.

Local resident Jo Scott now feels trapped in what some are beginning to call Tescotown.

"I probably do 95% of my shopping at Tesco and that's only because I have no choice... even if I am popping out for a pint of milk or loaf of bread it will be to Tesco," she says.

For Tesco the determination to be everywhere has paid off. It now has an empire of nearly 1,800 stores, more than Asda and Sainsbury's put together.

All things to all shoppers

But being everywhere isn't enough. The second commandment in the Tesco bible says; to be a supermarket superpower you have to sell to everyone.

"They've pulled off a trick that I'm not aware of any other retailer achieving," says Citigroup's retail analyst David McCarthy.

"That is to appeal to all segments of the market."

Specialist retailers like Dixons, Boots; these retailers are going to have a tough time as Tesco gathers momentum
Bill Grimsey, ex-CEO of The Big Food Group

And that is because Tesco offers three distinct ranges of own-brand products, from Value to Finest, priced to attract all types of shoppers to its stores.

According to McCarthy, Tesco now has more upmarket customers than M&S and Waitrose put together, but has also hung on to its "pile it high and sell it cheap" roots.

"Whether you're are a prince or a pauper you can go into Tesco and find something you want," says writer Judi Bevan.

It's a formula which has helped lure 15 million customers a week to Tesco stores.

Groaning shelves

But there is one final ingredient in the Tesco recipe for success: to be a supermarket superpower, Thou Shalt Sell Everything.

And Tesco is well on the way to doing that. In its largest stores shoppers can choose from 40,000 product lines - anything from baked beans to bikinis.

"The non-food business, in the way we define it, is bigger than the food market," explains Tesco marketing director Tim Mason.

For Tesco, that immediately doubles its opportunities over and above what it would have were it to stay simply as a food retailer.

Estate agent move

Tesco has just announced plans to open its first non-food-only store, to be named Tesco Homeplus.

It's a move which could spell bad news for some of the UK's best known High Street names, already reeling from the Tesco challenge.

"Specialist retailers like Dixons and Boots: these retailers are going to have a tough time as Tesco gathers momentum," predicts Bill Grimsey, former CEO of The Big Food Group, which runs Iceland stores.

"And the net result of this will be that some of these specialist stores will find it hard eventually to compete."

Tesco trolleys
Fill your trolley with everything from beans to bikinis

Mr Grimsey believes the competition authorities have failed in their duty to the public by allowing Tesco to become so big.

And he is fearful for the future. "The consumer will be left with a choice of Tesco, Tesco or Tesco," he warns, "and I don't think that's in the best interests of UK plc."

But despite these concerns the Tesco juggernaut rumbles on, and the list of areas ripe for the Tesco treatment is growing all the time. Last month it announced plans to launch into estate agency.

So what's next for the supermarket superpower?

"If anyone wants to get married in their local Tesco store," says marketing director Tim Mason, "we'd be all too happy to let them do it."

The Money Programme is transmitted on BBC2 on Friday 3 June at 1900GMT.

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