Tesco: 1 of the biggest investors in food and retail

Come the 00s we can watch Tesco picking up shares like we do our morning coffee. In 2001, for example, a 35 per cent share of Grocery Works allowed the company to get involved in US internet grocery retailing. This was complemented by the purchase of 13 HIT hypermarkets in Poland, T&S Stores – owner of 870 convenience stores in the One Stop, Dillons and Day & Nite chains -, the C Two-Network in Japan, and a majority stake in Turkish supermarket chain Kipa. In 2004, Tesco buys Adminstore, owner of 45 Cullens, Europe, and Harts convenience stores in and around London. In late 2005, Tesco acquires the 21 remaining Safeway/BP stores after Morrisons dissolved the partnership.

More recently, Tesco’s 80 per cent stake in movie-streaming site Blinkbox comes to mind, and the very recent news this month that also family-friendly restaurant chain Giraffe will be snapped up by the retail giant, to serve its plans for turning supermarkets into ?retail destinations” with dining at their core.

When size matters

It irks us that smaller organisations, such as Giraffe and Harris + Hoole, are swallowed up by ?greedy” corporate giants. In the grocery industry, Tesco’s share of the market is so enormous that smaller shops wind it almost impossible to compete. Large retailers not just Tesco, but also Asda, Sainsbury’s and co. are constantly trying to acquire existing small-scale operations and open their own stores in local towns and city centres. Their huge buying power pushes out their smaller counterparts; on average, Tesco’s contracts with wholesalers are 11.5 per cent cheaper than for private independent retailers. Corner shop” brand Londis has even claimed that it is cheaper to purchase brands from Tesco and resell them than it is to buy them from wholesalers.

This doesn’t just have its effect on smaller retailers. The supplier side itself is constantly under pressure of losing their business to the supermarket chain, which they depend on. UK-based suppliers are vulnerable to big retailers sourcing their products abroad at a cheaper price. This gives the chains enormous bargaining power. The UK Competition Commission found that Tesco steadily paid its suppliers four per cent below the industry average on the 2,000 date.

This powerful force has had a major impact on privately owned shops and smaller retailers. It is undoubtedly a huge blockade for companies trying to enter the market. Having a multinational involved in your business, on the other hand, would open doors that might otherwise stay solidly shut, wouldn’t it” “Tesco invests to help build brands where we believe we can add value,” a spokesman defended the brand. This, say entrepreneurs, is a point the anti-corporate campaigners tend to overlook. For some, ?big” means necessarily evil?.

But it’s the consumers who feel better supporting independent enterprise than large corporations. That’s why multinationals are getting smarter at working with smaller brands without ruining their authenticity. Well-made coffee, artisan bread people love a product that feels authentic. And doesn’t a coffee shop and a bakery go well together?

Tesco’s strategy is built on three pillars: growing the core UK business; being a serious international retailer; and being versatile (as good in non-food products as they are in food). Each of these pillars is growing stronger with acquisitions and investments in smaller companies. The only question is, who’s next?

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