‘Thought they could walk on water’ How Tesco's profits were halved after serious setback

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‘Thought they could walk on water’ How Tesco's profits were halved after serious setback

Today, Tesco is the UK’s largest food retailer and enjoys more than a 25 percent share of the market, with more than 6,800 stores in seven countrie

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Today, Tesco is the UK’s largest food retailer and enjoys more than a 25 percent share of the market, with more than 6,800 stores in seven countries across Asia and Europe. Founded in 1919 by Jack Cohen, the group diversified in the Nineties, which saw Tesco reposition itself from a low-cost retailer to one that appeals to many social groups by offering a range of own-label selections, from ‘Tesco Value’ items to its ‘Tesco Finest’ range. But, Channel 5’s ‘Panic in the Aisles’ series revealed how, in 2007, the company would make a decision that would lead to a “serious setback.”

Presenter Fiona Phillips said in May: “Throughout the 20th century, the company played a big role in feeding the nation, but was their success in danger of making Tesco’s managers complacent?

“Everything the company touched seemed to turn to gold.

“It had almost 32 percent of the British grocery market, it was opening stores overseas, it was expanding into new areas from gardening to clothes.

“There seemed to be a new store opening every week.”

A former Tesco director said the company expanded rapidly

A former Tesco director said the company expanded rapidly (Image: GETTY/C5)

Jack Cohen founded Tesco 100 years ago

Jack Cohen founded Tesco 100 years ago (Image: GETTY)

Former Tesco director John Longworth admitted: “They came to the conclusion that in order to succeed, all you really need to do was plant a big superstore on every roundabout of every ring road in Britain.”

Former Managing Director of Waitrose, Mark Price, detailed the chain of events from his point of view.

He said: “I think what Tesco realised in terms of buying land was that the number one reason people choose one supermarket over another is they go to the one closest to them.

“For me at Waitrose, and for Sainsbury’s and everyone else, they set the benchmark.

READ MORE: Tesco secret: Founder Jack Cohen’s unique inspiration behind company name revealed

Tesco is still the market leader

Tesco is still the market leader (Image: GETTY)

“So Tesco would say ‘we can afford to pay this amount per square foot’ and we’d have to sit back and say ‘can we make that work based on our economic model?’

“Quite often it was hard to do that, so Tesco was simply able to outbid people in a very straightforward way.”

Ms Philips then outlined how Tesco tried to “crack America”.

She said: “In the first decade of the 21st century, Tesco almost trebled the number of stores it had across Britain.

“It could often afford to pay more for land to build the stores, pricing others out of the market.

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Fresh and Easy was launched in the US

Fresh and Easy was launched in the US (Image: C5)

Mark Price commented on the decision

Mark Price commented on the decision (Image: C5)

“Tesco may have thought it could take on the world, but events were about to prove otherwise.

“For the first time since the days of Jack Cohen, the store would experience a serious setback.

“In 2007, Tesco launched a new chain of stores in the US, called ‘Fresh and Easy, complete with glossy TV ads.”

Marketing expert Mark Ritson claimed many in the industry thought Fresh and Easy was destined to fail.

He said: “If you want to look for Tesco’s Waterloo if you will, it’s almost certainly America.

Mark Ritson said the move was a bad idea

Mark Ritson said the move was a bad idea (Image: C5)

“There was tremendous scepticism from analysts, from retail experts that anyone, even the great Tesco, could crack America.

“There were constant reports coming back that the concept wasn’t quite right, the numbers weren’t in the right place.

“I can’t remember a time when anyone ever thought Fresh and Easy was going to be a success.”

In 2013, Tesco announced it was pulling out of the US and the group’s pre-tax profits had halved.

Author Judi Bevan noted: “They thought they could walk on water, but they couldn’t and it cost them a lot of money.”



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